Their Story. Will Brexit pound Indians?

2016 was a year of surprise for the global financial markets. It all began with the UK’s referendum on whether to stay in the European Union or not, popularly termed by the market as “Brexit.” It was followed by Donald Trump’s surprise victory in the US Presidential elections towards the end of the year.

The outcome of the UK referendum jolted the financial markets last year. While everyone was expecting the UK to remain in the EU, the British gave a decisive ‘No’ vote.

The British currency took a strong beating immediately after the referendum. The pound plummeted 20 per cent against the dollar, from 1.50 in June 2016 to 1.20 in October 2016. The currency has recovered from this low and is now trading around 1.25.

Against the rupee, the pound has slumped 20 per cent, from around 100 to 80.

How has the weakening of the British pound impacted different categories of Indians living in the UK? We take a look.

One of the major advantages of being a member of the EU is the ease of doing trade with the other members. Until now, the entire EU has been considered as one single market and the Brexit referendum has come as a big blow for the businessmen.

Yuvaraj Eswaran, who runs a global e-commerce trade and services business in the UK, says “the single market system simplified the UK’s trade with other EU countries. It is going to be difficult for us and for the global trade if the UK government fails to strike a good deal.

The impact will be more on the 5.4 million small and medium enterprises (SMEs) in the UK, as they have fewer resources with which to manage the change.”

Sathish, who owns an IT Services company, says “The single market allowed me to sell my products and services anywhere in Europe without any constraints. Now there’s uncertainty about the future as there are many unanswered questions — do I need a visa? What restrictions will be imposed on providing services to other EU countries? Will there be extra taxes or fee for the services provided?”

The answers to these questions are going to be key not only for Sathish and Yuvaraj but for all of the UK’s global trade partners.

Another key factor would be the changes in the immigration policy, which was the major selling point for the “Leave EU” campaign.

Like a single market for trade, earlier, people were free to travel across the EU nations. The UK may now move to restrict this to provide more job opportunities for its own citizens. But this may have an adverse impact as the UK might lose out on talent available outside the country.

“We are already suffering as the business has started to feel the pressure of recruiting the right staff — both talented and experienced. So, restricting immigration will hit Britain’s economy and society,” says Sathish.

The pound tumbling 20 per cent against the dollar since the referendum is already pinching businesses in the UK. The business community has laid out new plans and strategies to tackle further fall in the currency value.

“We are minimising operations in the British pound as much as possible and have made some changes such as raising invoices and holding funds in other currencies. We are also considering setting up a subsidiary in an EU country which will enable us to continue to enjoy the benefits of the single market system,” says Yuvaraj.

On the other hand, for Sathish, the sharp fall in the pound has increased the cost of his Bengaluru unit in terms of rent, wages, etc.

“The fall in pound has increased my cost by one-third. We have frozen recruitments for our Bengaluru unit for the next few months as overall cost has skyrocketed but the income still remains the same,” says Sathish. He also laments that Brexit may make him much poorer than he would been if the UK had remained with the EU.

Amongst people who have been most badly affected by the fall in currency value are the Indians working in the UK. The sharp fall in the pound has hit the value of the money they send back home.

Karthik Prasanna, who has been working as a Banking Product Consultant in the UK for about two years now, says, “we have taken a direct 20 per cent pay cut after the referendum for no reason but the currency plunge. This has made migrant salaried individuals like me work much harder, spend less and save more to make up the shortfall.”

For Kalyanaraman N, who works in a financial network services company and has been in the UK for about 10 years, local purchases have become costlier due to the fall in currency value against the dollar. Thaough he does not see a drastic change after the referendum, he is worried about how immigrants will be treated going forward and the job market.

“After the referendum, there is uncertainty whether the UK will welcome non-Europeans and other immigrants as it was doing earlier. Foreign workers will have to wait to see if a deal is struck for free movement of labourers between the UK and the EU,” says Kalyanaraman

Pain for some has spelt gains for others. While businessmen and the salaried Indians are grumbling over the currency fall, there is one set of people who are happier about it. They are the Indian students in the UK. Though they have not benefited much on the education loan front as much of the tuition fee has already been paid, the students feel that they are now able to save more.

Aarudh, pursuing his Masters in Filmmaking in the UK, says, “My savings have gone up three-fold and I am able to save over ₹20,000 per month in my living costs.”

“The currency fall works out well when my parents send me money from India. I am now spending my savings on vacations in the UK,” adds Avinash, also a student. Though both Avinash and Aarudh do not intend to stay back in the UK after their studies, they are, however, worried about the job market in the UK following Brexit.

“As a film making student, Brexit could be a negative as a few of the production houses in the UK associated with the EU are already leaving,” says Avinash. “I will be leaving the UK soon as it can get only worse from here, beneficial for the students but terrible for working professionals” adds Aarudh.

Like the students, travellers planning to visit the UK now may also benefit from the currency fall.

But the savings will be limited to the spending done only at the destination since most of the costs, like the flight tickets, visas, etc, are incurred before the actual travel and in Indian rupees. Abraham Alapatt, President - Marketing & Innovation, Thomas Cook (India) Ltd, says, “A 20 per cent fall in the value of the pound against the rupee does not mean than you save 20 per cent in your travel to the UK. Because, 70-80 per cent of the travel package cost is paid in rupees. This will include the flight cost, visas, etc. The only cost saving benefit is from the expenses incurred in the UK on food, travel, and sight-seeing within the UK.”