GENERAL AFFAIRS

1. The United Kingdom opted for a momentous change of course by voting to leave the European Union in a closely-
fought referendum. The ‘Leave’ side won decisively with 52 per cent of the vote in the high-turnout vote, which
overturned opinion polls that predicted a slender margin for ‘Remain’.
This is the second referendum on Britain’s relationship with the European project. In 1975, in a referendum on
whether the U.K. should stay or leave the European Community (Common Market) Area, the country voted for
staying in with a resounding 67.2 per cent vote.
Prime Minister David Cameron, the architect of the referendum and a passionate supporter of Britain within the
European Union, announced that as a measure of respect for the “will of the people” he would be stepping down as
Prime Minister in October.
The referendum saw a turnout of 72 per cent, the highest in any election since 1992, ‘Leave’ won 17,410,742
votes and ‘Remain’ 16,141,241, with all but the regions of London, Scotland and Northern Ireland voting to leave.
The markets reacted sharply to the referendum result with the pound falling to its lowest since 1985. Other major
currencies have also shown volatility especially the Euro that has seen its worst fall against the dollar.
In the short term there would be considerable caution and lower confidence on spending and investment. “British
Airways put out an announcement saying they expect lower profits this year because of Brexit-related slowdown in
traffic. In the longer term, there could be some degree of movement of operations of certain companies to Europe,
but it also depends on what the market believes will be the ultimate outcome of the negotiations with Brussels.
The country received the news of the referendum with both jubilation and deep disappointment. Labour Party
leader Jeremy Corbyn told television channels that all efforts must be made to protect jobs and working condition
in Britain. He said negotiations with Brussels must start immediately for “the best deal possible" to protect British
industries.
Nigel Farage, leader of the United Kingdom Independence party that fought the referendum by invoking fears of
unchecked immigration, called for the celebration of the day as “Independence day.”
The results show that but for London, Scotland and Northern Ireland, the rest of the UK, and Wales, a region that
has seen de-industrialisation and the consequent loss of jobs, voted for Leave.
Implications for India
Seeking to allay concerns over Brexit impact on India, the government expressed confidence that the economy will
not suffer from any long-term impact of Britain's decision to leave EU and that it is prepared for all eventualities.
Agreeing to the government's stance on the effect Brexit will have on the Indian economy, market analysts said
there will be no direct impact on India. Here are the top comments on the India impact of Britain's exit from the
EU:
SBI chairman Arundhati Bhattacharya: “Uncertainty of any sort results in volatility and Brexit will be no
exception. As risk aversion sets in, there would be a decline in financial markets and India would see this impact
along with other nations. However as trade strategies are reworked there could be potential advantages in the
form of better market access for India to EU & UK.”
VC Sehgal, Chairman of Motherson Sumi: Commenting on Brexit and the panic caused by it in the Indian markets
Sehgal said, "I think that we have seen a knee jerk reaction and there is huge job ahead to go out of Europe.
There are many aspects which must be done and it will be almost two to three years as about 10 years ago there
is clause which was inserted that if a country is set to leave then the Government has to extract itself on
Brexit : UK’s exit from the EU

2. conditions which have to be agreed and as well other things. So as far as I am concerned it will be business as
usual and as well I do not see any changes as England is still a part of the EU and does not cease to be because of
a referendum."
A V Rajwade, senior currency consultant and commentator: "I don't see much of an impact on India or on the
rupee. The impact is far higher on the UK itself. EU is our largest trading partner after China and US and trade
with Britain is not substantial. Rather than Brexit, what matters more for the rupee now is who becomes the next
RBI governor and what kind of policies he is going to follow."
Soumya Kanti Ghosh, chief economist SBI: Having a positive outlook on India impact of UK's decision to leave
EU Ghosh said, "Brexit is good for India and rupee in the long run. India’s trade with EU and Britain both will rise.
England is perhaps the only country that has a dedicated minister to look only after India-Britain trade, this
indicates that UK was anticipating Brexit and made preparations for increasing trade with India."
Rajeev Thakkar, CIO, PPFAS Mutual Fund: "Brexit will dominate the headlines for a few days till the attention of
the world is diverted to some new event. Britain was never a part of the single currency and the impact on
business fundamentals is expected to be at the margins. The knee-jerk reaction seems to be on account of the fact
that most people expected a verdict of remain in the EU and the vote has turned out to be exit. Selective buy
opportunities may emerge in the turmoil."
Raghuram Rajan: "Indian economy has good fundamentals, low short term external debt, and sizeable foreign
reserves: Raghuram Rajan."
Arun Jaitley: Highlighting India's stable economy and strong reserves position Jaitley said, "India is well prepared
to deal with the outcome of Britain's referendum on leaving the European Union. India is strongly committed to
macro-economic stability, while its fundamentals were sound with "a very comfortable external position, a rock-
solid commitment to fiscal discipline and declining inflation."
Jayant Sinha: "If Britain decides to leave, market adjustment process will happen and the government will provide
liquidity in close collaboration with the leaders around the world," Minister of State for Finance Jayant Sinha told
CNBC-TV18. He added that India still remains a haven of stability in a troubled world. He also said that
contingency plans were already in place and that the government would implement them "once the market
resets".
Shaktikanta Das: "Today, the exit (Brexit) looks like a distinct possibility. Right now, spontaneous reaction is
happening on stock markets as something is happening against its expectations. Markets will stabilise over the
next few days. The currency is depreciating, but government has been working to deal with the situation. Reserves
in RBI are strong and solid. We have the firepower to deal with the situation. Our macroeconomic and
fundamentals are strong," said Shaktikanta Das, secretary, Department of Economic Affairs.

3. The Union Government radically liberalized the FDI regime, with the objective of providing major impetus to
employment and job creation in India. This is the second major reform after the last radical changes announced in
November 2015. Now most of the sectors would be under automatic approval route, except a small negative
list. With these changes, India is now the most open economy in the world for FDI.
In last two years, Government has brought major FDI policy reforms in a number of sectors viz. Defence,
Construction Development, Insurance, Pension Sector, Broadcasting Sector, Tea, Coffee, Rubber, Cardamom, Palm
Oil Tree and Olive Oil Tree Plantations, Single Brand Retail Trading, Manufacturing Sector, Limited Liability
Partnerships, Civil Aviation, Credit Information Companies, Satellites- establishment/operation and Asset
Reconstruction Companies. Measures undertaken by the Government have resulted in increased FDI inflows at
US$ 55.46 billion in financial year 2015-16, as against US$ 36.04 billion during the financial year 2013-14. This is
the highest ever FDI inflow for a particular financial year. However, it is felt that the country has potential to
attract far more foreign investment which can be achieved by further liberalizing and simplifying the FDI regime.
Accordingly the Government has decided to introduce a number of amendments in the FDI Policy. Changes
introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and
easing of conditionalities for foreign investment. These amendments seek to further simplify the regulations
governing FDI in the country and make India an attractive destination for foreign investors. Details of these
changes are given as under:
1. Radical Changes for promoting Food Products manufactured/produced in India
It has now been decided to permit 100% FDI under government approval route for trading, including
through e-commerce, in respect of food products manufactured or produced in India.
2. Foreign Investment in Defence Sector up to 100%
Present FDI regime permits 49% FDI participation in the equity of a company under automatic route. FDI
above 49% is permitted through Government approval on case to case basis, wherever it is likely to result
in access to modern and ‘state-of-art’ technology in the country. In this regard, the following changes
have inter-alia been brought in the FDI policy on this sector:
i. Foreign investment beyond 49% has now been permitted through government approval route, in
cases resulting in access to modern technology in the country or for other reasons to be recorded.
The condition of access to ‘state-of-art’ technology in the country has been done away with.
ii. FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and
Ammunitions covered under Arms Act 1959.
Radical liberalisation” of the Foreign Direct Investment (FDI) Regime

4. 3. Review of Entry Routes in Broadcasting Carriage Services
FDI policy on Broadcasting carriage services has also been amended. New sectoral caps and entry routes
are as under:
4. Pharmaceutical
The extant FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield
pharma and FDI up to 100% under government approval in brownfield pharma. With the objective of
promoting the development of this sector, it has been decided to permit up to 74% FDI under automatic
route in Brownfield pharmaceuticals and government approval route beyond 74% will continue.
5. Civil Aviation Sector
(i) The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and
74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is
under government route.
(ii) With a view to aid in modernization of the existing airports to establish a high standard and help ease
the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route
in Brownfield Airport projects.
(iii) As per the present FDI policy, foreign investment up to 49% is allowed under automatic route in
Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport
Service. It has now been decided to raise this limit to 100%, with FDI up to 49% permitted under
automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will
continue to be allowed under automatic route. However, foreign airlines would continue to be allowed
to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services
up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing
policy.
Sector/Activity New Cap and Route
(1) Teleports (setting up of up-linking HUBs/Teleports);
(2) Direct to Home (DTH);
(3) Cable Networks (Multi System operators (MSOs) operating at National or State
or District level and undertaking upgradation of networks towards digitalization and
addressability);
(4) Mobile TV;
(5) Headend-in-the Sky Broadcasting Service (HITS)
100%
Automatic
Cable Networks (Other MSOs not undertaking upgradation of networks towards
digitalization and addressability and Local Cable Operators (LCOs)
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral
Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign
investor, will require FIPB approval

5. 6. Private Security Agencies
The extant policy permits 49% FDI under government approval route in Private Security Agencies. FDI up
to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would
be permitted with government approval route.
7. Establishment of branch office, liaison office or project office
For establishment of branch office, liaison office or project office or any other place of business in India if
the principal business of the applicant is Defence, Telecom, Private Security or Information and
Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance
would not be required in cases where FIPB approval or license/permission by the concerned
Ministry/Regulator has already been granted.
8. Animal Husbandry
As per FDI Policy 2016, FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture
and Apiculture is allowed 100% under Automatic Route under controlled conditions. It has been decided to
do away with this requirement of ‘controlled conditions’ for FDI in these activities.
9. Single Brand Retail Trading
It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for
another five years for entities undertaking Single Brand Retail Trading of products having ‘state-of-art’
and ‘cutting edge’ technology.
These amendments to the FDI Policy are meant to liberalise and simplify the FDI policy so as to provide
ease of doing business in the country leading to larger FDI inflows contributing to growth of investment,
incomes and employment.