Brexit's Impact

Brexit Vote Issue: 

All You Need To Know About and Its Impact On India

David Cameron and his wife

British Prime Minister David Cameron resigned today, after the people of Britain have voted for a British exit, or Brexit, from the EU (European Union) in a historic referendum on Thursday, June 23. This is the second time that the British electorate has been asked to vote on Brexit or Bremain (Britain to remain in it

The first referendum was held in 1975, where over 65 percent of the voters approved of a continued membership. This time around, the vote has favored an exit.

It is the greatest disaster to befall the block in its 59-year history. Britain’s exit will affect the British
economy, immigration policy, and lots more. Let us discuss how it will affect EU, other countries’currencies & markets

What’s U.K.’s history with the EU?

The European Union was originally formed with six nations in 1957. Today, it is a gigantic transnational entity of 28 countries, including the U.K., which joined only in 1973. Though part of EU, Britain has traditionally had a ‘Eurosceptic’ stand. It continues to use the Pound as its currency.

Why do some in Britain want to leave the EU?

Many people in Britain believe that EU is making inroads into British sovereignty and it was impacting daily life. As EU’s membership expanded, more Europeans, especially from poorer EU nations, started migrating to U.K. using the “freedom of movement” clause. The anti-immigration parties argue this puts a severe strain on national resources.

Now Britain has voted to leave the EU, it will no longer have to contribute billions of pounds a year towards the European Union’s budget.

 How will this referendum affect the EU?

Much of the EU’s money comes from its member states. And the UK is one of the larger contributors. The EU for its part will be economically and politically damaged, facing the departure not only of its most free-market proponent but also a member of a U.N. Security Council veto and powerful army.

The move will not only affect the British economy but also the global economy. With the Brexit, there is pressure on UK to activate Article 50 of EU and begin exit negotiations.

What is article 50?

Article 50 of the Treaty on European Union establishes the procedures for a member state to withdraw from the EU. It requires the member state to notify the EU of its withdrawal and obliges the EU to then try to negotiate a withdrawal agreement with that state.

Once Britain invokes Article 50, it will have a two-year window in which to negotiate a new treaty to replace the terms of EU membership. Britain and EU leaders would have to hash out issues like trade tariffs, migration, and the regulation of everything from cars to agriculture.

Mr Cameron said he would not invoke Article 50 of the Lisbon Treaty that will start the process of Brexit – leaving that decision to his successor

What will happen to the immigration when Britain leaves the EU?

Leaving the EU will allow Britain to regain control of its borders in order to curb soaring immigration and increase security. Britain would no longer have to accept ‘free movement of people’ from Europe, which Brexit campaigners argue puts pressure on public services such as the NHS and schools. British economy benefits from the free movement of foreign workers in the EU

Impact on scientific research:

UK has close to 3.3 percent of the world’s scientific researchers, who are believed to produce close to 6.9 percent of the global scientific output. The EU currently is the leader in terms of the share of science researchers, with 22.2 percent, followed by China at 19.1 percent, and US at 16.7 percent. In fact, UK has been the largest recipient of research funding in EU, at 15.4 percent.

How Brexit will effect Currency and markets:

In the event of Brexit, stocks in the UK are estimated to fall between 10% and 20% while those in the US could take a hit of more than 7%.

The pound hit $1.33, knocking around 10% from the value of the currency and reaching a low not seen since 1985. Against Japan’s yen, the pound fell more than 15%.

Stocks and commodities, such as oil, will likely suffer losses as well, due to market uncertainty and confusion over the potential fallout a ‘leave’ vote would produce.

Business impact:

Businesses that import products and services will now find that they will need to pay more for exactly the same goods they were buying last week. However, on the other hand it could provide a boost for exports as it would make British goods cheaper for customers in the US and Europe

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Why should India worry about it?

The first concerns the welfare of a nearly three-million strong diaspora of Indian-origin U.K. citizens. Next, Brexit increases the amount of uncertainty in markets.

There are 800 Indian companies in the UK. Britain’s exit from EU may affect Indian companies’ appetite for investing in the U.K., particularly those seeking access to the European market. Indian companies will have to rework their existing strategies both for UK domestic market as well as the UK as manufacturing base for exports.

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Indian companies choose UK because of the easy access it provided to the European markets. The Brexit will, therefore, have an impact on future investment and expansion decisions.

In the case of Brexit, the rupee could fall to the Rs 68 per US dollar level

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