[Answered]Discuss various reasons behind Brexit. How Brexit would impact India?

Demand of the question

Introduction. Contextual introduction.

Body. Causes of brexit. It’s impact on India.

Conclusion. Way forward.

Brexit is the scheduled withdrawal of the United Kingdom (UK) from the European Union (EU). Britain has been seeking exit from the EU due to various reasons like increasing number of refugees into Europe, rising security threats, less control over rules and regulations, financial issues etc. The arguments in favour of Brexit have been not only been in British parliament but are also supported by British citizens.

Various causes of Brexit:

  1. Sovereignty: Although the British Government has an influence in some form in selecting the members to the European Commission, the members are neither under the influence nor accountable to the British Parliament. Some of the policy decisions such as competition policy, agriculture, copyright and patent law go against the interests of Britain (these laws override the domestic laws). This weakness of being unable to take decisions in Britain’s interests has led to support for Brexit.
  2. Overriding regulations: Some of the regulations such as limits on the power of vacuum cleaners, non-recycling of tea bags etc have often been seen as a burden by some of the conservatives in Britain. These limits and regulations acted against the British interests and has adversely impacted British economy, leading to rise of voice for Brexit.
  3. Failure of Euro: Although Euro is the common currency for the EU, Britain still uses pound as its currency. The problem with the euro as a common currency has also been exposed wherein on one side countries such as Greece and Spain are suffering from high debt, high unemployment, whereas other countries such as Germany are enjoying higher growth. Thus it has not helped Britain interests much.
  4. Immigration: Britain is not a signatory to the Schengen Border free zone. Over the last ten years there has been quite an opposition towards migration into the country from within the EU and its effects on wages and public services especially post 2008 recession wherein the workers from Lithuania, Poland, Italy, Romania etc have moved to Britain.
  5. Financial burden: Although EU doesn’t have the powers to collect the taxes from the people directly, it mandates member countries to make payments. In the case of Britain it comes around $19 billion per year or $300/person. Although the funds are again used on Britain, the Brexit supporters say, the money could be used more efficiently, if Britain is out of the EU.
  6. Security concerns: The rising threat of terrorism in Europe which is exaggerated by EU’s inability to keep the area secure has led to Britain to get out of EU. Refugee crisis in Europe has added to the security concerns.

Impact of brexit on India: There are both positive and negative consequences and Impact of Brexit on India. India being more of an importing country than an exporting nation, the overall effect may turn out positive for India.

Positive Impacts of the Brexit referendum on IndiaNegative Impacts of the Brexit referendum on India
1. With lower pound value, Indian companies would be able to acquire many hi-tech assets.

2. Brexit would give a boost to trade ties between India and the UK.

3. Britain will now be free to discuss a bilateral trade pact with India.

4. Due to the fall in the value of Pound sterling, those who import from the UK will gain. Indian export companies operating in the UK may also gain.

5. More Indian tourists can afford to visit Britain in the coming days as the currency value has fallen.

6. More Indian students can afford to study in Britain (for higher education) as the fees may seem cheaper.

7. Britain will need a steady inflow of talented labour, from which India would gain the most due to its English-speaking population.

1. There may be foreign fund outflow and dollar rise making Indian imports costly.

2. Rupee may depreciate because of the double effect of foreign fund outflow and dollar rise.

3. This may increase petrol and diesel prices to an extent. Prices of gold, electronic goods, among others may also increase.

4. The falling value of the pound could render several existing contracts loss-making.

5. Foreign funds are likely to move out if the world outside thinks that investment in India is risky.

6. Many Indian companies are listed on the London Stock Exchange and many have European headquarters in London. Brexit will take away this advantage.

7. Due to fall in the value of Pound sterling, Indian exports to the UK will suffer. Cheaper rupee will make Indian exports, including the IT and ITeS, competitive.

Various factors have contributed to the Brexit. The effect of BREXIT on the global economy coupled with weakening/depreciating currencies of various countries will make it harder for recovery and in case of India, due to some stability in the fundamentals of the domestic economy and huge forex reserves position, the effect of BREXIT can be minimised, but the effect would be felt for a short term.

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