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Britain’s exit from European Union: Impact on India’s Energy sector

Britain’s exit from European Union: Impact on India’s Energy sector

European Union is a dynamic politico-economic group of 28 countries that are located in Europe. The EU operates a single market which allows free movement of capital, goods, services and people between member states. As per International Monetary Fund, EU generates a nominal GDP of around 14.3 trillion Euros (Approx. 10,800 trillion INR), making EU as the largest economy of the world.

Trade with India

EU is India’s one of the biggest trade partner. In 1973, the EU and India signed a Commercial Cooperation Agreement for marketing support to several sectors in India with export potential. Since then, many agreements are signed and many forums are established such as Commercial and Economic Cooperation Agreement, Joint Business Forum to promote investment and trade etc. In 2011, the European Investment Bank provided a loan of 200 Million Euros to finance projects in renewable energy sector. Furthermore, in 2012 at the EU-India summit a joint declaration on Energy was established for the cooperation on nuclear safety, smart grids, clean coal technologies, biofuels and renewable energy. Total trade of the EU with India reached to 77,626 Million Euros in 2015, with exports and imports contributing to 38,179 Million Euros and 39,446 Million Euros respectively. In Energy sector, Crude materials and inedible were imported by India valuing 1,935 Million Euros. Rest of the trade is contributed by industrial products, machinery, textiles, chemicals etc.

Year

EU Imports from India (In Million Euros)

EU Exports to India(In Million Euros)

2010

33,464

34,891

2011

39,927

40,582

2012

37,528

38,593

2013

36,843

35,959

2014

37,147

35,625

2015

39,446

38,179

Britain’s Exit from EU:

Britain’s Exit from the EU, Brexit is a political goal that has been followed by various individuals, political parties and advocacy groups. The UK electorate addressed the question on 23 June 2016; the referendum was arranged by Britain’s parliament wherein the people of Britain voted for a British exit or Brexit. The news of Brexit sent shockwaves through the global economy whereas Eurosceptics have celebrated the outcome. As, Britain had an access of single market before Brexit, Europhiles are concerned that foreign companies would be less likely to invest. However, some policy makers suggest that Brexit is good news for exporters who have struggled with the high value of pound before and Britain will no longer have to contribute billions of pounds a year towards the EU’s budget. However, it would take a minimum of two years for the U.K. to leave the EU. During that time Britain would continue to abide by EU treaties and laws, furthermore Britain can’t take part in any decision making.

Impact on India’s stock market

Indian stock market has felt the heat after Brexit vote, the index had tumbled 1,090.89 points and the NSE Nifty fell below the 8,000-mark in early trade.

Impact on trade with EU/UK

  • Investment in U.K by firms like Tata, Infosys, will have to entertain two markets simultaneously.
  • Different taxes on the goods exported to EU and U.K.
  • India’s bilateral trade with Britain was worth 14.02 billion dollars in financial year 15-16. With Brexit, turnover of each private firm will be affected.
  • Private firms like British petroleum, Vodafone, JCB, and Glaxo smith kline are successfully creating jobs and driving the Indian economy. After Brexit, British companies might have to revise its foreign policies.
  • EU strategic relations with India will be least harmed as the long standing relation goes back to 1960.

Impact on Energy Sector

In Oil and gas sector, U.K. Companies such as British Petroleum, Cairn Energy among others are operating in India. BP is the largest international oil company in India. However, with Brexit, U.K. will no longer follow the EU policy and this can make an impact on the policy and guidelines of Oil and Gas companies operating in India.

  • Indian Oil and Gas sector is eyeing FDI to exploit its hydrocarbon resources; with swinging policies in U.K. it will be a challenging task for companies to invest in India.
  • Brexit can be favorable to India as well, as U.K. can formulate its own trade policies which could be amenable to Indian energy sector.

As there has been much concentrated effort to increase electricity generation from renewable energies such as solar and wind, capacities could take years to build. India has a set target to build 100 GW of capacities by 2022 with a cumulative investment of $100 billion. On the other hand, India's grid-connected renewable power capacity, excluding hydel, is currently estimated at around 37,000 MW 

As India guns for its next 100 GW thermal power generation capacity and more, would need to make a conscious and planned effort to ensure the growth is sustainable, not only economically but also from social and environmental standpoints. 

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