With the UK prime minister set to trigger Article 50 in the next few months, we unpick some of the factors that could impact Indian investments in the UK.
Formal negotiations to leave the EU are likely to start in March this year and will take two or more years to complete. Until then, the details of the UK’s future trading relationships with the EU will be unknown.
Different sectors will be affected to a greater or lesser extent by Brexit and the possible outcomes of these negotiations. This means that Indian investors need to consider the possible impact on specific sectors and businesses.
Brexit is just one part of wider global economic uncertainty. Elections in other EU countries this year - including France, Germany and the Netherlands – may create further uncertainty and will likely determine the approach taken by the rest of the EU.
In the meantime, the UK remains open for business and continues to provide a stable legal and regulatory environment, a large international talent pool and a competitive tax regime.
Understanding India’s business relationship with the UK
Although it's too early to fully understand what Brexit will mean for Indian investor sentiment into the UK, it is important to appreciate the key drivers of Indian investment in the UK and how they might be affected. Historically investment is driven by three main factors: access to markets, brands, and technologies or design.
For example, an Indian company that only wants to access the UK market should not experience any direct impact from Brexit, beyond exchange rate fluctuations. However, an Indian pharmaceutical company looking to use London as a launchpad into the European market may think twice. This is particularly pertinent for the pharmaceutical industry as, until now, the European drug licensing authority’s (MHRA) headquarters have been in London. There are rumours that the authority may relocate to somewhere in the EU post-Brexit.
An Indian company looking to access UK design and technology should not feel any major impact from Brexit. A classic example of this is Tech Mahindra’s post-Brexit vote acquisition of Target, which supplies technology products to the leasing industry.
Likewise, we can expect Indian corporates looking to acquire iconic British brands to leverage in India and other emerging economies will be unaffected by Brexit. On this basis, even today, and despite any European market access issues, we could expect that Tata would still buy Jaguar Land Rover.
Key issues for Indian investors
With the future stance on immigration into the UK unknown, Indian technology companies are rightly concerned as they have reportedly already experienced some difficulties around obtaining work permits.
The immediate impact of the Brexit vote has been the 20-25% devaluation of sterling. Off the back of this devaluation we have noticed an increase in the number of Indian corporates interested in potential UK acquisitions across sectors.
The details of the UK's new relationship with Europe will be crucial for Indian investors, especially with regards to financial services. For example, Indian banks in London with an interest in Europe are anxious to know what passporting rights London will enjoy.
A number of commentators anticipate that Brexit will allow for a bilateral trade agreement between UK and India. Negotiations for an EU-India trade treaty remain on-going and protracted, but there is hope that a UK-India trade agreement can be completed quickly.
The key issue will be around when official negotiations can begin without the UK getting into legal difficulties with Brussels.
In conclusion, Brexit will have an impact on Indian investments in some areas but in others it will be ‘business as usual’. The exact nature of the exit will be important and it would be complacent and unwise to believe that a bilateral trade agreement will be easy to put in place quickly.
Read our guidance on Brexit and explore how we can help
Exploring potential changes to trade and supply chains
Retaining and recruiting the skills you need through Brexit
Exploring the key issues around finance and business infrastructure