How Brexit will affect Indian IT sector

The exact nature and extent of the impact - if "Brexit" happens - will emerge over a longer period of two years or more.

PTI| Updated: Jun 23, 2016, 12:20 PM IST
PlayHow Brexit will affect Indian IT sector

New Delhi: Britains exit from the European Union will have a negative impact on the USD 108-billion Indian IT sector in the short term, industry body Nasscom has said.

However, Nasscom said the exact nature and extent of the impact - if "Brexit" happens - will emerge over a longer period of two years or more.

Brexit refers to the possibility that Britain will withdraw from the European Union with the in-out referendum on its EU membership to be held on June 23. The UK would have two years to figure out the exact terms of the nations departure.

"An initial analysis indicates that the impact on Indias technology sector may be mixed; clearly negative in the short term and harder to discern in the longer term - with either scenario having some positive and some negative points," Nasscom said.

It added that how and to what extent it will impact Indian IT companies in the region will become fully clear only after "the dust settles on the referendum".

Leading IT firms like TCS, Infosys, Wipro and HCL Technologies did not comment on the issue.

A Tech Mahindra spokesperson said the company will "wait and see what the outcome of the referendum is" and then assess the situation.

According to reports, Indian IT companies get anywhere from 6-18 percent of their revenues from the UK. The UK has traditionally been the gateway for Indian IT firms to enter Europe and they have set up a large presence in the UK to serve the EU markets from their headquarters in London.

"Consequently, a negative implication of Brexit is that Indian IT companies may need to establish separate headquarters/operations for EU, leading to disinvestment from the UK and diversion of activity from the UK to EU," it said.

Also, the immediate fallout of Brexit on the IT industry in India would be the impact of any possible decline in the value of the British pound, which would render many existing contracts losing propositions unless they are re-negotiated.

In the longer run, Brexit could help strengthen India-UK economic relationship as the UK seeks to compensate for loss of preferential access to EU markets.

"Indias focus on innovation, entrepreneurship and high-end work renders it a very attractive destination from a talent standpoint and equally in terms of market access. This could work to the benefit of the IT sector in India since the UK currently accounts for about 17 per cent of Indias IT exports worldwide," it said.