MEMBERS' REFERENCE SERVICE

LARRDIS
LOK SABHA SECRETARIAT, NEW DELHI

REFERENCE NOTE
No. 27/RN/Ref/July/2016

1
For the use of Members of Parliament NOT FOR PUBLICATION

BREXIT AND ITS IMPACT ON INDIA

Prepared by Shri G. Ranga Rao, Additional Director (23035251) and Shri Vinod Kumar, R.O. of Lok Sabha
Secretariat under the supervision of Smt. Kalpana Sharma, Joint Secretary and Shri R.N. Das, Director.

The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for
publication. This Service is not to be quoted as the source of information as it is based on the sources indicated at the
end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views
contained in the note/collection.
 BREXIT AND ITS IMPACT ON INDIA

WHAT IS BREXIT
Brexit is a combination of Britain and exit and has become the short name for
the 23 June 2016 referendum. The official question voters were asked was: Should the
United Kingdom (UK) remain a member of the EU or leave the EU? The United
Kingdom consists of England, Scotland, Wales and Northern Ireland. This is the first
vote of its kind in the history of the economic and political bloc in its modern form.

HISTORICAL BACKGROUND
The European Union (EU) consists of 28 countries that have signed a treaty to
become a political trade and economic union. The EU treaty provided for a common
European Parliament and European Council consisting of representatives of the
member-States. The Euro Area (EA) is a subset of the EU, which is a monetary union
and 19 of the 28 countries which use Euro, the common currency. That is, not all EU
members use the Euro, Britain being one of them. EU is the largest trading bloc in the
world surpassing the US and accounts for 16 per cent of the worlds imports and
exports. In 2012, the EU was awarded the Nobel Peace Prize for advancing the causes
of peace, reconciliation, democracy and human rights in Europe. The EU evolved over
decades by passing through various stages before reaching its present model in 1993.

BRITAIN IN EU
Britain, under Conservative Party Rule, joined the EU as it existed in 1973. But,
in the 1974 elections to British Parliament, the Labour Party promised a referendum on
whether Britain should continue in the EU. In the 1975 referendum, more than two-
thirds (67 per cent) of the British voted to continue in the EU.
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WHY BREXIT
When the British had already overwhelmingly voted to continue in the EU in
1975, why a fresh referendum now in 2016? This time around, the Conservative Party,
which had first put Britain in the EU in 1973, promised a referendum on whether Britain
should continue in EU or not. Why did the Conservatives take a U-turn on the issue
after four decades? It is due to the emergence of the United Kingdom Independence
Party (UKIP) a Eurosceptic and right-wing populist political party in the United
Kingdom. The UK Independence Party (UKIP) was originally founded under a different
name in 1993 to oppose Britains EU membership. The UKIP, which began surging in
popularity in 2013, appealed to the Conservative vote base and emerged as a challenger
to the Conservative Party in the run-up to the 2015 general elections. Following
renegotiations between Britain and the EU, prominent conservatives, including some
ministers in the Conservative government, began supporting the referendum. In 2013,
David Cameron, the Conservative Party Prime Minister, supported the referendum idea
on the issue and said if the party was voted in the 2015 general elections, he would hold
the referendum before 2017, if renegotiations for a better deal for Britain, did not work.

KEY ISSUES
The leave camp has argued that the referendum presents an opportunity for
Britain to take back the control it had lost in the large EU bureaucracy and highlighted
the amount of money sent as contribution every week to Brussels, the EU capital.
Immigration has also been in the spotlight with the leave camp arguing, We will
control our borders. The leave camp has argued Britain would have greater control
over its own economy outside of the EU.

The remain camp has argued that the U.K. is stronger, safer and better off in
Europe. While admitting to problems with the EU, the remain camp has focused its
energies on the economic argument, stressing that British jobs and trade are closely
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linked with the EU and that it adds billions of dollars to the British economy every year.
Staying with EU is the status quo choice that many business executives have called for.

RESULTS
British voters dealt a body blow to the British government, business, EU and
world markets by voting and opting to leave the EU. The vote share of Leave EU was
51.9 per cent and the share of Remain in EU was 48.1 per cent. The naysayers to the EU
secured 1.3 million more votes over the yea-sayers out of the 33.5 million votes polled.
While the issue in the referendum was only the economic issues, the real issue that
appears to have turned the tables on Yes to EU is the immigration issue. According to
the well-known digital media house, Vox Media, the referendum involved seven
arguments namely-the EU threatens British sovereignty; it is strangling the UK with
burdensome regulations; it entrenches corporate interests and prevents progressive
reforms; while the EU is a good idea, the Euro is a disaster; the EU allows too many
immigrants; and Britain could have a more rational immigration system outside the EU.

IS THE VOTE BINDING

No, it is not legally binding. Parliament will still have to pass laws for the U.K. to exit
the EU, but it is unlikely that Parliament would go against the referendum. There is no
minimum turnout needed, and to win the vote a simple majority is enough.

POLITICAL LESSONS FOR THE WORLD

There are three good reasons why every democratic country across the world, should
salute the UK referendum. The first is the democratic manner in which the British
went about it. David Cameron promised the referendum in the first flush of the
Conservative Partys victory and went all the way through it, despite the writing on
the wall. The second reason is the intra-party democracy that Britain has displayed to
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the world, and inter-party cooperation. Camerons key rival in his Remain
campaign was Boris Johnson from his own party, who was allowed to campaign
against the Remain camp without incurring the wrath of the party bosses. Indeed,
support for Cameron came from the Labour leader Jeremy Corbyn. The third and
most important reason why the UK referendum stands out is the accountability of
the leadership at the top that was on display all through the process. This is not to
suggest that Britain is a textbook democracy, but in not hesitating to conduct a
referendum on a touchy issue, in going through with it come what may, and in
respecting the verdict, it has shown that listening to the voice of the people is the
bedrock of democracy.

Brexit also demonstrates the return of virulent nationalism. Nationalism became

racism when the issue of immigration was raised. There is a warning here too for
multi-racial societies that when there is an attempt to whip up narrow nationalism, it
can deteriorate into religious hatred.

ECONOMIC IMPACT ON INDIA

Brexit demonstrates the deep dissatisfaction with globalization which exists in one of
the world's most prosperous countries. British think-tank Chatham House calculated
that the biggest winners from globalization are the world's wealthiest people, just
1 per cent of the population. The biggest losers are the poor. In between them are
the middle classes, who have done pretty well out of globalization.
The impact on India will depend on the policy response by China, Japan and other
countries to counter their own economic slowdown. The EU is China's largest export
destination, and with China's currency already facing depreciation, capital outflows
will be under pressure. Any Chinese move to allow its currency to depreciate further
will hurt India's domestic industry, unless reciprocated via a weaker rupee.
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The massive selloff of the British pound that followed Brexit resulted in a roughly
8 per cent decline of the currency relative to the Indian rupee. Financial experts
predict the plunge to continue before the pound stabilizes, making it considerably
less expensive for Indians to travel and study in the UK. The falling currency also
presents cheaper real estate options for Indian citizens and companies seeking
property in Britains prohibitively expensive property market.

One of the major reasons why trade will be affected is because Britain, since
decades, has proved to be a gateway to Europe and the end of this union will perhaps
make Britain less attractive for Indian investors. From now onwards, India will have
to maintain separate trade negotiations with both, Britain and the European Union.

India is the second largest source of foreign direct investment (FDI) for Britain and it
would not want to lose its Indian investors. Thus, India can expect a less regulatory
British market for trade and investment. According to the Minister for Commerce
and Industry, Smt.Nirmala Sitharaman, India is already exploring the possibility of
separate free trade agreements with UK and EU.

There are about 800 Indian businesses companies with more than 110,000 employees
operating in UK and ever-growing in size. After Brexit, Indian companies will have
to rethink their business strategies.

The 'vote-out' will also affect the $108-billion Indian IT sector because companies
like TCS, Infosys and HCL heavily depend on Britain for their IT exports.

The automobile sector could face a downturn, due to a decline in the export of cars
and auto components to Europe, along with a regressive margin impact from the
British pound and the euro's depreciation.
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Some analysts predict Brexit could lead to changes in UK immigration policies that
would favor high-skilled workers from India. Divorced from the rest of the Europe,
the UK could potentially face a dearth of high-skilled EU workers if the movement
of professionals from the continent is curbed. India could benefit from the possible
shortfall.

CONCLUSION

Britain might have voted out of the European Union, but, the referendum by itself
is not legally binding. It may take some time for Britain to pull the trigger. According to
Article 50 of the Treaty on European Union (see Annexure), a member State will have
to notify the EU of its withdrawal and then, the EU will necessarily have to try to
negotiate the withdrawal agreement. So, Britain, as of now, has a two-year window
where it can negotiate issues like trade, migration, taxes and regulations on different
sectors. But for that to unfold, the world will have to wait and watch!

REFERENCES
1. Brexit: What it means for Europe and the World by S. Gurumurthy; The New
Indian Express, dated 25.6.2016
2. What is the Brexit? Key Issues Explained by Lydia Tomkiw; International
Business Time, dated 22.6.2016
3. Learning from London, Outlook Magazine, dated 11.7.2016
4. The Brexit Mess Leaves Some Questions for India by Mark Tully; Hindustan
Times, dated 10.7.2016
5. Brexit, Bharat and the Bazaar by Meenakshi Lekhi; The Week Magazine, dated
17.7.2016
6. What Brexit Means for India by Ronak D. Desai, Forbes.com, dated 6.7.2016
7. Five takeaways: How Brexit will Impact India by Gurpreet Kaur; Business
Today, dated 29.6.2016
8. India, UK evaluate post-Brexit Trade, Hindustan Times, dated 12.7.2016
9. Brexit: Does it matter for India? By Mathew Sinu Simon; IDSA, dated 17.6.2016
10. How the Brexit brouhaha will impact on India by Feroze Varun Gandhi; Mail
Online, dated 27.6.2016
11. www.lisbon-treaty.org
 Annexure

The Lisbon Treaty*

Article 50

1. Any Member State may decide to withdraw from the Union in accordance with its
own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its
intention. In the light of the guidelines provided by the European Council, the Union
shall negotiate and conclude an agreement with that State, setting out the arrangements
for its withdrawal, taking account of the framework for its future relationship with the
Union. That agreement shall be negotiated in accordance with Article 218(3) of the
Treaty on the Functioning of the European Union. It shall be concluded on behalf of the
Union by the Council, acting by a qualified majority, after obtaining the consent of the
European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into
force of the withdrawal agreement or, failing that, two years after the notification
referred to in paragraph 2, unless the European Council, in agreement with the Member
State concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of
the Council representing the withdrawing Member State shall not participate in the
discussions of the European Council or Council or in decisions concerning it.

A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty
on the Functioning of the European Union.

5. If a State which has withdrawn from the Union asks to rejoin, its request shall be
subject to the procedure referred to in Article 49.

* www.lisbon-treaty.org