As Britain made its crucial decision to leave the European Union (EU), public, on June 23, 2016, the whole world seems to be in awe. Needless to say that such a move has not only created ripples within the global economy but has led to concerns about many, as to what would be the economic aftermath of such a move.
#Brexit, as the term has been coined for the event, repeatedly zoomed all over news channels, dailies and social media. The burning question at this hour is, whether the decision was apt for Britain, especially when the global economy and that too, Europe’s as a whole is teetering on the threshold of a slowdown.
While India has refused to come up with a statement regarding Brexit, it goes without saying that the country will be impacted in some way or the other over this. While the Information Technology (IT) sector might feel the heat considerably, concerns also surround the Indian job market.
The Indian recruitment industry is also under pressure, as the information technology sector accounts for a maximum of employment for millennials and others.
The Brexit Background
So, how did the question of exiting EU even arise? If sources, are to be believed, it is the brainchild of one British parliamentarian named Nigel Farage, representing UK Independence Party (UKIP), a right-wing populist party. This party is known for its stringent policies to immigration and resistance policies to all this foreign. In the past, its MPs have been known to display public disdain for even UK nationals of foreign descent, at times bordering on rampant racism.
Politics and fervour have raised to a high that even ended up in the killing of one individual. The UKIP party has been active in the support of Britain leaving the EU.
The Brexit Impact on India
A global economy implies a trickle-down effect on the Indian economy as a whole and not just the status of Britain’s national dish – the Chicken Tikka Masala. Some specific areas that will be affected comprise the following:
+ Depreciation of rupee
+ Hike in petrol and diesel prices
+ Steep rise in fiscal deficit
+ Cheaper rupee will hit IT and ITeS the most
+ Consequently, the prices of gold and electronic devices will soar
Effect on the Overall Indian Job Market
Since the Indian IT industry is bound to have a significant impact, company earnings are expected to drop down considerably. This can lead to layoffs in businesses, implying that people losing out on their steady jobs and of course Indians deported to the UK by Indian IT firms, will also feel the heat.
IT companies like TCS, Wipro, Infosys, Tech Mahindra will notice a significant drop in their earnings. With up to 14% of their revenue being exposed to their UK businesses. These companies might take a hit of close to 3–8% of their profits. It goes without saying this will impact the overall growth of the organisation, reaching out and affecting the employees in return.
Around 110,000 job vacancies that have been created due to the presence of close to 800 businesses in India indirectly or directly are poised to be hit. This will further have a disadvantageous effect on the overall job creation, regardless of skills or descent.
Why are Indian Startups Poised to be Affected?
Even if the macroeconomic factors that are most likely to be affected by Brexit are removed, Indian startups will also be affected negatively. Startups usually operate with paper-thin margins in the initial years of business, and most of the Indian startups are dependent on IT to a great extent.
If the implications of Brexit reach up to its severest forms, Indian startups will be left with two choices – either take a dip in their revenue or increase their pricing to counter their losses from cheaper rupee and rise in prices of electronic devices. Both the choices might not predict well for startups and small businesses.
Moreover, NASSCOM has stated that Brexit is likely to cause a hugely adverse effect on the $108-billion IT segment of India. On the other hand, a rise in fuel prices will prove unfavorable, for startups that deal in cabs providing comparatively cheap rides to passengers. This will lead them to increase their pricing significantly. So, now people might need to have deep pockets even for cabs!
Now the question arises, whether Brexit has the potential to undo the slew of sops and incentives that the government has promised to provide startups and small businesses in India.
Nonetheless, on the last note, it can be said that the real impact depends on the kind of trade agreement is signed to replace the existing free market access. What remains to be observed is, whether the effect of Brexit will cease or end up creating havoc for emerging economies like India.
Let’s wait and watch.