BREXIT Effects on UK, India and the EU

GS-2 TOPIC: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.

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BREXIT Effects on UK

  • The referendum results are not legally binding. To give effect to the withdrawal of UK from the EU, the country will have to formally notify the EU as per the procedure detailed in Article 50 of the Lisbon Treaty. The treaty also obliges the Union to try to negotiate a ‘withdrawal agreement’ with the state seeking separation. Only when the UK invokes Article 50, it will get a two year time-frame to negotiate a new treaty with the EU, to replace the terms of membership.
  • The BREXIT will have huge ramifications for the British economy. In the short run, uncertainty about Britain’s future relationship with the EU, it’s largest trading partner, could push the UK into recession.
  • A huge market volatility was witnessed in the aftermath of the unexpected declaration. The British pound lost about 9 percent of it’s value and reached an all time low since 1985. The volatility reflects market worries about more severe consequences in the months ahead. There will be considerable caution and lower confidence on spending and investment.
  • This has been one of the biggest issues in the British politics. The LEAVE vote has been a shocker and has forced Prime Minister David Cameron, a REMAIN supporter, to step down. Without him, Britain’s prospects of negotiating a favorable deal with the EU could be weakened which could in turn cause serious problems for businesses based in the UK.
  • It has been estimated that exiting the EU could cause the British economy to be between 3.8 and 7.5 percent smaller by 2030. This depends upon how well the negotiations for access to the European market proceed.
  • The LEAVE vote will give a blow to the principle of free movement. Anti- immigrant sentiments were one of the major reasons leading to a demand for BREXIT.
  • With Scotland and Northern Ireland wanting to REMAIN with EU, which is evident from the polling there, a call for a second referendum on Scottish independence is highly anticipated.
  • There are chances for Northern Ireland to try to leave the UK and unify with the Irish Republic in the south. This foretells a possible dissolution of the UK itself.
  • The laws of UK will be impacted with 17 percent of them being a result of it’s membership in the EU. For example, in case of agriculture British farmers will lose the EU subsidies.
  • As Britain faces weaker growth and investment prospects, it’s status as a major banking hub could be jeopardized as some business would shift to the EU.

Effect of BREXIT on EU

  • The finances of the European Union come from it’s members. UK is one of the largest contributor to it’s pool of finances, which would be slashed by a large amount in the event of a BREXIT.
  • It would destabilize the Union as a whole as UK is it’s second- largest economy, one of it’s top two military powers and by far it’s richest financial centre.
  • BREXIT could have a domino effect ( chain reaction) with more and more member states contemplating to leave the Union.
  • BREXIT has posed challenge to the concept of the European Union itself. It needs to revamp itself, address the problems of member states and develop an enforcement mechanism to ensure that policies are administered fairly and equally across each member state.
  • In the short term, currency volatility may put pressure on India’s exports as both Pound and Euro will depreciate, giving greater competitiveness to their products particularly in the third world countries.
  • With currency depreciation, the domestic manufacturers in EU and Britain may get some competitiveness a imports will be costlier. This will adversely effect India’s and other countries’ exports.

Effect of BREXIT on India

  • The two major areas of concern for India are the welfare of a nearly three – million strong diaspora of Indian- origin UK citizens and the interests of a large moving population of Indians who visit Britain as tourists, business people, professionals, students, relatives etc.
  • BREXIT may avert the Indian companies having a base in UK from investing further there, particularly the ones seeking access to the European market. To avoid high tariffs, they will be tempted to shift their base to other EU states.
  • It might provide an opportunity for India to have bilateral agreements with Britain like the FTA (Free Trade Agreement) which might not have been possible had it remained in the EU.
  • Indian companies in the IT and the automobile sector based in UK might face issues in getting preferential access to the EU market.
  • If Britain gets the same treatment in terms of free tariff and free movement of persons, not much will change for India but if Britain gets the treatment as applicable to a non- member country it may lead to positive impact on India’s exports to EU as well as to Britain.
  • Any restriction on movement of persons from EU to Britain will give ample opportunities for Indian service providers.
  • BREXIT may also increase India’s imports from Britain and EU, in the face of a weak currency on a medium term basis
  • If UK exits the single market, EU countries will start imposing tariffs on British products, making it far less attractive for Indian businesses to have a manufacturing base in the UK
  • A weak pound will make UK an attractive destination for Indian travelers.
  • There will be an increase in Indian students choosing UK as a destination for higher education because of a weak pound.
  • The property rates will also go down. More and more Indians will try to buy property in the UK.

More: BREXIT- and it’s aftershocks (Part-1)

BREXIT- and it’s aftershocks (Part-2)

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