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Last Updated : Dec 26, 2018 09:18 AM IST | Source: Moneycontrol.com

Opinion | Adjusting to Brexit may not be tough for India Inc

The main focus of a large number of Indian companies investing in the UK has been primarily the British market. Still, some of them have been using Britain as a gateway to Europe. A few may need to relocate their businesses.

Moneycontrol Contributor

Gulshan Sachdeva

With United Kingdom Prime Minister Theresa May’s decision to delay vote on Brexit deal in the British Parliament, the issue has become messier. She has survived a confidence vote within her own Conservative Party. However, with 117 MPs voting against her leadership it’s clear it is not going to be easy to get approval for any Brexit deal in Parliament

Under present circumstances, nobody can possibly predict what is going to happen in coming months. Still, there are three plausible scenarios. First, after a few more dramatic happenings and couple of meetings with European Union (EU) leaders, the existing deal is agreed upon with a few modifications or clarifications. Second, things go absolutely wrong and we have an accidental hard Brexit on March 29, 2019. Third, there is no Brexit at all, either due to second referendum or parliamentary vote revoking Article 50 of the Lisbon Treaty.

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Except for the hard Brexit scenario, Indian companies operating in the EU and the UK will not face any major difference, at least for the next couple of years. In any case, both the UK and the EU would like to avoid ‘no deal scenario’ at any cost. They know that this is going to harm both of them very seriously.

Although both the EU and the UK have now started preparing even for a no deal scenario, chances of that happening is still relatively low. Businesses in Europe are more or less ready to adjust with the existing deal. It gives them enough time to prepare for new realities.

The present deal is the least bad scenario for the UK. We also must remember that this is the only deal on the table. Except for a few possible modifications, no other deal is going to be negotiated in the remaining few months.

The main sticky point is so-called backstop, which practically means the UK will remain tied to significant EU rules till the time it is able to find a solution to avoid a hard border between Northern Ireland and the Republic of Ireland. The opposition comes from the fact that while agreeing to this solution, the UK will continue to follow EU regulations even after it exits the community. Although the transition period is scheduled to end in December 2020, it could extend further.

In a way, this arrangement also guarantees that companies will continue to do business in Europe without any serious disruptions, till the time a new trade agreement is agreed upon between the UK and the EU. In the given situation, this is maximum the UK can expect from the EU. Precisely for this reason, May asserted earlier “there is no deal that comes without a backstop, and without a backstop there is no deal”.

For Indian companies operating from the UK, the hard Brexit scenario will create many challenges. Specific sectors, which are going to be affected, include automobiles, auto components, pharmaceuticals, gems and jewellery, education and IT enabled services (ITES). They will have no time to adjust to new realities. Indian investment in the UK may see a declining trend in the next few years. The main focus of a large number of Indian companies investing in the UK has been primarily the British market. Still, some of them have been using Britain as a gateway to Europe. A few may need to relocate their businesses.

In case of a no deal scenario, negotiations on India-EU trade and investment agreement may re-start. The Brexit uncertainty has been one of the reasons responsible for the delay in re-starting negotiations. India, however, will have to revisit some of its earlier assessments. To offset negative impacts of hard Brexit, both the UK and India may also start formal negotiations for a bilateral trade and investment agreement.

Earlier it was thought with Britain’s exit, it might be easier for India to negotiate on Mode 4 services with the EU. However, with the refugee and migration crisis in Europe, it is not going to be easy with either of them.

Overall, Brexit is going to create some complications. Most probably, however, Indian companies and policy makers will have enough time to understand its implications and prepare for possible changes. The less likely event of hard Brexit could be shocking — possibly this will not happen.

Gulshan Sachdeva is Jean Monnet Chair and director, Europe Area Studies Programme, Jawaharlal Nehru University, Delhi. Views are personal.

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First Published on Dec 26, 2018 09:18 am
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