Britain’s decision to leave the European Union has baffled Indians, but LK Sharma reports that ties are too strong to be severed by the referendum result.


Ironically, India felt uneasy when Britain was about to join the European Economic Community in 1973. Now, 43 years later, it feels uneasy at the prospect of Britain leaving the European Union.

It is not so much New Delhi, but Indian business and industry that are stricken with anxiety, because they have acquired stakes in Britain, their ‘Gateway to Europe’. Indian companies in Britain currently enjoy free access to the affluent European market. Like businesses anywhere, they dislike the uncertainty caused by Brexit, which makes them risk-averse and hits their expansion plans.

The popular vote to leave the European Union was an earth-shaking event, but its impact on India’s stock market, or on the value of the rupee, did not last for more than a couple of days. India’s Finance Minister and Reserve Bank Governor were quick to calm the nerves of the markets and business leaders. Like the rest of the world, India took Brexit in its stride and moved on. Some commentators who foresee no economic disaster for Britain also say that a jolt to global economic growth, resulting in the fall of commodity prices and the value of the pound, may even benefit an emerging economic power such as India.

Brexit will have a negative influence on other regional groupings, however. The example of the EU in bringing together the once-warring nations of Europe can no longer be cited by the advocates of South Asian regional co-operation. But over the years India’s own commitment to multilateralism has weakened, and it prefers to do bilateral deals. India enjoys a strong relationship with two major EU nations, France and Germany, which have been more sensitive to India’s needs for technological co-operation, for example.

Indian diplomatic and political circles are astounded that Prime Minister David Cameron should have allowed Brexit to happen, but New Delhi takes a nuanced view of Britain’s decision to leave the European Union. In an anodyne response to a parliamentary question, the government said it was difficult to immediately assess the impact of Brexit on India and the Indian community in Britain, because the relationship between Britain and the EU was yet to evolve.

The Indian minister VK Singh did not explain that Britain’s divorce from the EU is going to be subject to prolonged negotiations, making it vulnerable to economic, political and geo-strategic developments that may take place during the next two years, and beyond. He did refer to media reports of a rise in the number of UK ‘racist incidents and hate crimes’ in the week following the referendum on Brexit. While some in the British Indian community fear the rise of bigotry and nativism, others believe that curbs on European immigration may be followed by a more liberal policy towards immigrants from Commonwealth countries such as India. Britain, according to this view, will have to get skilled workers from somewhere, and India could benefit.

India’s business leaders will find it harder to adjust, however. Trade and industry associations had issued anti-Brexit statements before the referendum, pointing out that Indian investment in Britain had risen to the point that the country is the third-largest source of foreign direct investment in Britain, with some 800 Indian companies employing more than 100,000 people in Britain. They feel comfortable operating in Europe via Britain, thanks to historical ties and common features related to language, culture, legal processes and business practices.

Indian companies saw Britain as a friend in dealing with the Brussels bureaucracy. Now they fear new difficulties in meeting the EU’s regulations and product specifications, and an increase in their transaction costs, with the extra expense of setting up offices outside Britain. It remains to be seen whether some Indian companies try to use another country as a new gateway to Europe – Ireland may attract attention in this regard.

However, if Britain is in the grip of uncertainty, so is Europe. And while trade between India and Britain has been stable, trade between India and the EU as a whole has declined. After the referendum result was announced, India’s Commerce and Industry Minister, Nirmala Sitharaman, said her country and Britain were exploring the possibility of a free trade agreement. The UK’s then Business Secretary, Sajid Javid, lost no time in visiting India. His call, ‘Let’s get things going’, reflected an urgency not shown in the negotiations for an India-EU trade pact, which have dragged on since 2007.

Dealing with an entity of 28 nations – soon to be 27 – is a more complex exercise than just two countries signing an agreement. India and Britain are keen to have a mutually beneficial trade agreement, and once out of the EU, the British will be free to strike such bilateral deals.

While Britain outside Europe will woo India as a major source of capital, Indian companies are sure to be attracted by a more deregulated market in Britain, as well as the financial incentives that the UK Government may offer. For its part, Europe without Britain will not underestimate India’s growth rate or the size of its market, and will continue to court this rising economic power.

India’s ties with Britain fall into a special category. At times the relationship has come under strain, because of the Pakistan factor, or because of the British Government’s earlier approach to terrorism directed against India, but the compulsions of a strong economic relationship keep ironing out such differences. And as a former diplomat said, Brexit is not going to disrupt Indo-British relations, underpinned as they are by common historical, political, sociological and cultural factors.

L K Sharma, a journalist for more than four decades, was European Correspondent of The Times of India, based in London, and reported from Washington as Foreign Editor of the Deccan Herald. He edited three volumes on innovations in India, and has completed a work on VS Naipaul

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