As Brexit looms, Indian cos in UK are bracing for disruptions

Indian firms in Britain are against a no-deal scenario, which would uproot them overnight from a single market tariff-free situation to one with customs duties under WTO rules, unless a free trade agreement is arrived at, which generally takes years to negotiate.

Indian companies in Britain - and there are an estimated 800 such - would prefer not to experience a major disruption in the event of the United Kingdom exiting the European Union, otherwise known as Brexit.

The country’s new prime minister, Boris Johnson, was elected by his Conservative Party on the assurance that Britain would leave the EU by October 31.

There is growing apprehension the UK will crash out in a disorderly fashion without a deal.

Speaking exclusively to Business Standard, Kevin McCole, chief operating officer of the UK India Business Council in London, said: “Indian businesses are looking for the UK to have a clear and close relationship with the EU that minimises changes to the current arrangements.”

The remark suggests Indian firms in Britain are against a no-deal scenario, which would uproot them overnight from a single market tariff-free situation to one with customs duties under WTO rules, unless a free trade agreement is arrived at, which generally takes years to negotiate.

McCole was quick to underline, though, that “whilst Brexit dominates the political headlines here in the UK, in reality it is impacting a limited number of Indian businesses operating and investing in the UK”.

“Increasingly, India-UK relies on the sharing of data and knowledge rather than goods…Indian businesses will be looking at how the UK’s current GDPR framework evolves post-Brexit,” he added.

The UKIBC believes reforms on access to the British market is a high priority for Indian investors and this is not contingent on whether the UK strikes a deal with the EU or not.

Manufacturing companies that depend on just-in-time supplies chains and those who trade between the UK and the EU will have to adjust.

But a majority of Indian concerns, according to McCole, are in Britain for UK-specific reasons to access the upstream strengths in this country’s sectors like engineering, electronics, big data, and artificial intelligence.

However, Mark Carney, governor of the Bank of England, expressed fears last week that an “instantaneous shock” to the British economy, if the UK left the EU without a deal, would be tough for the central bank to respond to.

He warned the pound, which has been receding in value, would be sold off sharply and inflation would rise.

The Bank also stated there is a 33 per cent chance of Britain going into recession by the end of the first quarter of 2020 even if a Brexit deal is reached.

In other words, these circumstances could lead to a slowdown in Indian companies in the UK.

Up to last year, Indo-British collaboration was expanding. In December 2018, the British Department for International Trade revealed that Indian investment in the UK increased by 321 per cent to £ 8 billion.

In the same year, trade in goods and services between the two nations rose to £ 19.6 billion, up by 22 per cent as compared to 2017, notwithstanding fluctuations in the UK exchange rate.

At the same time, the biggest Indian investor in Britain – the Tata group – has not taken any chances.

Its Jaguar Land Rover company opened a manufacturing unit in Slovakia last October, employing 1,500 people, to circumvent a potential 10 per cent duty on export of motor vehicles to the EU, if there’s a no-deal and WTO rates apply.

Photograph: Neil Hall/Reuters