By DK Aggarwal
The International Monetary Fund (IMF) recently downgraded growth projection for the world economy on trade war fears and as Brexit uncertainty weighed in on Europe. It has downgraded global growth by 0.2 per cent for this year. Now, the global economy is set to expand 3.7 per cent in 2018.
Undoubtedly, the ongoing Brexit negotiations created a sense of pervasive uncertainty about future trade costs. There are also fears that the UK might end up without a final deal in hand. The concern that increase in trade barriers would upset global supply chains and slow the spread of new technologies, eventually lowering global productivity and welfare. So, it is high time for the UK to reach the deal, because a no-deal outcome is sure to hit the British economys capacity to produce goods and services and to arrest a fall in its currency. Even IMF has suggested the UK and Europe to set up permanent bodies that would work together to make sure regulation is harmonised.
Now, the question persists over how Brexit would impact the global economy, including the worlds emerging markets. What does Brexit mean for India?
India being one of the most lucrative markets for foreign investors, any major change across the globe – be it political or economic – is bound to have an impact on our economy. India enjoys close economic, trade, political and cultural ties with the United Kingdom?
To note the Britain accounts for 18 per cent of the European Unions GDP and both the EU and the UK are crucial to the Indian growth story. A good chunk of Indias foreign exchange reserves comes from export earnings and other inflows from the European Union and the UK.
According to the UK's Department for International Trade (DIT) figures, total trade in goods and services between the UK and India was 18 billion pounds in 2017, a 15 per cent increase from 2016.
The remarkable transformation of Indian companies has altered the business equation globally. Indian companies have been making their charisma felt through greenfield investments and landmark acquisitions. Today, Indian companies invest more in the UK than in the rest of the EU countries combined.
Some of the giant India companies such as Tata Motors (Jaguar Land Rover), Tata Steel, Tata Consultancy Services, Hindalco, Motherson Sumi, Bharat Forge, Bharti Airtel, Tech Mahindra, Siemens Pharma, BASF and Aurobindo Pharma will have to redesign their strategies, if Britain exits the European Union.
Businesses of these companies will depend much on how the UK rebuilds its trade ties with the EU and other countries. The biggest pan-European employer is Tata Group. If the UK fails to formulate complementarities, the employee base can shrink; in UK alone, the group continues to be the largest industrial employer.
A Brexit will lead to a time of insecurity among Indian investors. The uncertainties and lingering doubts over possible trade barriers will continue to loom over Indian companies in the UK till full Brexit negotiations come to light. On the flip side, India enjoys strong trade ties with Britain and this could play out favourably in the years following Brexit.
The UK and the EU are losing trading partners in the process. So they will both be looking for replacements. Here, India can play a crucial role. We may see enhanced cooperation in segments like technology, cyber security, defence production and finance. Moreover, Indian may get more attention with regard to investments made by the UK to take part in the Indian growth story.
(DK Aggarwal is Chairman & Managing Director of SMC Investments & Advisors)
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