While Indian companies in the UK are ready for Brexit, the murky transition process and the possibility of ‘no deal’ is a matter of concern.
New Delhi: Indian industry is finding it increasingly difficult to operate in the United Kingdom as the uncertainty over Brexit increases by the day. While the companies are ready for the eventuality of Brexit, the murky transition process is making them jittery.
The UK is supposed to exit the European Union by 29 March, and Prime Minister Theresa May is set to go back to Parliament Monday with a ‘Plan B’ after her initial plan was overwhelmingly rejected. If UK leaves the EU without a deal — a so-called ‘no-deal’ Brexit — it will not get the special benefits it receives now for being a member of the EU.
That will also mean that after parting ways, Britain will have to negotiate a tough trade deal with the remaining 27 countries of the EU, and that could drag on for years.
Several Indian companies are rushing to the drawing board to keep their bottom lines from plummeting if there is a ‘no-deal’ Brexit. Diplomatic sources told ThePrint that companies are unsure whether to trigger their own exit plans or stay put. There will be “total chaos” if there is no deal, whereas if the process is delayed, things will remain “business-as-usual” for the time being. But neither of those situations will be easy, the sources said.
At present, over 800 Indian companies operate in the UK, with some of the most prominent names being Tata Steel, Tata Motors, Bharat Forge and Tech Mahindra.
“The uncertainty that is building up around Brexit is a matter of great concern. A ‘no-deal’ Brexit means we will have to wait and watch how the UK clinches a viable deal with the EU. I hope that matter settles down soon as UK is uniquely positioned in the EU as a hub for technology, manufacturing and innovation,” said Baba Kalyani, chairman of Bharat Forge.
The Tata Motors-owned Jaguar Land Rover (JLR) had earlier issued a warning to the UK government about the losses it may incur if the UK leaves the EU without a deal.
“Just one missing part could mean stopping production at a cost of 60 million pounds a day. That is a huge risk. We depend on free, frictionless, seamless logistics. We are an absolutely British company and we want to stay here,” JLR CEO Ralf Speth had said last year during an event in Birmingham.
India Inc. in the UK
According to a joint study by the Confederation of Indian Industry and the UK-India Business Council, India is the fourth-largest investor in the UK with 127 foreign direct investment proposals in 2016-17. Indian companies in the UK account for almost 105,000 jobs, of which more than 80 per cent are with 13 companies that employ more than 1,000 people.
A Grant Thornton investment tracker said the combined revenue for Indian companies in the UK was 46.4 billion pounds in 2018, down from 47.5 billion pounds in 2017. They paid 360 million pounds in corporation tax, up from 275.7 million pounds in 2017.
What India Inc. stands to lose out on
For most Indian firms, the UK was the gateway to the EU market due to its ease of doing business, low taxation rates and a favourable research and development ecosystem.
Indian firms invested heavily in the UK since they enjoyed benefits such as tariff-free access to the whole of Europe and its wide market, access to the vast European talent pool and skilled labour, and seamless movement of goods and services among others, which came thanks to its EU membership. PM May is scrambling to secure a deal before leaving the EU precisely so that the UK can continue to enjoy these benefits despite exiting the economic bloc.
But the Grant Thornton tracker stated: “After March 2019, Indian companies may no longer be able to use the UK as a jumping-off point for accessing the EU market, and this could deter some new future investment.”
Ranjan Mathai, India’s former foreign secretary and high commissioner to the UK, said: “Companies don’t fear Brexit — in fact, investments remained upbeat even after the Brexit vote.” The $4.7 billion IT major Tech Mahindra, for example, announced a significant strategic investment in UK after the Brexit referendum that took place on 23 June 2016.
“It is the uncertainty that is causing tensions. If UK leaves without a deal then it will be starting from scratch and it might take a long time before it can get a good deal out of EU,” added Mathai.
“This unpredictability is certainly not good for businesses that are operating there. Brexit is not an issue; the issue is if the UK leaves without a deal. Then, it is a big problem for Indian businesses in terms of planning and new investment.”
For instance, a large number of Indian pharmaceutical firms operating in the UK could bear the brunt of the UK leaving the EU empty-handed.
Options before May
Last week, May faced a massive parliamentary defeat for her deal plan, so she now has the following options.
1. Come up with a ‘Plan B’, which may not be acceptable to the EU. Any ‘Plan B’ would require approval of the remaining 27 members of the EU, which remains a huge task given the paucity of time before the deadline, European official sources said.
2. Leave without a deal, which would leave businesses operating in the UK at a huge disadvantage.
3. Delay the Brexit deadline, which sources say will not be as easy as it sounds.
4. The UK could also stay in the EU, which sources said would settle the matter once and for all. However, that would go against the popular opinion of the British public, 52 per cent of whom voted to leave the EU.
There is also a chance that the UK goes in for a second referendum. But that is going to be yet another onerous task. This time the question would be not whether the UK wants to stay within the EU, but on the deal that Britain should clinch with Brussels, a senior official at the British High Commission in New Delhi said, requesting anonymity.