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Brexit

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Brexit, its causes, its impact on India, its risks, its projections and predictions

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Brexit

  1. 1. BREXIT A shorthand way of saying the UK leaving the European Union (EU) – merging the words Britain and exit to get Brexit.
  2. 2. WHY DID IT HAPPEN ? • Trade: Britain can negotiate new EU trade deals, also taking it strong economic position in order to make bilateral trade agreements to e.g. China, India and the US without being bound by EU law or other coordinative efforts. • Regulation: Regulation is perhaps the Eurosceptics’ biggest focus. When trying to show how much Britain might gain from leaving the EU, all the costs of EU regulation are summed up,assert that there are no benefits from it and assume that, after a Brexit, the unnecessary regulations can be neglected. Leaving the EU could therefore return control over EU regulated areas like employment, financial services and health and safety regulations.
  3. 3. Immigration: Britain could choose a more beneficial part than the current system which offers an open door to all EU citizens and blocks non-EU immigrants who could potentially contribute more to the society. Political Influence: Britain is just another member of the EU. Being outside the EU, Britain could use its strong economic position and negotiate better trade deals with international institutions, fostering free trade with important partners. EU Budget: The UK can stop spending GBP 350mn to the EU every week. This could be spend for economic stimulus, research and new industries as well as education.
  4. 4. WHAT MIGHT BE THE REPERCUSSIONS… The UK economy is deeply integrated with European allies – economically, militarily and culturally. It’s likely that a Brexit would lead to plummeting stock markets and an economic recession, possibly worse than the 2008 financial crisis. Trade: Britain exports 45% to the EU and avoids export fees. Also as an EU member, Britain can obtain better trade deals because of the size of the EU. EU Budget: The estimated income per household for the UK from the EU is at GBP3000, while the cost per household is estimated at GBP340. Regulations: The EU combines 28 national standards into one single standard, reducing red tape and generating a benefit for business. If in the EU, the UK can contribute to this in contrast to just accepting it from the outside.
  5. 5. Immigration: Leaving the EU does not mean reduced immigration. Also currently other countries in the EU, like Germany, have higher immigration flows, also from inside the EU. A Brexit would also mean restrictions and hassles in order travel to the EU – e.g. visas for visits for a holiday in France, annual driving tests for the British inhabitants outside the UK and this could also again reignite requests for a Scottish independence. Political Influence: Currently the UK is represented strongly by the UK’s foreign secretary and EU high representatives. This helped fight piracy and Ebola efficiently. The UK’s Parliament’s joint committee on national security strategy has warned that leaving the EU would risk “crucial connections being missed” in the war on terror and minimize political influence in the NATO.
  6. 6. IMPACT OF BREXIT ON INDIA Despite being a ludicrous proposition, countries across the world must address the contingency of a Brexit. If it does happen, it will have wide-ranging repercussions on every country that is remotely connected with the global financial market. Here are five ways in which India will be affected:
  7. 7. 1. The uncertainty following Brexit: The biggest drawback of the BREXIT is that they have not mapped out the future course of action. There is no sound plan regarding Britain’s future relationship with the EU or any other specific country within the EU. The global financial market volatility can be readily expected. Markets across the world will tank. The pound will depreciate against most major economies. India cannot remain immune to this. Sensex and Nifty will tumble in the short-run 2. Investment: India is presently the second biggest source of FDI (Foreign Direct Investment) for Great Britain. One of the main reasons for this is the historic and cultural ties with the UK that India shares along with the fact that the UK proved to be a gateway into the rest of Europe. Indian companies that would set up their factories in the UK could sell their products to the rest of Europe under the European free market system. However, now it will not be as attractive a destination for Indian FDI as before. Having said that, Britain would not want to lose out on capital coming in from India. Thus, one can expect Britain to try extra hard to woo Indian companies to invest there by providing much bigger incentives in terms of tax breaks, lesser regulation and other financial incentives. Further, if Britain has left the EU due to the latter’s complex bureaucratic regulatory structure, Indian companies can expect a deregulated and freer market in Britain.
  8. 8. 3. The Commonwealth: With Britain cutting off ties with the EU, it will be desperate to find new trading partners and a source of capital and labour. There have already been many proponents of the Leave Campaign that suggest that the UK should look towards the Commonwealth to forge new alliances. Britain will still need a steady inflow of talented labour, and India fits the bill perfectly due to its English- speaking population. With migration from mainland Europe drying up, Britain would be able to accommodate migration from other countries, which will suit India’s interests. Further, Britain is one of the most important destinations for Indians who want to study abroad. Presently, British universities are forced to offer subsidized rates for citizens of the UK and EU. With Brexit, however, the universities will no longer be obliged to provide scholarships to EU citizens, which will free up funds for students from other countries. Many more Indian students may be able to get scholarships for studying in the UK. 4. Ties with European Union: With Brexit, it would be in Europe’s interest to develop India as a strong trade and strategic partner. Brexit would surely accelerate this process. Europe needs to counterbalance United States and China geo-politically and would also need to hedge against a slowing China for its economic interests. For this, Europe would be looking at the fastest-growing major economy in the world and would need to quickly resolve the pending trade issues with India in order to develop a lasting relationship. Thus, even though Britain stands to suffer from leaving the European Union in terms of reduced trade and a sustained drop in its GDP, the net effect can turn out to be positive for India.
  9. 9. The Brexit blowout is the latest “event” risk that few saw coming. More animal spirits are sure to roil financial markets. Volatility is the demon stalking the world financial scene, but don’t do anything quite yet. THE FUTURE PREDICTION AND PROJECTIONS As with all market events, it’s best to wait it out. If you try to exit now, you’ll miss the rebound. It will take years for the British, Europeans and the rest of the financial world to sort this out. This may not have any long-term impact on your 401(k) or other retirement savings. There’s something familiar about the British vote to leave the European Union, a decision that wasn’t endorsed by Scottish, Northern Irish or London-based voters. It smacks of a xenophobic populism being touted by Donald Trump. Here are my predictions and recommendations: – If you’re trying to save in short-term vehicles, yields will be lower. Just after the Brexit vote shook financial markets, the U.S. 10-year Treasury Bond sunk to a ultra-low 1.5% yield. Considering that U.S. inflation is running at roughly 2 percent, that means savers are getting a negative real rate of return when you subtract the cost of living. Although you’re not going to gain much by shifting into any cash vehicle now, if you have a long-term horizon and an appetite for more risk, holding high-dividend, global stocks might be a better move. SOURCE : Forbes
  10. 10. Commodity prices will continue to fall. In the International Monetary Fund’s last Global Economic Outlook, the IMF downgraded its view of world economic output. Most of the world’s major economies continue to slow down and won’t likely accelerate anytime soon. Broad-based economic sluggishness will translate into lower oil, metals and other commodity prices. That’s good for airlines, logistics companies and drivers, who might see a dip in pump prices again, but bad for countries like Venezuela, Nigeria and Mexico who are dependent upon petro revenues. British stocks will do well. Like U.S. companies, UK-based companies are global in nature and well- positioned to reap profits from every corner of the globe. If anything, the biggest British public companies will be better positioned than the country itself to survive in the post-Brexit economy. London may lose its status as the world’s biggest financial centre. The “City,” as the London financial district is known, stole the crown from Wall Street some time ago. Although Londoners clearly saw the benefits of staying the the EU, the British heartland was spooked by the immigration influx from Asia. As one of the most diverse cities on the planet, London will continue to remain a hub for investment and growth. But capital may flow out if the city can’t maintain a solid working relationship with the EU, US, the developing world and most importantly, China. Having said that, I would never bet against London. In contrast, the Scottish will push to leave the U.K. again and Northern Ireland will move closer to union with the Irish Republic, which will remain in the E.U.
  • TalhaSheikh41

    May. 27, 2021
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    Jul. 27, 2018
  • NaveenCh11

    Sep. 5, 2016
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    Aug. 29, 2016
  • vipinmaurya

    Aug. 27, 2016

Brexit, its causes, its impact on India, its risks, its projections and predictions

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