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Economy

India's UK diaspora moves to leverage Brexit

Demands for relaxed immigration rules still could be a stumbling block

Britain's Prime Minister Theresa May and her Indian counterpart Narendra Modi before their meeting at Hyderabad House in New Delhi on Nov. 7 2016   © Reuters

LONDON -- On June 24, 2016, Shuchita Sonalita, the U.K. director of the Confederation of Indian Industry, walked into her office to find stunned silence. Overnight, the results of Britain's referendum on its membership in the European Union had been counted and by early morning the "leave" camp had won by a narrow margin, throwing the country into economic and political turmoil.

The offices of the Confederation of British Industry, which hosts the CII, were "pin-drop silent," Sonalita recalled. Then the phones started to ring. "We had a lot of concerned approaches. What does this mean? How are we going to plan for this?" she said.

India is the third-largest source of foreign direct investment into the U.K., behind the U.S. and France. There are more than 800 Indian companies in Britain, employing nearly 110,000 people, according to a study by accountants Grant Thornton for the CII. Those companies range from small technology startups to the giant Tata Motors, which owns the iconic Jaguar and Land Rover marques.

Like British businesses and investors from around the world, the Brexit vote has left Indian companies facing massive uncertainty over how the separation from the EU will affect the U.K. economy and their ability to operate within the European single market, the world's largest trading bloc. However, Indian investors are more alert than most to potential upsides as their government looks to win concessions from the U.K. in exchange for a new trade deal.

The U.K. government is under enormous pressure to strike new bilateral trade agreements with other nations to demonstrate that it can thrive as a mercantilist power outside of the EU and that it can re-energize its ties with its former colonies that form the Commonwealth of Nations to offset falling trade with Europe. That strategy inevitably means winning over India, a rising power and home to more than half of the Commonwealth's 2.3 billion people.

British Prime Minister Theresa May, who took over in the aftermath of the Brexit vote, visited India in October 2016, her first major trade mission. Her predecessor, David Cameron, made several visits to try to boost trade links that have grown slowly over the past few years despite what are euphemistically called "historical ties" as well as the large Indian diaspora in the U.K. Less than 2% of Britain's exports go to India compared to 44% which currently go to the EU.

A "leave" supporter holds a Union flag, following the result of the EU referendum in London. Brexit talks between the EU and the U.K. have become more confrontational.   © Reuters

The EU has been engaged in negotiations with New Delhi over a wide-ranging free trade agreement for more than a decade. That deal, which would have included the U.K., has foundered as the two sides found themselves unable to agree on terms related to the automotive sector, food and agriculture, pharmaceuticals and the free movement of labor. Although pro-Brexit campaigners blamed the failure to agree a deal on EU "red tape," the U.K.'s objections were central to several of those sticking points, according to Gareth Price, senior research fellow in the Asia program at Chatham House.

India senses an opportunity to move forward with both the U.K. and the EU. "The EU tells us that now the U.K. will be out, it will be easier [to do a deal], and the U.K. tells us that once they are out of the EU, it will be easier," Dinesh Patnaik, India's deputy high commissioner to the U.K. said in an interview in his wood-paneled office in India House in central London.

As Brexit talks between the EU and the U.K. have become more confrontational, and as the British government has had to take ever more extreme positions to satisfy a vocal "hard Brexit" constituency, it has become clear that the U.K.'s separation could leave it relatively isolated. Everything from trade and investment to security cooperation and intelligence-sharing is now in play, Patnaik said. That means that the U.K. will have to invest heavily in its bilateral relationships.

"More compromises will be made than before," he said. "We see Brexit more as an opportunity than a threat."

Chief among those compromises is the free movement of labor from India to the U.K., which has long been a stumbling block in trade talks. India sees liberalization of the U.K.'s visa rules as central to any agreement on trade in services. As the CII's Sonalita said: "The conversation on trade in services is not complete without a conversation on the movement of talent."

That conversation is likely to be controversial against the backdrop of the Brexit vote. Polls show that opposition to immigration was a significant motivating factor amongst "leave" voters.

"If you've come out of Europe under the pretext that you'll reduce immigration, this is the biggest problem," said Mihir Kapadia, the Indian-born chief executive of Sun Global Investments, a financial services company with offices in London and Mumbai. "One has to be extremely vigilant as to the unintended consequences of a populist move."

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