1. Column: Brexit would create uncertainty for Indian businesses

Column: Brexit would create uncertainty for Indian businesses

The idea that London would flourish post-Brexit goes against the warnings from US investment banks and the BoE

By: | Updated: June 11, 2016 8:27 AM
Britain, Brexit Leaving the EU would create uncertainty for Indian businesses engaged with the UK and would possibly have an adverse impact on investment and movement of professionals. (Reuters)

The referendum on whether Britain should exit the European Union or not has been termed as Brexit. Assuming a vote to ‘leave’, an agreement between the EU and the UK on new policies about trade and market access, for the next few decades, will have to be decided upon within a period of just two years. The British government will hold the referendum on June 23, 2016.

If the UK does decide to leave the EU, implications will be far and wide, depending upon the terms of trade agreement and the UK’s policy response. Regardless of the trade agreement decided upon, it will have a long-term impact on the UK and the EU economies.

Indian business leaders have spoken out against Britain leaving the EU, providing a blow to those in the ‘leave’ campaign—who have repeatedly promoted trade with the Commonwealth as an alternative. Even the Federation of Indian Chambers of Commerce and Industry (FICCI) has warned that Brexit could harm investment by Indian businesses. There are more than 800 Indian-owned businesses in the UK, experts estimate, with more than 110,000 employees. The best known is Tata Motors, which owns Jaguar Land Rover. Others include major information technology, pharmaceutical, creative and financial services firms.

FICCI’s statements on the internal affairs of other nations are extremely rare, and a measure of concern among Indian businesses. India is now the third-largest source of foreign direct investment into the UK, after France and the US, creating thousands of jobs and safeguarding many more, as per a report by the British Department of Trade and Industry released last year.

On the other hand, the ‘leave’ vote rhetoric continues to state that an EU membership is a threat to London’s affluence. The idea that London would flourish post-Brexit goes against the many warnings from US investment banks and the Bank of England. Many financial establishments have also warned that Brexit would drain London of its wealth, topple the pound, undermine the world’s fifth-largest economy and push traders to move their businesses to other financial centres in the world.

UK is the largest financial centre for the European Union. The city of London has attracted a wide range of global banks and other financial services. Brexit, inadvertently, would impact the financial services industry, the extent of which will depend on the arrangements agreed upon during the transition period and the specifics of the trade agreement. Several key regulatory and legal issues will need to be considered for firms to assess the impact of Brexit; for instance, banking firms which use the passport system will have to reconsider their structure. Thus, if the system lapses, entire business models and operational structures may have to be changed.

Membership of the EU provides British business, the much needed access to the single market. Brexit could potentially increase the UK-EU trade costs as well as exclude the UK from any deeper integration (such as the Transatlantic Trade and Investment Partnership with the US).

London has been a popular investment destination for quite a few countries, half of the investments in the UK come from the EU, but a great chunk of investments trickle down from China, US and India as well.

Moreover, India and the UK have always maintained strong links. In 2014-15, India was the third largest source of FDI into the UK. However prior to this in 2004, India and the EU had agreed on a strategic partnership covering a variety of economic and non-economic matters. Even the Indian prime minister during his visit to the country in November 2015 stressed that he wants to see the UK remain in the EU.

Meanwhile, India has continued to establish better relations with other EU members. There was a huge volume of FDI outflow from India into the Netherlands, France and Germany. India has been in talks for better cooperation in sectors such as innovation and investments in the respective countries.

While deciding on membership of the EU is a sovereign matter for Britain, Indian industry is of the view that foreign businesses cannot remain isolated from such decisions. The UK is a valued economic partner for India and leaving the EU, would create considerable uncertainty for Indian businesses engaged with the UK and would possibly have an adverse impact on investment and movement of professionals to the UK.

Brexit could also endanger the flow of investment and personnel by diminishing Britain’s role in providing access to Europe. Britain is considered an entry point and a gateway for the European Union by many Indian companies, a view echoed by the prime minister.

Britain leaving the EU would lead to considerable uncertainty for businesses, especially investment businesses. The UK is a bridge to the rest of Europe as well as a valued economic partner.

The author is founder and senior partner at Zaiwalla & Co solicitors

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