Brexit aftermath: Exports likely to feel heat in short term

Long-term trends to be guided by Britain's economic relations with EU

India’s merchandise exports to Britain are set to be affected in the short term, following the nation’s exit from the European Union (EU).

The government would keep an eye on the British currency, the pound sterling, set to affect trade in the short term, Commerce Minister Nirmala Sitharaman said on Friday.

The pound plunged to a 30-year low against the dollar on Friday, down 12 per cent. As the pound devalues, imports by Britain are set to become more expensive. If the nation is unable to transfer that extra cost to consumers, its imports will fall.

India’s exports to Britain stood at $8.8 billion in 2015-16 while merchandise goods worth $5.1 billion were imported from the country. This translates into a comfortable trade surplus of $3.7 billion. This might change as currency volatility hits the British currency.

Indian apparel export will be heavily hurt, an estimated $1.8 billion in the past financial year. These represented India’s largest exports by value.

For apparel, Britain is India’s largest market in the EU, accounting for around 30 per cent of all exports.

“Its exit would significantly dilute the relevance of the proposed free trade agreement (FTA) for us. Also, volatility will hit the industry hard at a time we are trying to revive from a five-month decline in exports since January,” said Ashok G Rajani, chairman of  the Apparel Export Promotion Council.

Apart from increasing imports from Britain and the EU, British products are also set to compete more with Indian ones in common markets due to its falling value, if their currency remains weaker on a medium-term basis.

In the long term, India’s exports would be affected, experts said. Much of that would depend on what negotiation Britain works out with the EU within the two-year window available to replace the terms of the EU membership.

“If Britain gets the same treatment in terms of free tariff and free movement of persons, not much will change for India,” said S C Ralhan, president of the Federation of Indian Export Organisations. However, if Britain gets treated as a non-member country, it might lead to a positive impact on India’s exports to the EU as well as to Britain, he added.

India’s engagement with the EU, especially on current negotiations involving the proposed India-EU free-trade agreement, will also be under review. The Broad-based Trade and Investment Agreement (BTIA) will be revisited now on a different template, considering the absence of Britain, India’s third-largest trade partner in the EU.

“My interest will get changed because the number of tariff lines (products) will change (now). I will calibrate and the EU will also calibrate. Now they would reassess and we will also be going to reassess,” Commerce Secretary Rita Teaotia said.