Brexit: Why it’s India’s business to watch how Britain votes

A referendum will be held to decide whether Britain should leave or stay in the European Union (EU).

The possible exit, called “Brexit” (Britain+ exit), could have lasting consequences.

The referendum is scheduled for Thursday, June 23.

Here are the key things that you need to know about the referendum and why does it matter to India:

Why the vote?

On Thursday, the people of Britain will vote on their country’s future in the European Union and the outcome can have profound implications for the 28-member bloc and UK’s ruling Conservative Party.

Though Britain joined the EU in the 1990s, the people have had misgivings for long about the bloc’s economic regulations. These fears were heightened by the EU’s response to the recession in 2008, especially the need to bail out poorly performing countries such as Greece. In recent years, their worries have grown about the EU’s internal migration policies.

Prime Minister David Cameron came under pressure in 2012 to hold a referendum on Britain’s future in the EU. He announced in January 2013 that he would hold such a vote if the Conservative Party won the 2015 general election. After the party’s victory, Cameron said the vote would be held on June 23.

Watch | Why India doesn’t want Brexit

What happens if Britain votes to leave?

Even if Britons vote overwhelmingly for Brexit or the country’s exit from the EU, it wouldn’t be as if matters would be settled there and then. It could take years for Britain to settle a range of issues that have implications for its relations with the EU, including tax laws and immigration rules.

The two sides will also have to decide if EU laws will continue to apply to Britain after a possible exit and this matter will have to be settled within a period of two years. British firms that sell across Europe would have to ensure once again that their products meet safety and environmental standards.

Why it matters to India:

Industry

800 Indian companies operate in the UK, employing 110,000 people

The effects: For Indian IT companies, Britain accounted for almost 17% of the total $100-bn global IT exports in 2015-16. If Britain leaves the EU, IT operations are likely to be hit most.

Indian IT companies may need to establish separate headquarters for the EU, which may increase the cost of operations

Trade

India’s bilateral trade with Britain in 2015-16 was $14.02 bn, ($8.83 bn in exports and $5.19 bn in imports). Britain ranks 12th in terms of bilateral trade and is one of seven countries with which India has a trade surplus.

Effect

The British government estimates economic losses due to Brexit could amount to as high as 6% of GDP after two years, and up to 9.5% of GDP after 15 years in the absence of a negotiated bilateral trade agreement with the EU. This could lead to reduced import demand as Britain would aim to spur domestic industries. India’s exports to Britain may decline.

Pound

98.5: Rupee’s exchange rate with the pound

8%: The likely appreciation in rupee if Brexit happens

Effect

If the rupee appreciates, exports from India will become costlier. This will also lead to lack of foreign investment from Britain as the rupee will become a costlier currency to buy.

Immigration

85,403: Total work visas granted to Indians in 2015, 51% of the total visas granted.

455,793: Total visas given to Indian citizens in 2015, 85% of the total.

Effect

Brexit may lead to Britain tightening immigration laws, so Indian companies sending people to the UK for work may be affected. Stricter visa rules may also affect people working on work visas in Britain, who may not get an extension

Indian companies with major operations in Europe

Garment makers: Kitex Garments, Zodiac Clothing, KPR Mill

IT: TCS, HCL Technologies, Tech Mahindra, Infosys

Steel: Tata Steel, Hindalco

Auto and auto component makers: Tata Motors (Jaguar and Land Rover), Bharat Forge, Apollo Tyres, Motherson Sumi

Drug makers: Dr Reddy’s, Wockhardt, Cipla, Torrent Pharma and IPCA Labs, Cummins India

Full Coverage| Britain’s EU Referendum

Read| Brexit on paper: What the Brits are actually voting for

Read| Of expats and corporates: Why India wants Britain to remain in Europe