What 'Brexit' Means and Implications for India

Brexit means "Britain" and "Exit." It is the nickname given for Britain's exit from the European Union. There was a referendum held on June 23, 2016 asking voters: "Should the United Kingdom remain a member of the European Union or leave the European Union?" The result was; 52% voted to leave the EU and 48% wanted to remain in the EU.

Those who won the referendum argued that leaving EU was necessary to protect the country's identity, its culture, independence and its place in the world. They essentially were opposed to immigration of people into Britain for work related purpose. The Eurozone crisis added to their resentment.

Those who liked to 'remain' in the EU argued that the economic gains by remaining in EU are far more compelling than the factors like immigration, culture, Identity and independence etc.

The referendum also saw the deep class divide in Britain with those with less money and education supporting leaving whereas rich and resourceful voting to remain in the EU.

Historically, Britain initially refused to join the EU when it was founded in 1957. It became its member only in 1973, but then had a crisis of confidence that led to a similar referendum two years later. In the 1975 referendum those voted to remain in EU voters won the poll with 67 per cent of votes.

However, the decades that followed were not so smooth. The strains of populist opposition to the EU remained there in Britain. As a result, Britain never joined other countries in using the Euro as currency, nor it participated in the EU's open-borders agreement.

In the current context the Eurozone crisis actually triggered the 'Brexit'. The economic and the refugee crisis in Europe made it worse. These were the main reasons for 'Brexit'.

Implication for Britain and the World

Britain makes up about a sixth of the European Union's economy. There is a consensus that leaving European Union would hurt Britain financially because European Union is Britain's most important export market and its greatest source of foreign direct investment.

Secondly, the EU membership has been crucial to establishing London as a global financial centre in Europe. Without access to the EU's open markets, Britain would probably lose trade and investment opportunities which will be a big blow to its economy.

Third, Britain may also loose the labour force that came from Europe and helped in increasing its productivity and economic growth. Thus leaving the EU would jeopardize Britain economic growth and with it the high pay job opportunities it offered.

Fourth, the destabilization of EU could affect the global economy. The fact that the 'Brexit' has affected the pound which is at its lowest valuation in seven years is already making a global impact.

Fifth, there could be political consequences of Brexit as well. This may give momentum to the nationalistic, anti-migrant message and policies of populist, right wing parties that are already rising across Europe and elsewhere.

Sixth, the 'Brexit' has implications for the European Union experiment itself. It's for last 70 years Britain has helped Europe enjoy peace and stability. Now there is growing strain of discontent against EU brewing in the EU member countries.

Seventh, with Germany already having much power in the bloc, 'Brexit' would make EU loose its balance. This may undermine the EU's legitimacy and make it more difficult to respond to its internal crises.

Implications for India

There is lot of discussion going on India about Britain's exit from the European Union. The short term implication of 'Brexit' would be on the Indian stock exchange due to the volatility in the pound. It's making Indian stock exchange jittery and this has increased the risks for Indian businesses.

There is concern among Indian investors of the negative impact of the British exit from the EU. India invests more in the UK than in the rest of Europe combined. India has emerged as the UK's third largest FDI investor.

Last year alone the value was estimated at 1.9 billion pounds (around $2.75 billion). As some Indian companies and sectors have investments and exposure to Britain, they are very worried of the 'Brexit'.

Those having business interest in UK believe that leaving the EU would create considerable uncertainty for Indian businesses. It would have an adverse impact on investment and movement of professionals to the UK.

The 'Brexit' is also going to hamper India's access to European markets. Hundreds of Indian firms that have base in the UK because they had continued border-free access to the rest of Europe. It was one of the main reasons for Indian companies to go to the UK.

Now with 'Brexit' there will be less attractiveness of going to UK and this may have a bearing on future investment decisions of Indian companies.

There is some positive fall out of the 'Brexit' for India as well. Britain ranks twelfth, among, India's bilateral trade with individual countries. It is also among just seven in 25 top countries with which India enjoys a trade surplus.

Britain is also the third largest investor in India after Mauritius and Singapore, with a cumulative inward flow of $22.56 billion between April 2000 and September 2015.

As per data with the Commerce and Industry Ministry, India's bilateral trade with Britain was worth $14.02 billion in 2015-16, out of which $8.83 billion was in exports and $5.19 was in imports. The trade balance thus was a positive $3,64 billion.

So on the positive side 'Brexit' would help India more. It may also lead to greater investments by the British companies into India, which will increase the overall outflows of the domestic market.

UK's outgoing Prime Minister David Cameron hailed India as an "important partner" in his first statement since 'Brexit' and said Britain must not turn its back on Europe or the rest of the world. His views sum up what 'Brexit' means and implications for India.

- SYED ALI MUJTABA