Brexit part 1: The view from India

The first of a weekly series in the run up to the UK referendum on EU membership next month asking business leaders and analysts around the world for their take on what a 'Leave' vote would mean for their regions.

A Land Rover Defender at Tata Motors' Jaguar Land Rover manufacturing plant in Solihull, UK. Simon Dawson / Bloomberg

MUMBAI // The possibility of the United Kingdom exiting from the European Union, as the June 23 referendum nears, has triggered concerns that Indian companies with interests in the region may have to overhaul their businesses.

In addition, there are concerns investment and trade from India into the UK could be dampened if such a move does take place.

India has become an increasingly important investor for Britain. It is now the third-biggest provider of foreign direct investment into the UK, according to UK Trade and Investment. Indian companies employ 110,000 individuals in the UK, figures published by the Indian government show.

“Uncertainty surrounding the UK’s impending EU referendum and the possibility of ‘Brexit’ may have a bearing on both the UK economy and on Indian companies’ appetite for investing in the UK, particularly those seeking access to the European market,” according to a report by Grant Thornton.

“Potential Brexit is a pressing concern for companies currently considering the location of a European headquarters. Whether a London and a UK outside the EU will remain an attractive destination for Indian companies remains to be seen.”

Tata Motors, which owns Jaguar Land Rover (JLR), the pharmaceuticals companies Wockhardt and Cipla, and the telecommunications firm Bharti Airtel, are some of the Indian companies that have a major presence in the UK.

Indian IT outsourcing companies have also been expanding in Britain as they look beyond the United States to try to grow their revenues. Part of their strategy of growing in the UK is to reach the rest of Europe.

“The UK is a valued economic partner for India and we firmly believe that leaving the EU would create considerable uncertainty for Indian businesses engaged with UK and would possibly have an adverse impact on investment and movement of professionals to the UK,” according to A Didar Singh, the secretary general of the Federation of Indian Chambers of Commerce and Industry.

A number of Indian companies use the UK, including IT services and pharmaceutical companies, as a hub to gain access to and expand through Europe.

Historical ties between the two countries, language, and the fact that a number of Indians have family connections in the UK could work in its favour, some observers note.

“Britain is considered an entry point and a gateway for the European Union by many Indian companies,” says Mr Singh. “While deciding on membership of the EU is a sovereign matter for Britain and its people, Indian industry is of the view that foreign businesses cannot remain isolated from such decisions.”

The Indian prime minister, on an official visit to the UK in November to boost economic ties between the nation, stressed that he wants to see the UK remain in the EU.

The main risk for exporters from India would be if, following a Brexit, the UK changed the guidelines for some products, meaning that businesses might then have to make separate products for the two markets, says Aditya Berlia, an executive member of management board of the Apeejay Stya and Svran Group, a family-run industrialist and investment house in New Delhi, which has interests in the UK and wider EU, including exports of pharmaceuticals.

Ajay Kothari, a member of the British Business Group and the European Business Group in Mumbai, says that there will be a significant impact “in the short term and in the long term”.

“The investments that are going from India would definitely go down and also, in the long term, the UK will lose the benefits of being part of the EU, so it will lose on that.”

Abhimanyu Sofat, a co-founder of AdviseSure, an investment advisory company in India, says the “UK is considered a bridge to entire Europe”, so if it leaves the EU this would have impact for Indian companies and their appetite for expansion in the UK.

“There could be some changes in taxation,” he says. “If there are some trade barriers, that could also have a potential impact. For example, JLR have their plants in the UK, which are used for exporting to the European market. That could be a problem if some duties are imposed.”

In a statement delivered to the UK parliament in February, Britain’s prime minister David Cameron said the country had “secured commitments to complete trade and investment agreements with the fastest-growing and most dynamic economies around the world”, including India, which would bring in funds and create jobs in the UK.

“Britain has benefited from the negotiating muscle that comes from being part of the world’s largest trading bloc,” Mr Cameron said.

But if the UK were to leave the EU, it could be seen as far less enticing for Indian companies.

“Country after country have said to me that, of course, they could sign trade deals with Britain,” he says.

“But they have also said that their priority would be trade deals with the EU. By their nature these EU deals would be bigger and better. And a deal with Britain wouldn’t even be possible until we had settled our position outside the EU … We would be looking at years and years of delay.”

Mr Berlia says that “there will be a little pain” if Brexit takes place. For example, some companies might have to change their logistics, such as routing shipments through different ports or establishing warehouses in different locations.

But the impact might not be as dramatic as some are predicting. In fact, there could be some positive consequences for Indian businesses, he adds.

He says that his company already largely treats the UK as a separate entity from the EU because it requires distinct visas and has a different currency.

“Brexit would probably make an UK-India FTA [foreign trade agreement] much more likely,” he says.

“There’s very little that the UK and India fight over – they’re very complementary economies. In fact, it’s harder to do an EU-India FTA because of France’s agriculture subsidies and Germany’s insistence on auto.”

Mr Berlia adds that Indian companies that operate in the UK and Europe are already very well connected into the rest of the EU.

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