Photo: AFP
Photo: AFP

Why Brexit is good for India’s tech services

Rising economic nationalism and inflexible borders that either a Brexit or increasing American visa regulation would cause will interrupt the shift toward automation

Much ink—and now tragically, blood, with the assassination of a British Member of Parliament—has been spilt on the prospect of Great Britain leaving the European Union (EU) after a national referendum slated to take place on 23 June. This phenomenon has been named “Brexit": a combination of the words “Britain" and “Exit".

Christine Lagarde, the head of the International Monetary Fund (IMF), has made an impassioned plea for British voters to stay in the EU after her organization recently presented its report on the British economy.

The IMF used the report to highlight that a ‘yes’ vote on Brexit would plunge the British economy into a recession. It has also predicted a stock market crash and a steep fall in real estate prices in Britain.

Financial markets are jittery, and heavy trading is predicted around the date of the exit vote. The sterling has been going down in value as the probability (now north of 30%) of an eventual vote to exit has been going up.

What isn’t patent to many casual observers is that a ‘leave’ vote does not cause an immediate exit of Britain from the EU. All it does is open the door for protracted trade negotiations with the countries that have chosen to remain.

A final exit, if it were to happen after all terms and conditions have been met, would not take place until 2019. These negotiations, the IMF says, will cause further uncertainty and turmoil in the markets.

Responding to the latest IMF remarks, Matthew Elliott, the chief of the campaign supporting a vote to leave the EU, has said that the IMF has chosen to ignore the positive benefits of leaving the EU and instead focused only on the supposed negatives.

His campaign estimates that it can create 300,000 jobs by doing trade deals with fast-growing economies across the globe and that Britain can stop sending the £350 million he says that it pays Brussels (where the EU is headquartered) every week.

The referendum, while brought about by local issues around migration and campaign promises made by the Conservative Party which won last year’s general election, is actually a reflection of a growing tide of economic nationalism the world over. It isn’t very different, in its essence, from Donald Trump’s current rhetoric on building walls to seal the American border.

British opinion on leaving versus staying is pretty evenly split, much like the Democratic-Republican vote now seems to be in the US.

The local issues are mainly triggered by recent increased immigration into Britain from the newer—and poorer—member-countries of the EU. Those most likely to vote to leave the EU include lower middle-class workers across Britain who have lost their jobs to waves of immigrants from Eastern European countries.

Jokes about Polish plumbers abound in middle England, but there is truth in jest. In a classic example of English humour’s penchant for irony, I remember the British media making much of striking South Asian British workers at Heathrow, who almost brought the airport to a standstill a few years ago while still wearing their native salwar-kameezes. Many of these workers were originally from India’s Punjab and from Pakistan, were now British, and were facing the prospect of losing their jobs to Polish workers—new legal immigrants from the EU.

While a leave vote would likely cause problems to the free flow of labour into and out of Britain’s economy, telecommunications will make sure that the free flow of technology-based work isn’t hindered. While unclogging a sewer line needs a local (and deeply embedded) presence, processing insurance claims or working on the opening of bank accounts doesn’t.

These processes constitute work packets that can simply be unbolted and shipped offshore, most likely to India, where Britain is the second largest market after the US for India based business process outsourcing (BPO) and information technology (IT) services providers.

As I have noted before in this column, India’s technology services explosion in the last decade was caused not by packing planes full of US- or UK-bound immigrant Indians but by the increase of inexpensive telecom bandwidth that allowed for the work to be moved to the worker.

So yes, the 2001 ‘dot-com bust’ may have caused many Indian software engineers working in the US to go B2B (Back to Bangalore), but they simply started working again from where they had left off. All that had changed was that they were in India instead of in the US.

British businesses, just like all others, are under the gun to perform with ever-increasing expectations around revenue and earnings growth. A scenario in which automation and artificial intelligence puts millions of Indian workers out of jobs can only become reality if the cost of automating these jobs through investment in computing capability and software isn’t significantly greater than simply ‘lifting and shifting’ the jobs offshore, where labour costs are lower.

As things stand today, robotics and artificial intelligence are still in their infancy, and require much more investment until their full potential can be realized.

Rising economic nationalism and inflexible borders that either a Brexit or increasing American visa regulation would cause will again create a mezzanine step which would interrupt—even if only for a few years—the inexorable shift toward automation.

And the longer this mezzanine landing lasts, the longer the labour arbitrage model remains. I will be awake on the night of Thursday, 23 June, waiting with baited breath for the results of the Brexit vote.

Siddharth Pai is a management and technology consultant.