The economic world has changed drastically today, for better or for worse, that is yet to be known. After months of speculation, the British government decided to hold a referendum to decide whether the country should be a part of European Union or exit the group.
Why Referendum?
David Cameron, the Prime Minister was able to win over EU which let go of several restrictions that helped Britain’s welfare programs initially. But the government was unable to form a concrete policy regarding Britain’s membership in EU.
While the Prime Minister wanted to continue being a part of EU, the Mayor of London and several other prominent leaders believed that it is time to bid EU adieu. The Labour Party too, stood divided. Hence, a referendum had become a necessity.
Why leave EU?
Many conservatives believe that EU has become more than an economic community. Britain had to compromise on its sovereignty and follow EU policies on issues like migration, employment, foreign trade, national borders and domestic economy.
Migration had become the bone of contention for the UK. Britain was never in favour of opening its borders to the Asian migrants. Migration has also threatened the security of the island.
With Brexit becoming a reality both EU and Britain suffer economic problems.
– Britain will lose out on its market
– England’s agriculture, fishing, and various other industries will suffer price rise. It will have to import and export goods and resources at a much higher price as free trade has ended
– UK will definitely suffer as its foreign reserves are bound to go down. The value of Pound Sterling has taken the biggest hit since 1985
– EU is administrated by money coming from member nations. Britain’s exit will decrease EU’s funds. Brexit will shake EU and weaken its stand on migration
– Cameron resigned as the Prime Minister since his image has taken a huge blow. With the fall of Cameron’s government, Britain’s prospects of negotiating a favourable deal with the EU has also weakened
– Brexit will cause problems to the 1.2 million Brits living in Europe since free movement won’t be possible anymore.
After Brexit, Scotland is demanding an exit from the United Kingdom since it wants to stick with EU.
How does it affect India?
– India has huge investment and several companies operating in Britain as well as in Europe. These companies will face difficulties now that Brexit has happened
– Over a lakh Indians are employed in jobs that might bear the brunt of this breakup. The cost of trading will rise and that will affect Indian companies especially the IT sector.
– The fall of Sterling may shake currency markets. As seen earlier this morning, the Indian currency has reached the Rs. 68 per dollar mark. Rupee vs. Pound dipped to 90 and later recovered to 94.
There may, however, be several benefits too. India is the third largest FDI investor in the UK and a break up will provide a larger market for India on easier terms.
According to Chaitanya Kumar, Founder, School of Investment Banking, UK’s exit can be negative for India. But for the medium to long term, this should be positive as it has the potential to increase bilateral trade between our countries.
“I think the more relevant impact for ED’s audience is that for those young minds who are planning to study in the UK, it will be more difficult to get jobs there as there is no doubt that the jobs market will shrink and there is likely to be greater pressure on UK businesses to hire local talent“, said Chaitanya
In 1975, UK held a similar referendum but then Prime Minister, Wilson was successful in pursuing the nation to vote for staying in EU. It is tough to speculate how Brexit will change the economic world, in the long run, we’ll just have to wait and watch now.
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