India and the Brexit forecast

Though India has refrained from officially commenting on the crucial June 23 referendum, it remains deeply vested in the outcome. Indian businesses and financial institutions are also hedging their bets
Unlike many other governments of countries with strong economic and historical ties with the United Kingdom, India has refrained from officially commenting on the crucial European Union (EU) membership referendum to be held on June 23.
Asked at a press conference on how a Brexit outcome in the referendum could affect India-U.K. ties, Union Minister of External Affairs Sushma Swaraj steered clear of a political comment. “The decision has to be taken by the people of Britain and they would decide keeping in mind their national interest. India has no role to play in it,” she said.
It was a point that her colleague, Union Minister for Science and Technology Harsh Vardhan, made recently in London. He did however add that the agreements and commitments that have been made in the area of trade and investment as well as in science and technology would carry on regardless of whether Britain stayed or left the EU.
That a government that wins a Brexit vote will foster existing ties with countries including India is a perfectly reasonable assumption. It is a promise that Brexit campaign leaders repeatedly make.
Stakes for India
At a recent debate on “Would Brexit Benefit India” at the House of Commons moderated by journalist Ashis Ray of Ray Events, Lord Archie Hamilton, a former Defence Minister and now Brexit supporter argued that the EU was the biggest obstacle to U.K.-India trade. “We should be doing much more business with India with its middle class of 200 million people, but we can’t because trade with India is part of what is known as an EU competence,” he said. “An EU trade deal with India is almost completely out of the question, and Britain will have to get out of the EU if we are going to tie up a bilateral trade deal with India which I am absolutely certain we can do.”
In the absence of any realistic projection on what a post-Brexit U.K. holds in store, such claims carry little authority. That said, India remains deeply vested in the outcome of the referendum for two reasons. The first concerns the welfare of a nearly three-million strong diaspora of Indian-origin U.K. citizens, while the second concerns the interests of a large moving population of Indians who come to Britain ever year as tourists, business people, professionals, students, spouses, parents and relatives.
Will Brexit change the rules of doing business, or of access to higher education? Further, will it create new barriers for work visas or the visitation rights of relatives who have families here?
Industry and border-free access
Indian industry in the U.K. is thriving. There are 800 Indian companies in the country — more than the combined number in the rest of Europe. According to the India Tracker 2016 commissioned by the Confederation of Indian Industry (CII), Indian companies generate 110,000 jobs. The number of Indian companies growing at more than 10 per cent — the key benchmark for inclusion on the list — has nearly doubled this year over the last.
The total turnover of the fastest growing Indian companies in the U.K., especially in the fast growth sectors of technology, telecom, pharmaceuticals and financial services, rose by 18 per cent in 2016 — from £22 billion in 2015 to £26 billion this year, according to the Tracker. Telecom and technology companies Bharti Airtel and HCL Technologies top the list of Indian companies, registering phenomenal growths of 886 per cent and 728 per cent respectively. In turnover terms, the Tata Group still dominates, although its share has fallen from 83 per cent of total turnover of Indian companies on the Tracker compared to 90 per cent last year. Despite the downturn in the automobile industry, Jaguar Land Rover’s business is still the success story it was, reporting a 13 per cent growth due to increased demand for its product range.
During trade talks held during the visit of Prime Minister Narendra Modi to the U.K. in November 2015, £9 billion worth of commercial deals were agreed upon.
A post-Brexit government may not affect outbound investment into India, but will the robust growth of inward investment continue? The India Tracker report sounds a note of caution here, describing a potential Brexit scenario as one of “pressing concern”.
“Uncertainty surrounding the U.K.’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 U.K., particularly those seeking access to the European market,” the survey notes, adding that “close personal ties that many Indian entrepreneurs have to the U.K., with strong family connections and children often educated at U.K. schools, may counterbalance other considerations.”
Chandrajit Banerjee, Director General of CII, in a statement that spoke to a Brexit scenario underscored the importance of continued border-free access to European markets as a “key driver for Indian companies coming to the U.K.”.
“Anything that lessens this attractiveness may have a bearing on future investment decisions,” he said.
This pro-Europe sentiment was echoed in a memo issued to its staff by the management of Tata Steel — a company currently in the process of finding a buyer for its Port Talbot steelworks. TheDaily Telegraph reported that the letter urges staff to give “careful thought” to the referendum “because the choice you make on 23 June will make a difference to your working life”. The memo stated that access to the EU market is “fundamental to our business”.
Impact of visa restrictions
The Indian industrialist and philanthropist Lord Swraj Paul, head of the Caparo Group, sounded a strong warning on the perils for British industry from leaving the EU in respect of skilled labour supplies, free trade opportunities in Europe, and immigration restrictions. On a historical note, Lord Paul spoke of the great damage to India and Pakistan wrought by the Partition of 1947. “At the time of Partition they [citizens of India and Pakistan] were people with the same language; yet it was decided that they should become separate countries with their own sovereignty. In my view, and in the view of many other people, India and Pakistan are still suffering today from that decision,” he said.
On the Brexit argument of “curbing unacceptable levels of immigration” into the U.K., he reiterated his long-held view that students coming to the U.K. to study must be “kept out of, and apart from, immigration quotas”. He cited the Commonwealth model, which “connects nations of various diverse cultures and histories” as “an experience [that] can inform our relationship with Europe”.
Work-related visa restrictions have already resulted in a fall in the number of Indian students studying in British universities from 22,385 in 2012-13 to 18,320 in 2014-15, according to the U.K. Council for International Student Affairs (UKCISA). Given their tough stance on cutting immigration, a Brexit government could be expected to make such curbs more stringent.
According to Lord Karan Bilimoria, President of the UKCISA, the clutch of new visa rules that have impacted student flows from India — especially the withdrawal in 2012 of the post-study work visa — has had disastrous consequences. A Brexit vote would only exacerbate these. “Unlike other countries, Britain classifies overseas students as immigrants.” He argues that Justice Minister and Brexit advocate Michael Gove has recommitted to a post-Brexit government aiming to reach the Conservative party target of bringing immigration down to the “tens of thousands”. The latest immigration figures put the number of immigrants at between 330-350,000 in 2015, of which 180,000 are non-EU migrants.
“Even assuming that they reduce EU immigration to zero, which is highly unlikely, they are still well above the 100,000 target. This suggests that they will reduce the numbers of international students, including Indian students, to reach their target,” Lord Bilimoria toldThe Hindu.
Voices for Brexit
The “curry and mango wars’ are a part of the Brexit arsenal used by the U.K.’s Employment Minister of Indian-origin Priti Patel, a leading voice of the South Asian community for Brexit. Protectionist EU acts as a barrier to trade for the U.K., including from India, she argues, citing the EU-led ban on Indian mango shipments to the U.K. in May 2014 after fruit flies were found in consignments. The ban was lifted in early 2015, but not before Indian exporters and local traders suffered considerable losses. High European regulatory standards are a dampener on Indian exports, as the mango ban demonstrates.
Ms. Patel also has the backing of the Bangladesh Caterers Association which represents a part of the £4 billion curry industry. The BCA, which represents 12,000 restaurants and takeaways in Britain, attributes the staff shortage of qualified curry chefs to restrictive immigration rules. It’s much larger and pro-Remain rival, the Asian Catering Federation (ACF) acknowledges the visa-related reasons for the shortage, but does not see leaving the EU as the solution.
Indian businesses and financial institutions are however hedging their bets. According to a report by the State Bank of India’s Economic Research Department, Brexit may actually strengthen India’s position. “This referendum will have geopolitical implications and will affect the relation of the rest of the world with Europe. But, our take is that though such an exit brings up a lot of uncertainty within Europe, it definitely opens up opportunities for India,” the SBI report says.
With only three days to go, the outcome of the referendum is unclear. The recent murder of a young and popular Labour MP and Remain activist Jo Cox by a man espousing a right wing, anti-immigrant ideology has shocked and appalled ordinary citizens. Whether this is a taster of what the extreme fringe of the Brexit campaign will bring to a post-Brexit scenario will only be known later — if and when a post-Brexit government takes the reins after June 23.


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