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Indian Firms In Britain In Wait And Watch Mode

Speculation over Brexit casts shadow over Indian businesses in the UK

The speculation over the United Kingdom’s ongoing negotiations with the European Union in the wake of the Brexit referendum may throw a spanner in the works of Indian companies located in the UK, and considering expanding their operations.

Last month, Jaguar Land Rover (JLR) – owned by Tata Motors and Britain’s largest car manufacturer – announced that it was scaling back production in its Halewood plant due to rising diesel prices and “ongoing speculation surrounding Brexit”.

There are more than 800 Indian companies in the United Kingdom according to the 2017 Grant Thornton – Confederation of Indian Industries Tracker. Data shows that these companies, many of which are subsidiaries, employ 1.1 lakh people in the UK, and generated revenues worth Rs 4.29 lakh crores last year.

Of these, the Tata Group – via the subsidiaries controlled by Tata Motors and Tata Steel – is the largest employer, with nearly 70,000 workers.

While experts are unsure about what impact the eventual result of Brexit will have on the future of these companies, they are clear that it is not all bad news.

“A number of companies here regard the Brexit issue as an irrelevance, and are continuing to seek new investments in the UK because of the attraction from a business standpoint,” says Anuj Chande, head of Grant Thornton’s South Asia Group. “For one, there’s exchange rate depreciation that has happened, which has made investing here 20% cheaper. The UK is also the only place to get access to these iconic British brands as well as certain technology.

“Equally, there are other companies, like JLR, which are reconsidering the potential supply chain and duty implications of leaving the EU,” he adds. “Other sectors – like pharmaceutical companies who are seeking entry into the UK as a launchpad to Europe may look at other locations now that the European pharmacy regulator EMA (European Medicines Agency) is moving from London to mainland Europe.”

Despite this, Chande was confident that the existing Indian pharmaceutical companies – which account for 24% of all Indian businesses in the UK – are not thinking of moving their operations anytime soon.

“You have to understand that even without the EU there are numerous advantages to being here in the UK,” he says. “Language is a key one, with English being a common language between India and the UK; so is the fact that businesses here enjoy one of the lowest corporate tax rates in all of Europe.”

The moving of the EMA to Amsterdam has raised questions over drug licensing in the future, and whether new pharmaceutical compounds manufactured in the UK will need to pass further checks in order to be sold across the single market.

“Brexit will have a minimal impact on the QPPVs (Qualified Person of Pharmacovigilance) in Europe, but for the 1,299 who are based in the UK, the impact will be significant,” says John Baber, head of Dr Reddy’s Laboratories Pharmacovigilance European operations. A QPPV is an individual appointed by a pharmaceutical company who ensures that that its products undergo legally prescribed safety checks while in the market.

“At the present moment it is difficult to see how UK-based EEA (European Economic Area) QPPVs will continue to exist,” he adds, pointing to the vast swathe of licensing regulations that pharmaceutical manufacturers may be subjected to depending on the outcome of the Brexit negotiations.

Under current regulations, UK-based QPPVs are part of the EMA – meaning that their decisions to sign off on the safety of a product meant it was certified across the EEA, and vice-versa. Now there is the real potential of QPPVs’ decisions not carrying any legal weight across the Union, meaning that products certified to be safe for patient use in the UK may require further testing before they can be sold across Europe.

That “may” is important: part of the problem facing existing businesses is the fact that both sides in the negotiations are not precisely clear on what they want.

“Business is all about speculation,” says Virendra Sharma, a Member of Parliament who, at the beginning of this month, chaired a meeting of Indian businesses and MPs in the House of Commons. “But no businesses want uncertainty. The reason why Britain is suffering right now is because the government does not know what they want out of the negotiations – which is why companies are looking at quick short-term solutions instead of the bigger picture.”

“The general perception is that Britain will have more opportunities to directly trade with India once the exact details of what leaving the European Union entails are hammered out,” he adds. “There are immense benefits for both sides – the businesses I met earlier this month were clear that they know their investments are safer in the UK – while we here depend on skilled workers migrating here to support our industries and offices.”

“With the future of immigrants from the EU still uncertain, Britain will face a huge skill shortage – and India is the perfect place to source a trained, highly skilled workforce who we have a strong history with,” the Labour MP added.

India has already made it clear that the UK must ease its current draconian restrictions on immigration before any new trade negotiations take place, particularly on its restrictions on those who fall under the Tier 2 visas – skilled workers from outside the EU who do not have a PhD.

Under the current regulations there is a strict cap of 20,700 Tier-2 visas being allocated per month. Britain’s points-based immigration system also means that applicants are prioritised based on how high their salary is, with the Home Office setting the minimum requirement to Rs 49 lakhs in December 2017.

Employers also have to pay Rs 90,000 annually for each non-EU skilled worker they hire under the Conservative’s Immigration Skills Charge policy; a sum that the Teresa May government has pledged to double before the end of Parliament.

While immigration is not an immediate priority for the British government, Sharma is certain that it will be tackled following the negotiations. “I think a lot of people who were using immigration to score political points now realise we need immigrants more than they need us,” he says. “It will definitely be addressed once we are clear about the details of leaving the European Union.”

That clarity still seems far off, however; which means that Indian companies here will still need to wait for the dust to settle after the UK leaves the Union before embarking on any long-term expansions.

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