Brexit dilemma and the impact on Indian companies operating in EU

Brexit Dilemm Brexit dilemma and the impact on Indian companies operating in EU

The BREXIT may be a foregone conclusion but it is still not clear whether there will be a BREXIT deal or not. A BREXIT deal will imply that the withdrawal of BREXIT will be smooth for UK and also for financial markets in general. However, a no-deal withdrawal will mean that the exit could be quite chaotic with larger implications for the world markets. But that is more from the point of view of the financial markets. The bigger question is what could be the fundamental impact on Indian companies, especially for those companies that have trade or business links with the UK and the EU region.

How Indian companies can actually benefit from BREXIT

    • If a no-deal BREXIT happens then the UK loses a huge preferential market in the EU. While that will be a worry, it will also open up a huge opportunity for UK and for India to sign bi-partite treaties and special preferences with each other. Due to the UK being currently part of the EU, India’s trade with UK is governed largely by the EU. India being one of the fastest growing economies is rightly poised to gain from this development. Even in terms of a labour interface, it could throw opportunities as the skilled British workforce and the huge English speaking work force in India could engage synergistically.
    • There are a large number of Indian students who study in reputed colleges in UK and this is likely to increase with the problems created by US universities. An average Indian student pays 3 times the fees that an average EU student pays. A separate deal with UK can include clauses where Indian students can secure financing for their college degree, as preferential scholarships to EU countries will reduce. India could be seen exporting more talent than present levels.
    • India has long been a member of the Commonwealth of Nations, led by UK. That includes important nations like India, Singapore, UK, Australia, New Zealand, Canada, South Africa and Nigeria. By pushing the idea of creating and consolidating the Commonwealth as a bloc, India can create a preferential tariff group with a lot of high growth and promising nations.
    • Apart from the large Indian population in the UK, India has the strongest relationship in the European region with UK. Companies like Tata Steel and Tata Motors have invested billions of dollars across the UK and EU and these benefits can be consolidated. Interestingly, the Tatas are the largest employer group in the UK, outside the British government sector. All these can be leveraged much better if the UK is not bound by general EU rules.

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BREXIT also poses some challenges to Indian companies

    • One of the immediate outcomes of the BREXIT is likely to be that the UK Pound could see fall in value. This could be the result of disruption in its existing trade links, especially if there is a no-deal exit for UK. This is likely to have a negative impact on Indian exports to the UK. Exporters typically lose out when the export denominated currency loses value and that could be negative for the exporters to UK.
    • It is likely, and it is already visible, that many large project and financial commitments are being put on hold in the EU region due to the uncertainty surrounding BREXIT. This could mean indirect opportunity costs to forthcoming projects in the UK and also in the adjoining EU region.
    • Things could get a little tricky for many Indian companies using the EU as a seamless region for business. Currently, it is possible for a company to have its headquarters in the UK and have factories in low cost centres like Poland and extract the seamless EU benefit. That may not be available post BREXIT. In fact, there are about 800 Indian companies in UK and many software and technology companies have been using London as their European headquarters. The trend is to shift their headquarters out of London and into continental Europe. Most may have to rethink their existing European business model.
    • Finally, there is the risk that many large Indian companies may lose access to the London markets. London continues to be one of the key financial markets for equity and bond issues, raising capital, structuring innovative products, managing risk etc. Indian companies have invested time and energy in UK to create a property ecosystem for raising finances. That is likely to be in trouble.

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