BREXIT and India

BREXIT – Britain Exit from the European Union.

At first we need to understand what is European Union and the purpose of European Union. European Union is a political and economic union of 28 member states that are located in Europe. According to European Union website the union’s purpose is to promote peace, establish a certified economic and monetary system, promote inclusion and combat discrimination, breakdown barriers to trade and borders, encourage technological and scientific development, champion environmental protection and among others, promote goals like a competitive global market and social progress...

Now the news making rounds are Britain’s exit from the European Union and the news in India are how it is going to affect Indian business and economy.

First of all we need to understand one thing that the BREXIT will have its own impact on global economy and not just India. To understand the impact it can create, we need to understand the reasons why Britain want to walk out of European Union.

Following are major reasons the British Government and trade unions are talking about

1. Britain’s sovereignty is being threatened: The argument is European Union treaties have shifted a growing amount of power from individual members’ countries to European Union. As the powers like competition policy, agriculture and copyright and patent law, European Union override specific national laws. The concern is on selection and appointment of member of European Union. British leaders have some influence but once they are selected they are not answerable to British parliament or accountable to them. This may create a situation where the interest of Britain may not be protected, even if they are appointed by them.

2. The European Union regulations are becoming a problem for Britain. The regulations are of sometimes the nature of shadowing existing laws in Britain and creating insecurity in the minds of their people.

3. Most of the Britain law makers feels that the rules made by the European Union are undemocratic and left leaning. Conservatives feels that the European Union is imposing left leaning policies on Britain.

4.  Performance of Euro is a big problem: Britain feels that the European Union currency – Euro is a big disaster. When the performance of Euro comparing other currencies across the globe at the time of recession, the negative impact was more on Euro. The unemployment shot above 20% in countries like Greece and Spain resulting great debt crisis. They feel Euro is the culprit. Even if Britain is not chose Euro as their currency till now they are really worries as the currency integration may worsen the situation.

5. European Union membership encourage unlimited immigration: European Union law guarantees that citizens’ one European country have free right to travel, live and work in any other European Union member countries. At the time of recession Britain felt the pain as employees from struggling European countries flooded into in search of work. There were many anti-immigration protests happened in UK.

6. UK need not send money to EU: Actually EU does not have the power to collect taxes but it require member states to make an annual contribution to the Central European Union Budget. BREXIT supporters argue that it would be better for UK to keep the money with them,

When put to vote people of Britain beat out those in favour of remaining in EU in 51.9% to 48.1% defeat.

IMPACT ON INDIA

Former RBI governor Mr Raguram Rajan says “when elephants fight, the grass suffers”

Investors are vary about the impact of BREXIT on India also. It is not going to affect just the stock market, it is going to affect the entire business market.

Britain is one of the largest export market for India. India have more investors in Britain than the rest of European Union. With BREXIT foreign portfolio investments will out follow and will lead to the weakening of rupee.

Britain is considered as the gateway for Indian companies to European Union and with BREXIT India is going to lose that advantage and should refocus through cross border business.

One of the reason why Indian companies went to UK is because it provided free access to entire Europe which otherwise not a great market for Indian companies. Exploring and exploiting European market is one of the reasons why Indian companies went to UK.

UK accounts for 17% of Indian IT exports. If Britain opts out, the overhead costs going to increase in short term and Indian IT companies are going to suffer. The profitability of these companies are going to be affected as the pound is going to be depreciated. Also companies who have exposure to Auto, Auto ancillary, metals, oil, Pharma etc. are going to suffer.

Positives of BREXIT for India

1. UK going to lose huge preferential market in Europe so they need to realign and migrate to other countries. This will definitely help a developing economy like India.

2. Also in the labour front European Union employees may not get the same preference after BREXIT, they may not be able to migrate so easily. Indian workers will be benefited.

3. Indian students in UK are going to get benefitted with more scholarship and increased finance.

4. As preferential treatments to European countries ends with BREXIT, Indian companies can explore more opportunities both in UK and Europe.

So to conclude, BREXIT may come with some negatives for India, it also can be beneficial for Indian companies if they plan properly and act properly.