Brexit: Indian exporters cautious but hopeful ahead of Wednesday vote

As the European Parliament votes late on Wednesday to ratify the terms of Britain’s exit from the European Union (EU), Indian exporters are hoping to seize the gulf in trade relations that is set to emerge. “A lot will depend on the exact terms of agreement that the United Kingdom (UK) reaches with the EU. If the UK decides to enter into a Customs union with EU, shipment flows will continue unhindered and without much change to the logistics value chain,” said Ajay Sahai, director general of the Federation of Indian Export Organisations.

A Customs union generally consists of a trade bloc composed of a free trade area and a common external tariff for products and services. This will require a new trade pact between both parties, which creates a common external trade policy. This may be similar to the current scenario where EU member states (EU) delegate authority to the European Commission to negotiate their external trade relations through the Common Commercial Policy.

But chances for this are slim, experts say. “The UK government has said it won't hand over the power to decide on foreign trade matters to Brussels (EU capital). Britain will negotiate its own trade deals with various nations after Brexit with an eye on its own interests,” a highly placed source at the British High Commission said.

“It doesn’t matter what the post Brexit scenario is, since India stands a good chance to exploit the opportunity. Indian goods will compete with British goods in EU and vice versa,” Sahai said.

Betting on IT: According to a report by the British Parliament, services account for 80 per cent of the UK’s economic output and 46 per cent of exports, as of 2018-end. The UK is the world’s second-largest exporter of services by value and 41 per cent or $152 billion of its services exports flowed across the English Channel into mainland Europe. In the same year, the UK imported $116 billion worth of services from the EU.

With EU nations like Poland providing significant IT support to UK companies, Indian firms are weighing their options to push further into both markets, say sources. Interestingly, the UK and EU constitute India's second and third-largest markets for outbound IT services, which stood at $136 billion in 2018-19, according to Nasscom. “London is a major gateway for Indian IT firms entering Europe and, consequently, operational headquarters are mostly based in London," an expert said, adding that a major shakeup in existing investment and trade policy may result in Indian firms having to shift their headquarters to other nations but this will also come with significant growth opportunities.

Challenges remain: However, in its Strategic Review 2018-19, Nasscom had warned that a No-Deal Brexit may pose challenges. The easy movement of skilled workers between EU and UK has been helpful, which is not expected to hold out. 

Indian companies are the largest beneficiary of ICT visas issued by the UK, according to Migration Watch UK. In a 2018 report, it flagged 16 Indian IT companies for easily moving employees from abroad to Britain. For 2017, this included TCS (6,285 visas), Infosys (2,030), Wipro (1,795) and Tech Mahindra (1,020), among others. Prime among these, were the fear of a declining British Pound, which would see IT companies earning less from existing contracts and the postponement of large projects. "Our exports should be poised to take advantage of the impending gulf that will open up in trade between the UK and the EU," a senior Commerce Department official said. The official added that the Services Export Promotion Council has been asked to study the potential of exports that can be leveraged.