The UK’s decision to leave the EU is forcing Indian investors to reconsider their operations in the country, particularly regarding steel production and IT services.

The UK’s referendum decision to exit the European Union has created a lot of uncertainty for foreign investors from India, at least temporarily. Investors seek stability in the business environment. Brexit has upset the calculations of big investors like the Tata family and those who have used the UK as a base to explore the European market. India is the third largest source of FDI into the UK and the largest manufacturing employer. It is an even larger source of greenfield investment than China with $14.4bn of investments in 352 projects since 2003 according to data from fDi Markets.

First, Brexit has stalled Tata Steel’s plans to sell its loss-making business in the UK that is losing £1m a day. The company placed its decision on hold after inviting bids, because the referendum raised concerns over the viability of the steel business. Tata Motors’ profits from Jaguar Land Rover are affected as it sources 35% to 40% of its auto components from Europe, which will become costlier following the pound’s depreciation against the euro post-Brexit. In addition, if there are higher duties on car exports to Europe, this will further hit the company’s bottom line. 

Beyond steel

Indian IT and pharmaceutical companies based in the UK are also affected. IT company Infosys secured a contract in 2003 from the Royal Bank of Scotland (RBS) to build applications for Williams & Glyn, which was to be listed as a separate bank in the UK. Following the referendum, however, RBS cancelled this contract, affecting 3,000 Infosys employees and revenues of at least $40m this financial year. If other banks similarly re-evaluate their UK operations, other Indian IT companies catering to this lucrative business could be affected. 

However, it is not all bad news for Indian foreign investors. Brexit has not obstructed companies using London as a financial centre to raise funds for infrastructure. The successful issue of rupee-denominated masala bonds of £1bn in the past few months is a case in point. The UK is also the third largest investor in India, spending $23bn from April 2000 to March 2016 according to India’s Department of Industrial Policy and Promotion. Post-Brexit, two-way flows of FDI can still increase, depending on the trade deals concluded between India and UK.

This article is sourced from fDi Magazine
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