As India gears up for its general elections later this year, global financial markets are bracing for political turmoil elsewhere. The UK Prime Minister Theresa May’s Brexit plan was voted down in Parliament. She now needs to present an alternative plan by the March 29 deadline. In the meantime, there’s increased speculation around a second referendum on Brexit.
What is it?
Britain joined the European Union (EU), then known as European Economic Community, in 1973. Joining the EU enhanced the UK’s access to other member countries in terms of trade and workforce mobility. The UK also bagged special privileges such as a rebate on its contribution to the EU budget and an opt-out from the common currency. But the inclusion of ten new countries in the EU in 2004 proved a turning point. With increasing immigration from other EU nations, the influx of immigrants into the UK doubled between 2004 and 2008.
After the global financial crisis unfolded in 2008, the UK suffered setbacks to its economy, income levels and job growth, fuelling angst against immigrants. Britain’s exit from the EU, or Brexit as it is called, shot to centre-stage in the 2015 election campaign.
Then British Prime Minister David Cameron, not in favour of Brexit, called for a referendum on June 23, 2016, where British people were asked to vote on the issue. The referendum threw up a 51.9 per cent vote in favour of Brexit, forcing the government to cobble together a plan to put Brexit into action.
Though this deal has hit a roadblock, many including Prime Minister May are against the proposal for a second referendum citing it as against the verdict of the people. Some polls suggest that people may vote to stay in the EU if a second referendum is held.
Why is it important?
Hassle-free trade and easy mobility of goods and services between EU nations have been key advantages for the UK under the EU. This could be hit if Brexit becomes a reality. About 12 per cent of the global demand for UK’s goods and services comes from EU members and this accounts for an estimated three million jobs. The UK is negotiating hard with the EU to roll out a Brexit that doesn’t upset its trade equations. But if the EU drives a hard bargain and it’s a no-trade deal, Brexit may subject the UK to WTO rules on trade with the rest of Europe. This could mean increased trade tariffs and uncertainty for citizens of other EU member nations staying and working in the UK. It is unclear if the many global financial services giants based out of the UK will choose to relocate to other EU members post-Brexit.
With these concerns, a second referendum if held, can lead to more uncertainty. If the UK votes to remain, the dissenters may be unhappy. If it votes to leave, the negotiations will need to start from scratch. Whether the second referendum can be completed before March 29 is the other issue.
Why should I care?
The UK contributes about 3 per cent of India’s exports and the EU about 17 per cent. An economic slowdown in the UK or EU as a result of Brexit could impact India’s already faltering exports. However, some believe that India may also end up getting new trade opportunities with the UK after Brexit. Whether these will cancel out each other will be known only post facto. Brexit is also likely to create uncertainties for Indian immigrants working in the UK and for Indian firms who do business there. The UK’s new immigration policies will need a watch if Brexit becomes a reality.
Divorces are always more complicated than marriages.
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