india

Updated: Jan 27, 2019 07:13 IST

The law ministry has cautioned the commerce ministry that the UK’s imminent exit from the European Union (EU) is a matter of serious concern for India’s trade and industry and the government must take legal recourse to protect Indian interests during the Brexit.

“The Law Ministry wants the administrative ministry (Commerce Ministry) to take up the matter in the WTO (the World Trade Organisation), a government official with direct knowledge of the matter said requesting anonymity.

The government’s legal experts have said that Brexit could restrict Indian companies’ access to the EU through the UK. Several commercial agreements will also need to be renegotiated on account of this, the official said. The government has been discussing this matter with trade experts, legal specialists and the industry bodies, including Ficci and CII.

Some sectors that are likely to face the heat due to Brexit include automobiles, auto components, pharmaceuticals, gems and jewellery, education and IT enabled services. “Most of these sectors will be vulnerable to changes in demand and currency values,” Ficci said in an email reply. There are more than 800 Indian companies in UK, it added. For many of these companies, London also serves as the European HQ.

Queries sent to ministries and law and commerce did not elicit any response. CII offered no comments on this matter.

Experts expect operational costs of Indian companies to soar. “Many Indian establishments which were operating across EU through the UK may have to set up new offices in the EU. This may increase infrastructure and manpower cost for Indian companies,” Abhishek A Rastogi, partner, Khaitan & Co, said. With the UK moving out of the EU, the latter might not remain as attractive to Indian Investors as it used to be pre-Brexit, he said.

According to Ficci, this may also give an opportunity for the Indian firms to renegotiate better deals and tax concessions in the UK. “India is the major foreign direct investment source for the UK because many Indian firms have used it as a gateway to Europe. With UK moving out of EU, it might not be as attractive to Indian firms as before. However, the UK government would not like to miss out Indian investments and will thus try to attract Indian firm by offering more incentives such as tax breaks, easy regulations and opening up market,” it said.

Daksha Baxi, Head – International Taxation, Cyril Amarchand Mangaldas, foresees some taxation issues for Indian firms operating in the UK. “Upon Brexit, Indian companies having holding or an operating company in the UK or EU may lose the benefit of tax concession on income from the other EU jurisdiction under the EU directives, unless the UK continues to give such concession to UK companies investing in EU and vice versa,” she said.

In a quick survey of 45 Indian firms conducted by Ficci in 2016 immediately after the Brexit referendum, companies saw both, an “adverse situation” emerging due to the UK’s exit decision, and opportunities for more Indian companies doing business with their UK counterparts.

Bilateral trade between India and the UK was worth about £18 billion in 2017 while India’s bilateral trade with EU, as a block of 28 countries, including the UK, in 2017 (January to October) was to the tune of €70.7 billion.

Ficci enumerated some practical difficulties that Indian firms could face. “While Indian businesses in general don’t intend to set up operations in any other EU country because of Brexit, they are concerned about the impact on intra company transfers/movement of professionals and Indian migration over the medium term,” it said.

“Furthermore, it is anticipated that the companies that have operations in the UK and the EU will have to face significant translation losses with the probability of volatility in currencies remaining high,” it said.

Post Brexit some companies could face investigation from competition authorities both in the UK and the EU, it said. “Until now, a majority of the competition law in the UK was derived from the EU,” it said.

The biggest costs of doing business across borders tend to come from non-tariff barriers, rules of origin checks, custom controls, compliance with different products standards between the countries, it said.

India may also use Brexit as an opportunity, Rastogi said. “Brexit may nudge UK to develop better trade relations with India after losing access to the EU single market”.

For instance, India may have an opportunity to increase its agro-products to the UK, Ficci said. “Post Brexit, EU subsidies may no longer be available for the UK and the extent to which the UK will be able to support its farmers on subsidies is debatable. The UK may find it necessary to reduce tariffs in order to import cheaper food products,” it said.