View from India: Brexit and what it means to India
The UK leaves the European Union (EU) bloc on January 31, 2020. Could Brexit open up new opportunities for corporate India?
As indicated in the 2019 Union Budget, the foreign direct investment (FDI) inflows into India have remained robust despite global headwinds. India's FDI inflows in 2018-19 remained strong at $64bn (USD), marking a 6 per cent growth over the previous year.
With the liberalisation of the FDI policy and the UK Brexit-ing from the EU, one could hope that the FDI coming from UK will increase manyfold. Healthcare and agritech are among the key investment sectors, with the UK already the third-largest source of FDI in India.
Britain is considered as a gateway to the EU for India. Indian companies, which have a base in UK in terms of subsidiaries and associate companies, can look forward to medium-to-long term benefits. Hopefully, these could include tax breaks and similar financial incentives.
Post-Brexit, the UK Prime Minister Boris Johnson has announced plans of making UK a research-scientific powerhouse of global talent. The existing Tier 1 ('Exceptional Talent') visa will be replaced by a new fast-track visa system by February 20 2019. The new visa system will be managed by the UK Research and Innovation Agency (UKRI), which funds government research. Global issues such as carbon footprint and global warming are among the key areas that will probably evoke new research opportunities.
India is a hub for science and tech-led R&D and innovation. Accordingly, nations globally are keen to forge ties with India for inclusive and collaborative investments for outcome-based results.
An official press release from the City of London Corporation’s Policy Chair stated that Catherine McGuinness flew to Delhi and Mumbai on January 27 and 28 to discuss future relations with the UK in financial services. The purpose was to hold meetings with senior government and industry leaders to discuss how to boost relations and knowledge sharing in emerging common challenges.
“We have long recognised that a closer partnership with India is an attractive proposition for both countries, especially so if it covers financial services. There are many things we can do prior to a potential free trade agreement to boost our £20bn-plus relationship, especially in innovative areas like fintech, green finance, cyber security and insurance,” McGuinness was quoted as saying in the release.
The City Corporation has a longstanding body of work in India and opened a representative office in Mumbai 12 years ago. Fifteen Indian financial firms have offices in London and many have branches across the UK.
Brexit is also expected to add new dots to the IT map of India. The UK will want new trading and service partners, many of whom will not be from EU countries. Hence, India can meet the upcoming requirement, as the accent may be more focused on verticals like technology with extensions towards cyber security. There’s a strong possibility of UK-India investment in this sector.
There are around 800 Indian companies in UK working in sectors such as automobiles; auto components; pharmaceuticals; gems and jewellery; healthcare; education and IT-enabled services (ITES). As the UK is India’s gateway to Europe, some of these companies have their European headquarters in the UK. It remains to be seen whether these companies continue to stay in the UK or move and set up new offices in Europe, closer to their customers. However, not all Indian companies would want to move out of UK. In that case, Ireland would probably be an option.
One thing is certain, as the UK moves out of the EU, it will have to chalk out new business alliances with other geographies. In the national scheme of things, since India is preparing for a trillion-dollar digital economy, Brexit might open out new development opportunities.
According to a Reserve Bank of India (RBI) survey on computer software and information technology-enabled services (ITES) exports in 2018-2019, India’s export of computer and ITES services (excluding overseas commercial presence) increased by 8.8 per cent during 2018-19. Computer services remained the dominant component of India’s software services exports, accounting for over two third of total software services; the share of ITES exports increased marginally in 2018-19.
The report, released in November 2019, points to the fact that the share of cross-border supply in exports of software services by India has increased substantially at the cost of the overseas commercial presence mode of delivery. Foreign affiliates of Indian companies continued to augment cross-border services provided by their parent companies in India, although software services provided through commercial presence of foreign affiliates declined by 21.5 per cent in 2018-19. USA and Canada remained the top destinations for software exports, followed by Europe in which the UK was the top destination.
Bilateral trade relations between India and UK extend to education and investments, the latest being data management. The time is ripe for India to invest in a workforce that has the bandwidth to handle new responsibilities rolled out by UK industries to create a data-driven experience.
As for education, scholarships extending to students from other parts of the globe will happen on a level playing field. The potential outcome is that a large section of Indian students heading to UK universities will have wider options while competing with their counterparts from other parts of the world.
On the eve on Brexit, a newspaper report indicated that the number of Indian students attending London universities has risen, after China and the US. Indian students’ enrolment increased by 34.7 per cent in 2018-19, marking the largest numbers since 2011-12, according to the UK’s Higher Education Statistics Agency analysis released this week.
The UK's exit from the EU marks the start of a new era for international relations and business. It remains to be seen what this will mean for all countries affected.
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