Many have been wondering that what is the impact of Brexit on India and the BREXIT Impact on Indian Economy. No source talks about it in a consolidated and simple language – we bring to you this article to simplify BREXIT Impact on Indian Economy.
We all know that on June 23, 2016 Britain voted to leave the European Union (commonly termed as Brexit – United Kingdom leaving European Union).
To ensure we all are on same page, let us first share what forms United Kingdom and European Union.
UK comprises of 4 counties– England, Scotland, Wales and Ireland.
What is European Union?
European Union is an economic and political partnership involving 28 European countries.
(i) EU has developed an internal single market through a standardised system of laws that apply in all member states, allowing free movement of people, goods, services and capital.
(i) It was created with the idea that countries which trade together are more likely to avoid going to war with each other.
(iii) It has its own currency, the Euro, which is used by 19 of the member countries, its own parliament and it now sets rules in a wide range of areas – including on the environment, transport, consumer rights and even things such as mobile phone charges.
European Union has 28 member countries:
- Bulgaria, Romania.
- Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Malta, Poland, Slovenia, Slovakia.
- Austria, Finland, Sweden
- Spain, Portugal,
- Denmark, Ireland, United Kingdom,
- Belgium, Germany, France, Italy, Luxembourg, Netherlands.
Countries which are about to join EU Membership– Albania, Serbia, Montenegro, The former Yogoslav Republic of Macedonia, Turkey.
What Happens now after BREXIT?
For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty.
Once decided by UK Head of the State when to invoke Lisbon Treaty, legal process will be initiated to withdraw from EU, and two years will be given to UK to negotiate the withdrawal. Outgoing UK Head of the State Cameron has left it on his successor to initiate the process.
From now till the withdrawal is completed, UK will continue to abide by EU treaties and laws, but not take part in any decision-making. Reason being UK will negotiate a withdrawal agreement and the terms of its relationship with the now 27 nation bloc.
Why Britain wanted to Exit?
Britain felt that it too many rules are being imposed on its business due to being the member of European Union. Also, Britain had to pay billions of pounds a year in membership fee, with a meagre return on this fee.
Also, EU membership reduced the control which Britain had on its border. While Britain wanted a better control of its borders as well as prevent the large number of non British people coming in to Britain to live and work.
Reason for free flow of external people to Britain was due to the Free Movement policy of European Union which eradicated any need to have a visa while moving within the EU Countries.
To summarize the reasons Britain wanted to exit:
(i) Economic governance: UK wants to have safeguards against ending up paying to other countries for helping them bail out in their economic crisis. UK no more wants to spend its money on financial assistance to other EU countries which are having struggling economy.
(ii) Competitiveness: Set its own rules of regulations and not be bound by the rules governing the single market.
(iii) Immigration: UK leadership does not want to role out the benefits of being in Britain to anyone who has less than 4 years as time spent in Britain. Being the part of EU and due to free movement policy, Britain was not able to do this.
Due to free movement policy, Britain also witnessed a huge number of immigrants – as high as 3.3 lac immigrants. This was not appreciated by Britain leadership and administration as majority of this was expected to be illegal. However, despite this high immigration, Britain has among the lowest unemployment rates in Europe at 5%.
Obviously, the pushback against immigration is not related to the loss of jobs or negative economic impact, but the xenophobia (dislike of or prejudice against people from other countries) that all communities have about people from another culture or ethnicity or religion.
(iv) Sovereignty: Aim is to give more power to National Parliament of Britain in forming legislation than be bound to follow up EU legislations which onbiously did not had only British citizens interests at the highest priority.
What is the Impact of BREXIT on Indian Economy?
1. There will be no immediate effect. It will take time for the UK to officially break all the ties with the EU. EU rules were stopping Britain from striking a deal with India, but now the UK would be free to negotiate its own far reaching trade deals with India. It will be a boost to India-UK ties.
2. UK Visa Aspirants– Presently, the impact on Immigration will be a case of assumptions, it is believed that India may benefit from it, as labour does come at a lower cost unlike that from the EU. So far, work related visa restrictions have already resulted in a fall in the number of Indian students studying in British Universities from 22,385 in 2012-13 to 18,320 in 2014-15, according to the UK council for international student affairs (UKCISA). Given their tough stance on cutting immigration, a Brexit government could be expected to make such curbs more stringent.
3. What about 800 India Company in Britain- Indian Companies are growing by 10% in Britain. Most of these companies invested in UK, particularly to have a access in the European market, but now they have to deal EU and UK, separately. Brexit will have a bearing on future Indian Investment in UK.
4. Impact on IT industries– In short term negative, but in long term it will neutral. “Competition for India will be slightly less. It will be positive. Overall it will be neutral over the next four years”. The impact of Brexit will certainly be negative in the short-term on account of volatility in the exchange rate, uncertainty in the markets and the terms on which Britian will leave the EU.
5. Impact on Indian Economy and Markets- Initially, Indian stock and currency market show some turbulence, which may prevail for some days. According to President Arun Jaitley impact on financial markets should not last beyond a few days and vowed to steadfastly pursue growth-oriented reform agenda including, early passage of GST Bill, while RBI Governor Raghuram Rajan promised to provide liquidity and correct any disorderly market behavior.
6. Impact on India’s Trade with EU and UK– Trade is expected to go down after Brexit, as the EU is among the largest trade partner of India, embracing 13% of its trade, which surpasses China(9.6%) and US(8.5%). Even if trade with Britain increases, there is no certainty that a UK outside of Europe would drive bilateral trade. But, at this point, such an argument is mere speculation. A re-negotiation of the EU-UK agreement following Brexit would mean further uncertainty for India since a conflict of interest could arise.
7. Impact on Gold Price in India- Gold prices in India could cross Rs. 32,500 per 10 gms following britain’s exit from EU. Gold rose for the second day on 27th June 2016 by Rs.140 per 10 gms at the bullion market in tandem with firming global trend amid increased buying by traders and stockists. On the global front, gold rose sticking close to a more than two year peak reached in the previous session, as uncertainty over britain’s vote to leave the EU forced investors to sell equities and seek safer assets.
According to the report of Foretell Business Solution, a leading commodities and bullion consultancy firm “ Gold price in India is already high, thanks to its weak currency, which Brexit might further weaken. This, combined with the surge(a sudden powerful forward or upward movement, in the price of gold globally could push gold price in India to Rs.32,500 per 10 gms or even higher soon.”Surging prices could dampen the demand in India.