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

1. BREXIT
A shorthand way of saying the UK leaving the European Union (EU) –
merging the words Britain and exit to get Brexit.

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. 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. 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. 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. 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. 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. 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.

10. 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

11. 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.