Indian IT industry braces for short term impact of Brexit

However, sentiment is positive for long term as Britain might be a stable market and the value of pound will improve

With referendum on whether Britain will remain in the European Union around the corner, Indian IT companies are bracing for the impact of the Brexit verdict. If Britain choses to 'Leave', the industry feels the effect would be negative for the sector in the short term.

For Indian IT companies, United Kingdom in the 2015-2016 financial year, accounted for almost 17 percent of the total $100 billion global IT exports. At present there are 800 Indian companies in UK employing 110,000 individuals.

Indian IT companies, while on a wait and watch mode right now, have started assessing various factors—  how their UK base operations would operate in European Union if the exit happens, the probable migration of skilled labour.

"We are in a catch-22 situation as there would be a lot changes we have to do at our end if the country exits EU. Also in the short term there would be an impact on the British pound which would have an effect on our businesses. Our senior management at present is figuring out various plans to deal with the situation," said a senior executive of a software giant that has a huge base in UK.

A negative implication of Brexit on Indian IT companies is that they may need to establish separate headquarters for EU, leading to disinvestment from UK and diversion of activity from UK to EU.

According to IT industry body National Association of Software and Services Companies (NASSCOM), the impact would be clearly negative in the short term. "The immediate fallout of Brexit on the IT industry in India would be the impact of any possible decline in the value of the British Pound, which would render many existing contracts as losing propositions unless they are renegotiated," Nasscom said.

They added that the uncertainty surrounding protracted negotiations on the terms of exit and future engagement with European Union (EU) and any attendant uncertainties in exchange rates would adversely impact industry since uncertainty invariably affects business in a negative way.

"For example, decisions regarding large projects could get postponed till clarity on the terms of exit crystallize. Furthermore, any negative impact on the British economy in terms of slower growth or worse, could reduce opportunities for Indian companies in UK," they added.

Experts also said that if Brexit happens that protracted negotiations would also have an effect on the industry but in the longer term things would become smooth. "In the short term, if they exit, protracted negotiations would have its effects on business. However in the longer term, Britain would be a stable market and the value of pound would have a positive impact," said BVR Mohan Reddy, executive chairman, Cyient.

According to Nasscom, Brexit could lead to strengthening of India-UK economic relationship as UK seeks to compensate for loss of preferential access to EU markets. "An exit will lead to a need for UK to prepare for an uncertain future, reshape its economy and enable the change that its citizens have voted for while dealing with possible discordance with EU member states. This could open up new opportunities for UK and India as well. A possible exit of Britain from Europe may increase the country's focus on being seen as an independent market with a renewed focus to build scale and new markets," Nasscom said.