Britain's EU referendum: Stakes for India

The most important global event, Brexit referendum, will be held on 23 June. In the event the United Kingdom will decide whether Britain should stay with the EU or not. It is the next big event risk before equity investors across the globe, including those of India.

Brexit is important from India's point of view as besides sharing trade relations, EU is India's largest single export market. With a population of around half a billion, the European economy is worth $16 trillion, which is equivalent to one-fourth of global GDP.

Brexit referendum’s impact on India:

The outcome of the referendum is important for India for two reasons. The first concerns the welfare of a nearly three-million population of Indian-origin U.K. citizens, whereas the second concerns the interests of a large moving population of Indians who come to Britain every year as tourists, professionals, business people, spouses, students, etc.

Will Brexit change the rules of doing business, or of access to higher education? Moreover, will it create new barriers for work visas or the visitation rights of relatives who have families here? 

Experts’ take on referendum:

Some studies estimated that a Brexit would reduce British imports by 25 per cent worldwide within two years. No risk analysis can exactly estimate the precise consequences should the British decide to part ways with the EU. But the impact will surely be deeper across financial markets, be it equities, currencies or bonds.

• India Infoline Finance Ltd (IIFL), in its report said, the country's GDP could well decline by 3.6 per cent after two years, inflation (CPI) can be higher by 2.3 per cent than the current levels, unemployment rate can increase by 160 basis points, average real wages can contract by 2.8 per cent, house prices can deflate by 10 per cent and pound can tumble by 12 per cent.

• In the short run, it could trigger flight of capital from Britain, which could strengthen the dollar in the short term. A strong dollar would push the rupee towards 70 level, experts said. 

• The British exit will impact exports to Europe, which will get affected also due to a devaluation of the euro and the pound.

• Companies like Tata Motors, Tata Steel, Hindalco and a host of Indian pharma companies will also get impacted due to major currency fluctuations. 

• Britain's exit from the European Union will have a negative impact on the USD 108-billion Indian IT sector in the short term, industry body Nasscom said. However, it said the exact nature and extent of the impact - if ‘Brexit’ happens - will emerge over a longer period of two years or more. 

• "An initial analysis indicates that the impact on India's technology sector may be mixed; clearly negative in the short term and harder to discern in the longer term with either scenario having some positive or some negative points," Nasscom said. 

According to a report by the State Bank of India's Economic Research Department, Brexit may actually strengthen India's position. “This referendum will have geopolitical implications and will affect the relation of the rest of the world with Europe. But, our take is that though such an exit brings up a lot of uncertainty within Europe, it definitely opens up opportunities for India,” the SBI report says.