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Brexit: How does it affect India and the World?

brexit

What exactly is Brexit?

Brexit- It is the European Union (EU) abbreviation for the “British Exit.” Brexit resembles the term Grexit — a phrase invented and used in February 2012 by two Citigroup economists to refer to Greece’s possible departure from the EU.

Britain has had a fraught relationship with the EU from the outset and has made numerous attempts to break away from it in the past.

What exactly is the European Union?

The EU, founded in 1957, is a political, social and economic union. It grew over the decades and in 1992, it entered its current form.

Europe has 51 countries, out of which 28 have signed a treaty to become part of the European Union. There are countries in Europe, therefore, that are not part of the European Union.

The EU Treaty provided for a European Parliament and European Council consisting of member state representatives.

Sixteen percent of world imports and exports are EU members. It is the world’s biggest trading bloc to overtake the US.

In 2012, the EU was awarded the Nobel Peace Prize for promoting Europe’s goals of unity, reconciliation, democracy and human rights.

What is the Eurozone?

The Euro Area (EA) is an EU sub-set, a monetary union of 19 out of 28 countries that use the common currency, Euro.

The Euro isn’t used by all EU leaders. Britain is an EU member and is not an EA member. This is not using the Euro and it has maintained its currency, the Pound Sterling.

Hence the movement ‘Leave the EU’?

The Leave Campaign claims that by remaining in the EU, Britain is missing out a great deal. As a contribution to the European budget, it will pay millions of pounds each week.

The European Parliament’s highly bureaucratic nature affects British exporters Migration from the European Union to Britain (mainly PIGS economies) creates a gap in UK Government welfare schemes.

Yet, those who oppose the initiative argue if She remains in the EU, Britain is a net gainer.

The referendum and the result

  • A referendum denotes voting in which everyone (or almost everyone) of the voting age will vote, usually giving a ‘Yes’ or ‘No’ answer to a question.
  • The side that earns over half of all cast votes is declared a winner.
  • Prime Minister David Cameron (Conservative Party) had vowed to hold a Brexit referendum if he won the general election in 2015.
  • Still, he has led the ‘hang’ vote movement.
  • Many Conservative Party MPs and the UK Independence Party (UKIP) have voiced increasing demands for a new referendum. (Britain had agreed to remain in the EU in a referendum in 1975).
  • On 23 June 2016, a referendum was held to determine if Britain should leave the European Union or stay within it.
  • Registered voters: Both British, Irish and Commonwealth people over the age of 18 who live in the UK, along with UK nationals residing abroad who have been on the UK electoral register for the past 15 years.
  • 51.9% of voters preferred a British withdrawal from the EU.
  • It is the first time a member country is leaving since the EU was formed in 1957.

India. UK and the European Union

  1. India, the United Kingdom and the Brexit India of the European Union are among the

UK’s top investors.

  • About 800 Indian-owned enterprises are employing around 110,000 people in the country. (Eg: Jaguar Land Rover is owned by the Tata group)
  • Several of these businesses have made acquisitions with a view to the broader European market.
  • The UK and Europe together account for over a fifth of the country’s IT exports, worth around $30bn.
  • The UK is India’s third-largest source of foreign direct investment and India’s largest investor in the G20.
  • India is the UK’s third-largest source of FDI as regards a number of projects.
  • India spends more in the UK than combined in the rest of Europe, emerging as the

UK’s third-largest investor in FDI.

  • Healthcare, agritech, fruit, and drink are the main sectors attracting Indian investment.
  • Prime Minister Modi said in November 2015, “As far as India is concerned, if there is an entry point for us into the EU, that is the UK.” But the UK is only India’s 12th largest trading partner, far behind other European countries including Germany and Switzerland.
  • Interestingly, the UK is also one of only seven in 25 top countries with which India enjoys a surplus in trade.

So how is it going to Impact Indian Economy?

  • The negative impacts of India’s Brexit referendum would have to adapt to changing world order.
  • There could be an outflow from international funds and an increase in dollars.
  • Rupee will depreciate because of the double effect of the outflow of foreign funds and the increase of dollars.
  • This growth increase somewhat the price of petrol and diesel.
  • The government would then decide to reduce the additional excise duty imposed on fuel as it was on a downward course.
  • If revenue increases, this could increase the fiscal deficit.
  • Gold prices, electronic products, among others, may also increase.
  • In the short term, Sensex and Nifty can well plunge.
  • The pound’s declining value could cause some current contracts to lose out.
  • The vote is bad news for outsourced Indians too.
  • International funds are likely to pull out if the outside world feels Indian investment is risky.
  • India’s  Forex (currently a record $363  billion) may decrease, particularly if the currency is stored in Euros or Pound (around 20 percent of total forex).
  • In the short term, the Brexit would hurt India’s $108 billion IT market.
  • Many Indian companies are listed on the London Stock Exchange, and others are located in London with European headquarters. Brexit will take that advantage away.

And last, How Brexit is going to affect the world?

  1. Remittance from the UK to non-GBP countries would produce lower returns than in the past.
  2. Export driven countries may be affected, whether or not they are exporting to the UK. If the UK is the biggest trading partner it will have more impact.
  3. The US will bear the biggest brunt of a Brexit as the UK’s largest trading partner.
  4. A direct impact from Brexit on Asian economies is unlikely in the long run because, for most economies, exports to the UK are less than 2 percent as a percentage of GDP.
  5. But it will affect companies in some big Asian economies – such as India and Japan.
  6. It will impact companies that have developed operations in the UK to gain access to EU markets.
  7. BREXIT would probably allow some strength in the US Dollar to play out. This may cause a decrease in value in other currencies.

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