The possible effects of BREXIT on the world and India

The possible effects of BREXIT on the world and India

BREXIT is the buzzword around the globe and there are mixed views on BREXIT. The scenario in India is that from our PM Mr. Narendra Modi to our RBI governor Raghuram Rajan all are in favor of BREXIT as it is potentially good for India. Okay so what does Brexit mean?

‘Brexit is an abbreviation of “British exit”. It refers to the possibility that Britain will withdraw from the European Union.’

Who will decide the BREXIT?

UK will hold an in-out referendum on its EU membership on June 23 on whether there should be a British exit (or Brexit), from the EU Momentum.
People of UK will vote whether UK will ‘Leave’ EU or will ‘Remain’ in EU.
British Prime Minister David Cameron said on 22-06-2016 the opinion pool is showing the rival camp neck and neck.
The ‘Leave’ camp was on 45% , ‘Remain’ camp was on 44% and 9% remain undecided , according to pool published by Opinium.

What stands for EU?

The European Union (EU) comprises 28 member states.
Each member state is party to the founding treaties of the union and thereby subject to the privileges and obligations of membership.
The member states of the EU are subjected to binding laws in exchange for representation within the common legislative and judicial institutions.
Member states must agree unanimously for the EU to adopt policies concerning defense and foreign affairs. Subsidiarity is a founding principle of the EU.

Why does Britain want to Leave EU?

Nigel Farage (a British politician and former commodity broker) has said the vote is good news for exporters who have struggled with the high value of the pound.
The EU allows too many immigrants, in recent years hundreds of eastern Europeans have come to Britain to earn a living.
Eurosceptics say that leaving the EU would allow Britain to regain control of its borders in order to curb soaring immigration and increase security.
The EU doesn’t have the power to directly collect taxes but it requires member states to make an annual contribution to the central EU budget. Now Britain has voted to leave the EU, it will no longer have to contribute billions of pounds a year towards the European Union’s budget.

Prime Minister David Cameron wants Britain to stay in the EU.

“Those campaigning for Britain to stay in the EU say it gets a big boost from membership – it makes selling things to other EU countries easier and, they argue, the flow of immigrants, most of whom are young and keen to work, fuels economic growth and helps pay for public services. They also believe Britain’s status in the world would be damaged by leaving and that we are more secure as part of the 28 nation club, rather than going it alone.”

Possible threat to UK if BREXIT happens

Ukip leader Nigel Farage says Britain could only ever get an ‘Australian-style points system’ as an independent country outside of the EU.
Some Europhiles have also argued that Brexit would compromise the UK’s ability to fight cross-border crime and terrorism.
Prime Minister David Cameron even said he suspects that ISIS leader Abu Bakr al-Baghdadi “would be happy” if Britain leaves the EU.

Global consequences of BREXIT

There is some uncertainty over what will happen now Britain has chosen to leave the EU as new trade agreements with the rest of the world will have to be made.

Brexit would be the strongest repudiation of the post-World War II consensus favoring global integration. The consensus is already fraying against the backdrop of increasing protectionism and anti-immigrant sentiment worldwide. Brexit will only add to this sentiment.
It could undermine global growth prospects. The EU is the largest trading partner for many countries such as India and China. Any unraveling of the EU market means uncertainty as it is an export destination and this is likely to have an impact on exports from all major parts of the world.
If Britain votes to leave, investors will rush to safety and capital moves from risky assets to safer havens.
Much of the EU’s money comes from its member states. And the UK is one of the larger contributors. A British exit from the EU would rock the Union by ripping away its second-largest economy with one of its top two military powers and by far its richest financial center. This could also give rise to more nations contemplating the exit from the EU.

Consequences for India of BREXIT

India sees the UK as a “springboard” or “gateway” into Europe. Many Indian companies are listed on the London Stock Exchange and many have European headquarters in London. (According to Indian government numbers, there are 800 Indian companies in Britain). Brexit will take away this advantage.
India has been negotiating a free-trade agreement with the EU since 2007 and a “yes” vote for Brexit will have a direct bearing on this. If Britain stays put, then India need not rework its strategy. If Britain leaves, then this will mean that India will need to negotiate a separate pact with the UK.
Brexit can affect India’s flagship IT sector given that the UK accounts for 17% or one-sixth of the sector’s global exports that topped $100 billion (approximately Rs.6.70 lakh crore). For one, Brexit will increase overhead costs, setting up new headquarters, perhaps in both Europe and Britain.
There are some who see an advantage for skilled migration from India to Britain, thanks to Brexit. But given that one of the arguments in favor of Brexit is the large numbers of European migrants coming into Britain, this perception of advantage could be somewhat misplaced.

Even though with the happening of BREXIT, it is bad for Britain but it is potentially good for India as new opportunities would rise for India. This would be beneficial for India’s trade relationship with Britain and for better employment opportunities for Indians in UK or by UK.

(This report is prepared by our interns at EQSIS, we appreciate their efforts.)