Following the decision of Britain to exit from the European Union, the $100 billion Indian IT-BPM industry is facing uncertainty in the near term.
NASSCOM, which represents IT service providers such as Wipro, TCS, Infosys, among others, has termed the Brexit announcement as a phase of uncertainty in the near term but a mix of challenges and opportunities in the longer term.
The Hindu Business Line reports that Infosys, a leading IT services provider, generated 23.4 percent revenue from Europe. Europe contributed 25.6 percent revenue for Wipro, 26.8 percent to TCS, 28.5 percent to Tech Mahindra and 31 percent to HCL Technologies.
The software industry association said the Europe market is of prime importance to India. It is the second largest market for the Indian IT-BPM industry, constituting almost 30 percent of the industry’s export revenue of about $100 billion. The UK plays a key role within this market.
“In addition to representing a large share of our members’ activity in Europe, many use the UK as a gateway for further investment across the European Union,” said NASSCOM.
How Brexit impacts software exports
Likely decline in the value of the British Pound could render many existing contracts losing propositions unless they are renegotiated.
The uncertainty surrounding protracted negotiations on the terms of exit and/or future engagement with EU could impact decision making for large projects.
Indian IT companies may need to establish separate headquarters / operations for EU, may lead to some disinvestment from UK.
Skilled labour mobility across EU and UK could be impacted.
Changes in the financial system, banks and impact on currency could ensue
“NASSCOM urges policy makers in Brussels and London to provide greater clarity and guidance on the next steps as soon as possible, so that our businesses have the certainty they need to continue to invest in UK and Europe,” said NASSCOM president R Chandrashekhar.
How will Brexit help India
NASSCOM said Brexit could lead to strengthening of India-UK economic relationship as UK seeks to compensate for loss of preferential access to EU markets. This could open up new opportunities for UK and India as well.
There are 800 Indian companies with 110,000 individuals in the UK.
Additionally, with UK less dependent on intra-EU immigration into UK, it could become more open to high-skilled immigration from other non-EU countries including India. UK will not be under obligation to adopt restrictive EU data localization norms which it does not subscribe to in their entirety.
Finance Minister Arun Jaitley on Brexit
As regards the Indian economy, we are well prepared to deal with the short and medium term consequences of Brexit. We are strongly committed to our macro-economic framework with its focus on maintaining stability. Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation. Our immediate and medium-term firewalls are solid too in the form of a healthy reserve position.
As investors look around the world for safe havens in these turbulent times, India stands out both in terms of stability and of growth. India, as you are all well aware, is amongst the fastest growing major economies in the world today. Our growth and inflation prospects are further improving in the wake of the good monsoons that are now moving well across India.
The government and the Reserve Bank of India as well as other regulators are well prepared, and working closely together, to deal with any short term volatility. Our aim will be to smooth this volatility and minimize its impact on the economy in the short term. At the same time, for the medium term, we will steadfastly pursue our ambitious reform agenda-including early passage of the GST-that will help us realize our medium term growth potential of 8-9 per cent and help achieve our objective of development for all.
Source of chart: HBL