India has an opportunity

Subrata Majumder
The uncertainty is over. A new dawn is breaking over the economic sovereignty of UK. Amidst the months’ long ping-pong guess- game between Remain and Leave, the people of Britain chose to exit EU. The leave camp calls it a victory of ordinary people and a victory of decent people. They view it an historic Independence Day for Britain.
Britain’s GDP growth plunged to 2 percent in 2015. Investors were selling their sterling assets. The pound-sterling nosedived by 7.5 percent over the past 12 months. The Leave camp claims that Brexit will help the economy.
How will Brexit impact on India? There are two ways which will impact the relation. One, UK as linked to EU and two, UK as an independent strategic partner country. The historical and deep relations between India and UK will have a major repercussion on its bilateral relations, which was shaped with UK, linked to EU, so far. The forecasters apprehend a major fall out on the relation with EU delinked UK. For last 20 years, UK was the launching pad for Indian investors to enter EU market. It was the gateway for several Indian migrants in EU. In other words, UK was the gateway to prop up India’s economic relation with EU.
India is the third biggest investor in Britain. UK, vis-à-vis, is the third biggest investor in India. During 2014-15, there was a spurt in Indian investment in UK. In terms of projects, there was sharp increase in investment by 65 percent over the last year making it the UK’s third largest source of FDI. In terms of value, Indian FDI in UK witnessed a remarkable increase between 2004 and 2013, from Pound Sterling 164 million to Pound sterling 1.9 billion.
Given UK as the springboard for India’s relation with EU, UK after Bretix is likely to loose some points of attraction for the Indian investors and traders. Indian companies, having operations in UK and EU, will face an incremental risks of losing their markets. A number of Indian big houses have their presences in UK. Tata, Mahindra, Infosys, HCL Tech, Bharati Airtel, Wockhardt, Apollo Tyre are the India biggies, having operations in UK and EU.
For these Indian companies, UK is the preferential place for their businesses with EU for the ease of operating, owing to the language advantage and awareness of the regulations. Removing this gateway will be problematic for Indian businessmen in UK.
For many of these Indian biggies, UK and EU operations are the major revenue earners. Over 57 percent of the total revenue of Tata Steel is accrued from its operations in UK and EU. For Tata Motors (through Jaguar Land Rover) and Tata Consultancy, the revenue shares from UK and EU operations were 25 and 27 percent respectively. For a pharmaceutical giant, Dr. Reddy’s Laboratory, the revenue share was 26 percent. Similar are the major shares of revenue accrued from UK and EU operations for Infosys and Wipro – 23 and 24 percent respectively.
Jaguar Land Rover, Tata Motors’s subsidiary and Britain’s biggest carmaker, estimated its annual profit would be cut by 1 billion pounds by the end of this decade owing to Brexit. At present, cars assembled in UK can freely be sold in EU without tariff. Till now, Tata Motors’s Jaguar Land Rover enjoyed a 10 percent tariff advantage for selling within the EU wall. The tariff gain will be done away with Brexit.
Brexit may dent the Indian IT market. According to Bank of America Merrill Lynch analysis, the recession hit UK in the post- Brexit will hurt Indian IT revenue growth by 10 -14 percent . NASSCOM feared a sharp downswing of pound sterling, say by 20 percent and it would impact on the US $ 108 billion IT sector in the short term. Its forecasts are mixed. In short term the impact would be clearly negative. In long term the impact depends how the Indian IT companies re-negotiated the existing projects.
There are 800 Indian companies, employing 110,000 jobs in UK, according to Grant Thornton India Tracker 2016 Report. They are more than combined number in the rest of EU. About 10 percent of these 800 Indian companies are listed on the London Stock Exchange. The number of Indian companies are growing at more than 10 percent.
UK plays a lead role in India-EU trade. In 2014-15, UK accounted for 19 percent of India’s total export to EU and 10 per cent of India’s import from UK. Since UK has been the gateway to EU, its exit from EU will dampen the prospects of trade with EU.
Losing Britain as launching pad, India needs to do some serious contingency plans to sustain their holds in EU. India needs to forge strong ties with other countries within EU — which can prove potential entry points to re-establish the economic relations with EU member countries. India is already trying to build strong trade and investment relations with Netherland, France and Germany. Netherland is the 4th biggest investor in India. Re-building economic ties with these countries will offer new opportunities in EU.
However, all are not bad. There is a silver lining – and that is for Indian immigrants.  Brexit may be propitious for Indian immigrants, who offer their services at low cost. With Britain exiting EU, the free movement of EU immigrants will be restricted. This will unleash opportunities to low cost Indian migrants, including Commonwealth migrants.
Relegating the baneful impact on the India-UK relation, Leave camp was hopeful for better trade investment relation with independent UK. According to former Defence Minister and the supporter of Brexit, Lord Archie Hamilton “we should be doing much more business with India with its middle class of 200 million people. But, we can’t because trade with India is part of what is known as an EU competence” in a debate on “Would Brexit benefit India”. (IPA)

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