Thursday, June 9, 2016

India’s World – Brexit and its consequences

Summary:
UK is all set to hold a referendum to decide whether Britain should leave or remain in the European Union. This is as per the promise made by the British PM Cameron. He had promised to hold a referendum over the Brexit issue. Britain wants to leave the group as it had not had a say since 1975, when it voted to stay in the EU in a referendum. However, experts have warned that a vote by the UK to leave the EU would pose a serious threat to global growth. It would reverse the trend of increased global trade, investment and job creation.
What is happening?
A referendum will be held on 23 June to decide whether Britain should leave or remain in the European Union.
What is a referendum?
A referendum is basically a vote in which everyone of voting age can take part, normally giving a “Yes” or “No” answer to a question. Whichever side gets more than half of all votes cast is considered to have won.
What is the European Union?
The European Union – often known as the EU – is an economic and political partnership involving 28 European countries. It began after World War Two to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country. 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 like mobile phone charges.
What does Brexit mean?
It is a word that has become used as a shorthand way of saying the UK leaving the EU – merging the words Britain and exit to get Brexit, in a same way as a Greek exit from the EU was dubbed Grexit in the past.
Why does UK want to leave the EU?
Many in the United Kingdom are of the opinion that the EU has transformed a lot over the years. They think that since several countries have joined the union, the EU’s hold over everyday aspects of these countries has increased. Many think that Britain is better off without the EU as it is being constrained by it. Some of the constraints involve imposing many rules on Britain’s business and shelling out billions of pounds in the form of EU fees without much gain in return.
Would it affect the global economic growth?
No, say few experts. In fact, economics is not the real issue here. Politics is a bigger issue here. As far as the UK is concerned, roughly about 40% of the trade of UK is with EU and largely two countries-Holand and Germany. Hence, this would not make any big difference.
Why Britain should not leave EU?
  • Britain avoids exporter tariffs and red tape, important as 45% of British exports go to the EU. As a member, Britain can obtain better trade terms because of EU’s size.
  • By staying with EU, Britain can fight for better regulations.
  • Leaving doesn’t mean reduced immigration. Countries that trade with the EU from outside have higher rated of immigration, including from EU countries.
  • At international summits, Britain is represented twice- by the foreign secretary and the EU high representatives.
Why Britain should exit?
  • It will be able to secure trade deals important countries such as China, India and America.
  • It saves money which could be used for scientific researches and for building new industries.
  • Leaving will return control over areas like employment, law, health and safety.
  • Currently, Britain has little influence within the EU. By leaving EU, it can have a stronger influence for free trade and cooperation.
Impact on India:
This would affect the flow of FDI. The impact on Indian FDI to the UK could potentially be over two time periods: the short-medium term and the long term. The short-medium term covers the interim period before the referendum, and is likely to see FDI decrease temporarily, the deterrents being the potential financial instability and a legal regime overhaul. If the UK votes to leave the EU, FDI may fall in the long-term as well.
Also, India, unlike the British, sees the EU primarily as an economic and trading bloc, not a political organization, and Indian businesses are acutely aware of the potential of instability that a Brexit. There are over 800 Indian companies in the UK, the top 10-15 of whom contribute $4 billion to the British economy. Indian companies see the UK as the springboard to Europe. The language and legal system give Indians a comfort level. Many Indian information technology companies based in the UK with large work forces and offer services to Europe will be hit too. 

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