The Brexit referendum on June 23, 2016 was an unprecedented global development.

The United
Kingdom (UK) voting for the Leave from the European Union (EU) is expected to have considerable
socio economic and political ramifications in the years ahead. The decision assumes greater
significance in context of the changing global order which is moving towards greater multilateralism
and where countries are striving to lower their boundaries.
According to preliminary estimates by Standard & Poor, Brexit is expected to shave off 100 bps from
UKs growth and about 50 bps from EUs growth in 2017. Also, investment flows to the UK are likely
to be affected over the near term as the decision is expected to cause scepticism among investors.
Further, elections in France and Germany are due next year and the October constitutional referendum
in Italy adds to existing uncertainty in the region. It is being anticipated that the real negotiations
between the UK and EU might start by next year when there is greater clarity on the political front in
the region.
While the impact of this historic move will take some time to unfold, I have chosen India as nonEuropean Country that trades with Britain. UK has been a valued economic partner for India and the
decision to leave the European Union has created some amount of ambiguity for the Indian businesses.
Indian does not intend to set up separate operations in any other EU country because of Brexit, they
seemed concerned about the impact on intra company transfers/movement of professionals and Indian
migration over the medium term. Also, the participants indicated that they expect investments to the
UK to take a beating over the course of next three to five years.
Furthermore, it is anticipated that the companies that have operations in the UK and the EU will have
to face significant translation losses with the probability of volatility in currencies remaining high. The
exposure on account of un-hedged borrowing abroad will also impact the company balance sheets.
Also, post Brexit some concerns have been raised by companies about facing investigation from
competition authorities both in the UK and the EU. Until now, a majority of the competition law in the
UK was derived from the EU. The companies have also pointed out that in event of a
merger/acquisition, a notification may have to be made both at the UK and EU level leading to an
increase in compliance costs. Indian parties in cross-border contracts commonly include English
jurisdiction and governing law clauses. Post-Brexit, there may be uncertainty over the recognition of
English judgments in EU countries. In an extreme case, the impact might also lead the parties to invoke
force majeure and material adverse change clauses, leading to a surge in litigation.
There will be greater clarity on these technicalities and legalities once the details of the negotiations are
spelled out. However, companies are anticipating an increase in compliance and administrative costs
going ahead. At present, most of the companies have their corporate offices in the UK and are able to
operate in other countries of the Union through their UK office only.
Nonetheless, the companies do have a cushion period to work out the mitigation strategies as the deal
between EU and UK will take some time to materialize.
Impact on Indias Economy
While UK has put across its decision to exit from the EU, the actual process of leaving the European
Union will be long drawn. The announcement has spelled out more uncertainty for now which is
expected to continue with the invoking of the Article 50 and as and when the real negotiations take
place. This would at least take a couple of years to shape up. Therefore, the actual ramifications will

become clearer in the long run when a tangible working model of the UK-EU relationship is drawn out
and established.
Given that, the announcement of the Brexit referendum drew an immediate reaction from the stock
markets and currencies world over. India was no exception from this contagion effect. The Sensex
tanked by 450 points (from the opening value) on June 24, 2016 falling below the 26000 mark and the
Rupee value crossed 68 for a US Dollar. Nonetheless, both the stock market and the Rupee were quick
to recover and find a stable ground. Both the Government and Reserve Bank of India have been on a
tight vigil.
India is positioned fairly well at present vis--vis its peers. The macro-economic fundamentals have
improved and the strong orientation displayed towards reforms over the past two years has given us an
edge. The persisting ambiguity in the global economic environment reaffirms the need to remain
focused on further strengthening the domestic economy and continuing the reform process.
Gross Domestic Product
Most of the estimates indicate India holding on to its growth path even in the post Brexit scenario. This
will be backed by a host of favourable conditions on the domestic front. The performance of the
agriculture sector is expected to improve in the current fiscal year. The prediction for monsoons is
favourable this year and rains are expected to pick up over the next two months (July-August 2016).
Further, the Government has awarded the Seventh Pay Commission Award and this will give impetus to
the domestic demand. The consumer durables goods segment, the auto-sector especially the passenger
two wheeler segment and housing & allied sectors are likely to benefit from this Pay Commission
decision.
Exports
Indias exports to the UK have been around 3% of our total exports and exports to the European Union
are around 17% of total exports. Our exports to both UK and Europe have been on a downtrend in the
past two years on account of subdued demand led by a frail and scattered recovery in the region. Post
Brexit there is a heightened chance of this trend being amplified over the near term given the
possibility of disturbances in currencies and UK facing a further slowdown in growth. However, some
safeguards are expected to be put in place to deal with the volatility in currency in the UK. Also
measures to boost growth might be rolled out. The situation is expected to even out over the medium
term.
Also, much would depend on the currency movement (extent of appreciation vis--vis Pound) for
countries that are competing with India to export to UK.
Foreign Direct Investments (FDI)
UKs decision to leave EU is expected to impact the confidence level of the business and the investor
community and there might be a temporary arrest in outbound investments from India to the UK until
more clarity is obtained on the working framework between the EU and UK.
However, the Government has considerably liberalised the FDI regime in the country and there has
been an increase in FDI inflows over the last two years. This trend is expected to continue. With the
slew of measures announced in June 2016, India has opened up almost all sectors for foreign investors
barring a very small negative list. India has once again strengthened its position on the investment radar
and the growth prospects in the country remain strong. India is expected to get continued attention from
the investors including investments from the UK. UK is third largest investor in India and accounts for

about 8.0% of the total FDI inflows in the country. In fact, several British companies have exhibited
interests in India post launch of the Make in India campaign.

Rupee can remain precarious

The Rupee can witness some volatility in the coming weeks as there is still anxiety in the global
markets. However, RBI has been quick to intervene to manage liquidity through open market
operations and use the foreign exchange reserves to tackle currency volatility and capital outflows in
case of any skewed movements. Respondents expect this to continue.
Inflation to remain range bound
Oil and commodity prices have been subdued and there is no intermittent risks at present that will make
the prices shoot. Global growth remains muted and an upward pressure on that account is suppressed
for now. On the domestic front, good monsoons have been as predicted. Prices of food articles are
likely to remain manageable.
Some Sectors likely to face the heat
India businesses have presence in a wide array of sectors in the UK which include automobiles, auto
components, pharmaceuticals, gems and jewellery, education and IT enabled services. Most of these
sectors will be vulnerable to changes in demand and currency values.
Auto components
India is a major supplier of auto components to the EU region. The region accounts for about 36% of
Indias total auto component exports, while the share of UK is about 5%. The UK Passenger Vehicle
market is highly export oriented and the segment has close linkages with the EU automotive market.
The anticipated slowdown in the UK and the EU region will have a dampening effect on the sector.
Also, the depreciating Pound will impact the revenue stream companies of over the near term. The real
impact will also depend on imposition of any trade restrictions between the EU and UK, which will
become clearer over the medium term.
Information Technology
India is one of the largest exporters of IT-enabled services and the sector has significant exposure to the
European market especially the UK. UK accounts for about 17% of Indias total IT exports. Indias IT
exports to other European countries is at about 11%. The IT companies thus are expected to face the
heat in light of the Brexit. Given the risk of further moderation in growth in the UK and EU, there is an
increased probability that the companies lower their IT budgets (a discretionary spend). This would
have an impact on the domestic software companies.
Further, the depreciation of Pound does not augur well for the sector and can negatively impact the
growth in the sector. Majority of the costs by the IT companies are incurred in INR owing to the offshoring model deployed by the Indian IT services player. So a sustained depreciation of Pound might
call for a renegotiation of the contract, as the profitability of these contracts might fall below the
expected levels.
Uncertainty on account of pricing of contracts spanning European Union which currently enjoys zero
tariffs cannot be ruled out. Skilled labour mobility issues can arise as the mutli-location contracts will
get deferred on account of lack of clarity at present. Further, the overhead expenses are likely to
increase if restrictions are imposed on the mobility of professionals between UK and EU as the
companies might have to open an additional office in the EU. Besides, the Indian IT sector has had
some issues with the EU data security policies, including rules on transferring personal data. So, on the

positive side the UK could look at abandoning the stringent stance on data management post Brexit.
Also, UK would be under no obligation to adhere to restrictive localization norms adopted by EU.

Metals
With the global recovery remaining frail and an evident moderation in China, the steel and aluminium
sectors are already facing the issue of overcapacity. Demand in the EU has been subdued and this latest
development is expected to further dampen demand. This might lead to a greater weakening of metal
prices giving rise to earning pressures for companies.
Pharmaceutical
United States is Indias biggest market for Pharmaceutical exports, while EU accounts for 10-13% of
Indias total pharma exports. The share of UK in Indias pharma exports is about 3-4%. The pharma
companies do not really expect a big hit following the Brexit and have indicated a limited impact of
Pound depreciation. The pharma companies reported having hedged their exposure to the Euro. Further,
the companies pointed out that the rules, regulations and product registrations are already different for
UK and EU and hence any adverse impact on the sector can be ruled out.
Garment
Readymade garment is one of the key export items to the UK from India. Readymade garments account
for about 20.0% of the Indias total exports to the UK. The sector is expected to feel the pinch on
account of moderation in demand; the spend on readymade garments is primarily discretionary. Also,
the drop in the Pound is expected to impact the un-hedged export contracts with British counterparts.
Nonetheless, some of the garment exporters have also opined that they might be insulated if a Free
Trade Agreement is negotiated with the UK post Brexit.
Financial Services
There are currently bond issuances planned of range USD100-150m in USD and INR. Brexit is making
it very hard for UK and other markets (like Singapore, Paris and Frankfurt as green bond investors are
mainly EU) are being looked. UKs credit rating has been cut, and given most buyers of the bonds are
from the EU there is nervousness around these bond issuances. This is important for India as it would
be difficult to imagine financing Indias huge infrastructure appetite through debt finance in London as
aggressively as currently planned. Again, this would depend on what Brexit scenario that plays out. But
in the meantime, greater uncertainty will impact the bond pricing.

Impact on Education Sector

Britain's exit from the EU is expected to open up significant business and economic opportunities for
the Indian Education Sector. Education in UK will likely become more affordable and we might see
UK wooing candidates with more incentives. For Indian students studying in the UK, Brexit might
result in a more level playing field compared with other EU students who hitherto had an informal edge
over the rest of the world in the job market.
India being one of the largest skilled labor markets, with a population well versed in the English
Language could have a distinct advantage.
Impact on Outbound Education seekers

Pre-Admissions FAVOURABLE
Possibly better admit rates for Indian students, as number of EU applications may fall.
Possible decrease in international student fee as low fee for EU candidates could go, which is cross
subsidised by higher international student fee. This could also lead to more scholarships for Indian
students.
Depreciation of Pound may lead to lower total cost of education for Indian students in the short term.
EU students have been contributing to UK economy as they tend to stay back after finishing education.
This will create more job opportunities for non-EU students in UK.
Post Completion NEUTRAL
Possible points based system may be more favourable for Indian students completing education in UK
leading to arrest in decrease in Indian student recruitments in UK (with Visa rules similar to
Canada/Australia).
Higher levels of intolerance towards immigration of foreign nationals (as observed during Brexit
Debates and subsequent to the result) may however negate the attractiveness for Indian students.
Impact on Indian Higher Education institutes and Inbound Education
Research and Innovation- FAVOURABLE
23% of the ERC (European Research Council) funding goes to UK Universities. With Brexit ,UK
Universities need to look for alternate corporate/multilateral donor sources of research funding.
At the same time with reduced research grants at UK Universities possibility of joint
research/collaborations with Indian Universities may rise so as to lower total cost of research.
Under Horizon 2020, most universities and research institutes in UK had been receiving multi-year
research grants. They may not qualify for the same now. This may open up research funding from UK
for stronger partnerships with other non-European countries.
Collaboration and Exchanges FAVOURABLE
UK had strong collaborations in science related fields with EU institutions. With these collaborations
considered non-local now and needing Visa and regulatory compliances top Indian research
institutions (which are mostly in the areas of science and technology) stand to gain.
Programs like UKIERI may expand as UK students have lower mobility across EU and they look for
other locations for internships and exchanges.
Loss of Erasmus program may lead to UK universities look for exchange opportunities elsewhere
which would be favourable for Indian institutions.
As a substantial chunk of EU international students were at under graduate levels, tier-2 UK
universities may have to look at joint degrees and credit transfers to get more students to bolster non
EU enrolments at under graduate levels. This again may be favourable for Indian institutions in the
current regulatory environment. In case the entry for Foreign education providers is permitted, this may
also lead to more satellite campuses of UK universities to gain from lower costs in India.

British universities may also be released from curriculum alignment requirements of EU, and hence
more open to innovations in partnership with other countries.

Effect on international student enrolment in India NEUTRAL/FAVOURABLE

Good Indian institutions could offer themselves as a potential low cost yet top quality institution for
students from Eastern Europe (These students have access to GBP 9000 annual fee and preferential
student loan in UK as home students). While this may require very concerted marketing and branding
effort for Brand Indian Education, this does open a small window of opportunity for Indian
institutions. This is further substantiated by the Hobsons survey in May 2016 which indicated that 82%
EU students would not prefer UK universities if they did not get Home fee and loan terms.
At the moment, there are no foreseen direct/indirect implications on the Indian school education sector.
Final thoughts and further research
While uncertainty looms large on the future of Brexit, it is important to remember that if a Brexit light
option is negotiated, it would necessarily entail accepting free labour movement from the EU. In such a
scenario, it remains to be seen whether there will be a significant difference in immigration from what
is now considered business as usual.
In the scenario that the UK does actually negotiate an FTA without labour movement weaved in as one
of its essential pillars, the stocks of EU immigrants in the UK or Britons in the EU are unlikely to
reduce significantly as, under a principle enshrined by the Vienna Convention on the Law of Treaties
1969, withdrawal from a treaty releases the parties from any future obligations to each other but does
not affect any rights or obligations acquired under it before withdrawal [Migration Watch, UK].
Therefore, any implications on immigration in such a scenario would have to bear this in mind.