The immediate effect of Brexit is likely to be negative as individuals, markets and businesses come to terms with the results. Until the new British leader kicks the withdrawal from the European Union into action later this year, an increase in risk aversion is likely to result in currency volatility and a flight of foreign capital to safe havens and assets. Investors may adopt a wait and watch approach until the dust settles and a clear path ahead emerges. This is likely to disrupt the weak global economic recovery that was underway and influence Indian exports, especially of textiles, clothing, machinery, auto ancillaries, and pharmaceuticals.
In the medium term, India Inc. may revisit its European business plans and overhaul or calibrate them, as the case may require. The lack of a precedent makes it difficult to predict the ultimate outcome. That said it is not without opportunities. Indian manufacturers and service providers may have to adjust to lower demand in the UK, increased costs of operations including compliance requirements of two separate regulatory frameworks, and restrictions on mobility of employees across EU countries. Indian investors with factories in the UK and the country acting as a gateway to Europe may rearrange their investment plans, resulting in a lower flow of foreign direct investments to the UK – India is the third biggest source of FDI for UK – and higher to the EU.
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At a global level, increased political risks emanating from the fragmented UK, other EU exits, protectionist measures, and a weakened European economy will result in ‘lost years’. However, the impact of the UK leaving will not be felt in the same way and to the same degree by various sectors and countries. Moreover, this creates future growth opportunities. For India, a nimble UK may be in a better position to provide more tax concessions, financial incentives, and preferential treatments thereby giving a new thrust to Indian-UK trade ties.
Withdrawal of subsidised rates for EU citizens in UK universities will open up funds to provide scholarships to students from other countries. Equally, it may lead the UK government to ease immigration rules for non-EU students. These welcoming conditions coupled with lower costs of higher education is likely to entice more Indian students to the UK and reverse the trend of falling admissions.
The Innovation and Knowledge Center (IKC), which is the fundamental research hub of Frost & Sullivan’s consulting and strategy consulting business in the Middle East, North Africa, and South Asia, undertook this impact study. It consolidates all forms of research including technical, application-related, economic, financial, and market under a single umbrella. In addition to creating comparative studies for states such as the attractiveness index, the economic research arm of IKC has a portfolio of products, which can help a market player understand the impact of various macroeconomic forces and make the best of them in a business environment. Some of these enablers are country profiles, multi-country comparative studies, PESTLE analysis, and impact analysis of global economic and political developments, investment trackers, and economic pulse monitors.
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