Brexit: Impact on Indian businesses

Brexit will hurt growth in the UK, as well as in the European Union. The UK is a big market for goods and services from the EU area. A new report by consulting firm Deloitte analyses the likely impact of slowing growth and a weaker pound on Indian businesses. It also looks at four possible scenarios and what these mean for Indian companies. Key findings:

MACRO VIEW

• Lower growth and a weaker currency are likely to impact businesses in India. Short-term impact adverse on several Indian businesses across sectors
   
• For companies with manufacturing in the UK, access to a single market is important, as their products can get uncompetitive if they had to pay import duties
   
• If the UK becomes a member of the European Economic Area (EEA), like Norway, it could be advantageous for India in terms of trade
   
• The British government can also cut tariffs and boost trade. If the UK and India finalise a free trade agreement, it will boost trade
   
• But India would not be able to use the UK as a gateway to the European Union as easily as before, and trade between India and the EU through the UK could be hampered

SECTORAL IMPACT

Automobiles
The UK and the EU account for 4% and 16% of India's automobiles exports. For companies manufacturing in the UK, access to the single market is important; products will get uncompetitive if they have to pay duties. In the near term, products become cheaper but profits will fetch lower amounts

Travel & tourism
The travel and tourism sector will be affected by the Brexit developments, as it is directly affected by currency fluctuations. Travel to the UK could get a boost, as the British economy gains competitiveness via a weaker currency. But, it also means fewer British tourists in India and lower spending

Garment exports
Garment exports accounted for a fifth of India's exports to the UK. Indian garment exporters have already witnessed a 5% drop in demand last year, and could see lower sales due to a slowdown in growth

Pharmaceutical
India's pharmaceutical sector has significant exposure to the UK and the EU, with exports of $0.46 billion to the UK and $1.51 billion to the EU. A drop in demand in the UK and the EU will impact profits and sales

Precious stones
Trade in precious metals and stones between the UK and India amounted to about $2 billion in FY16. A weaker pound will make imports cheaper

BREXIT: LIKELY SCENARIOS
There are four possible scenarios or terms on which the UK could engage with the EU; each of these will differently impact Indian businesses

Scenario 1: EEA, formed in 1994, serves as a bloc that gives non-members of the EU access to the single market
Implications for India: Indian businesses are expected to remain largely unaffected

Scenario 2: Does not come under EU but has a sequence of bilateral treaties governing their relationship
Implications for India: Access to single market remains but with some restrictions

Scenario 3: The UK's relations with EU and rest of the world to be governed by WTO rules
Implications for India: India-EU trade through the UK could be hampered

Scenario 4: Similar to what Canada is negotiating with the UK - preferential access, with elimination of most trade tariffs
Implications for India: India could still be able to use it as a gateway to the EU and India would be able to negotiate a separate trade deal with the UK

Source: Deloitte report titled BREXIT - Trigger for larger things to come?