V
vkurup
Guest
I was in India for a few weeks and got to speak to a few friends who have business interest with the UK. So my 2 bits from the other side on how Indian biz is looking at Brexit. It is based on unscientific and negligible sample size (and influenced by loads of dram)
Disclaimer: My views are purely based on observations and discussions with friends & family based in India who do business with the UK (and the world). I am sure there is a equal and opposite political & rational view that can provide a rebuttal to every point above. Also, this might not have the same gravitas as Obama's version, but it was interesting to hear this from the perspective of the emerging markets.
1) Currency - Over the past few weeks, the GBP v INR has been unstable. Intra-day fluctuations have been a bit manic as we get into less than 90 days into the referendum. Indian exporters incl the IT industry are very conscious of the exchange rate as this has a big impact on bottomlines. So GBP currency hedge premiums are going mental. No one knows what the value of the GBP would be in case of an exit. The only view is that it is likely to drop about 10% in the short term, but could go as low as 50% over a longer term. Nothing scientific, but plenty to speculate
2) Role of UK: Given the common language and the history, UK is seen as a safe haven and a spring board into EU. The UK legal system (on which the Indian legal system is based) is well understood and a lot of Indian business work with the EU under English & Welsh laws. No one knows what will happen to this. Equally the UK financial system is a bedrock of the global financial quagmire. While it is unlikely that London will disappear as a financial hub in the next 10 years, no one can predict the impact of the exit on financial industry. Down south, the financial industry is akin to the drug industry - but this drug supports a wider economy and keeps taxes in check and pays for NHS, Defence etc. So a longer term demise of the financial industry will have a domino effect on the remaining sectors. There will be a run on the property market in London as people will cash out on some of their investments.
3) Free trade agreements: No one really buys into the political spin that the UK will renegotiate all their trade agreements and therefore business will look outside the UK to manage this. Given that the size of the Indian economy and its growth far exceeds the UK, they think they can negotiate a better trade agreement than a smaller UK. There will be a number of Industry bodies from France, Germany etc that will start queuing up to sign up and provide the next 'springboard'. Switzerland with existing connection may be better placed to replace the UK as that springboard despite being outside the 'core EU'
4) Relevance of the UK: Currently the UK punches far above its weight on the world scene. There are many historical, strategic, military, financial reasons for that. One of those pillars is the UK role in EU which amplifies its size many times over. Without this amplifying effect it reduces that significance in the modern world. If the UK opts out, it is highly likely that the Salmon, Sturgeon & Co will force Scotland out of the UK thereby making it even smaller a la Iceland - and who remembers Iceland after their world dominating banks disappeared?
The reality is that no one really knows what the impact of the exit would be. The consensus was that with a weaker pound and a common language, the rUK will be good for tourism and education. But beyond that, the business prospects within rUK will be much smaller and less profitable. The strength of the currency is speculative, but likely to go down over a period of time. Everyone is hoping that Joe public will ignore the political rhetoric and vote to stay in. If UK votes to stay in, there will be some firecrackers being set off in celebration - just as some folks did when Scotland decided to stay. India does have a vested interest in wanting the UK to stay inside the EU as it sees UK as a much stronger business proposition than a smaller rUK.
Disclaimer: My views are purely based on observations and discussions with friends & family based in India who do business with the UK (and the world). I am sure there is a equal and opposite political & rational view that can provide a rebuttal to every point above. Also, this might not have the same gravitas as Obama's version, but it was interesting to hear this from the perspective of the emerging markets.
1) Currency - Over the past few weeks, the GBP v INR has been unstable. Intra-day fluctuations have been a bit manic as we get into less than 90 days into the referendum. Indian exporters incl the IT industry are very conscious of the exchange rate as this has a big impact on bottomlines. So GBP currency hedge premiums are going mental. No one knows what the value of the GBP would be in case of an exit. The only view is that it is likely to drop about 10% in the short term, but could go as low as 50% over a longer term. Nothing scientific, but plenty to speculate
2) Role of UK: Given the common language and the history, UK is seen as a safe haven and a spring board into EU. The UK legal system (on which the Indian legal system is based) is well understood and a lot of Indian business work with the EU under English & Welsh laws. No one knows what will happen to this. Equally the UK financial system is a bedrock of the global financial quagmire. While it is unlikely that London will disappear as a financial hub in the next 10 years, no one can predict the impact of the exit on financial industry. Down south, the financial industry is akin to the drug industry - but this drug supports a wider economy and keeps taxes in check and pays for NHS, Defence etc. So a longer term demise of the financial industry will have a domino effect on the remaining sectors. There will be a run on the property market in London as people will cash out on some of their investments.
3) Free trade agreements: No one really buys into the political spin that the UK will renegotiate all their trade agreements and therefore business will look outside the UK to manage this. Given that the size of the Indian economy and its growth far exceeds the UK, they think they can negotiate a better trade agreement than a smaller UK. There will be a number of Industry bodies from France, Germany etc that will start queuing up to sign up and provide the next 'springboard'. Switzerland with existing connection may be better placed to replace the UK as that springboard despite being outside the 'core EU'
4) Relevance of the UK: Currently the UK punches far above its weight on the world scene. There are many historical, strategic, military, financial reasons for that. One of those pillars is the UK role in EU which amplifies its size many times over. Without this amplifying effect it reduces that significance in the modern world. If the UK opts out, it is highly likely that the Salmon, Sturgeon & Co will force Scotland out of the UK thereby making it even smaller a la Iceland - and who remembers Iceland after their world dominating banks disappeared?
The reality is that no one really knows what the impact of the exit would be. The consensus was that with a weaker pound and a common language, the rUK will be good for tourism and education. But beyond that, the business prospects within rUK will be much smaller and less profitable. The strength of the currency is speculative, but likely to go down over a period of time. Everyone is hoping that Joe public will ignore the political rhetoric and vote to stay in. If UK votes to stay in, there will be some firecrackers being set off in celebration - just as some folks did when Scotland decided to stay. India does have a vested interest in wanting the UK to stay inside the EU as it sees UK as a much stronger business proposition than a smaller rUK.
