The people of Britain voted for a British exit, or Brexit, from the EU in a historic referendum in June this year.
Some of the reasons behind Brexit were:-
- European Union rules permitting free movement of labour into Britain led to increased flow of immigrants, which many didn’t want.
- 60% of laws in Britain come from EU in Brussels rather than from Parliament in London.
- According to EU law, Brits cannot work for more than 48 hours a week, averaged over 17 weeks. People who do work more have to sign a form saying that they agree to opt out of the 48-hour week.
- Numerous automobile directives imposed by EU.
- Keeping their national identity alive.
Implications on India
- As the UK and European Union account for 23.7% of the rupee’s effective exchange rate, Brexit affects the rupee through both trade and the financial channels.
- UK’s exit could spark foreign portfolio investor outflows as investors may try risk aversion and add to the rupee’s weakness.
- Brexit has driven away fears of a US Fed rate hike and could lead to lower commodity prices.
- A heightened level of financial market volatility and uncertainty over the outlook for currencies and global macro will undermine global equity markets – including India
- Given the possibility of disturbances in currencies and UK facing a further slowdown in growth, there are heightened chances of slowdown in Indian exports to UK and EU.
- The companies that have operations in the UK and the EU will have to face significant translation losses with the probability of volatility in currencies remaining high
- Britain’s exit from the EU is expected to open up significant business and economic opportunities for the Indian Education Sector.
Implications on global countries:-
- Free movement is going to become a major issue in Europe after the exit of the UK.
- Exit might prompt other nations to go ahead with shifting the power back to national governments in areas like immigration, while maintaining the trading union.
- The EU will have a tough fight to keep its relevance at world forums.
- Relative appreciation of the euro with pound will drive inflation rate even further below its goal.
- Direct global economic consequences of Brexit are likely to be limited, as its bilateral trading relationships are mostly regionally diversified and limited in scope.
