Explain Britain's ouster from EU and bring out its consequences on world economy in general and India in particular. (UPSC CSE Mains 2016 - Political Science and International Relations, Paper 2)
Brexit mirrors the term Grexit — a term which was coined and used by two Citigroup’s economists in February 2012 to refer to the possible exit of Greece from the EU. Britain has had a troubled relationship with the EU since the beginning and has made various attempts in the past to break away from it.
Impact on India
- India has had strong historical ties with the U.K. and currently, it is one of India’s most important trading partners. In the last four years alone, the number of Indian companies investing in the U.K. has quadrupled.
- Similarly, the K. is one of the largest investors in India,among the G20 countries. Hence, it is important to see how India and the U.K. can manoeuvre through Brexit and enter into new trade agreements that are mutually beneficial to both economies.
- Brexit will directlyimpact not only the Indian stock market but the global market in totality, including the emerging markets in the world. This is because of the high volatility in the pound.
- Both the U.K. and EU account for 23.7% of Rupee’seffective exchange rate. With Brexit, foreign portfolio investments will outflow and will lead to the weakening of the rupee.
- India’s businesses based in the U.K. will be hampered as till now they had border-free access to the rest of Europe.
- The investors are concerned as India invests more in the United Kingdom than the rest of Europe combined.
Impact on the World
- Brexit will weaken the EU economically and politically. The K. was the EU’s second-biggest economy (after Germany)a major net budget contributor, key military force and one of the bloc’s two nuclear powers (another one is France) and permanent UN security council members.
- The U.K.’s departure has distracted attentionfrom a number of other big and urgent problems, including the climate crisis.
- In the longer term of balancing of global powers,a smaller Europe can be a weaker Europe in the face of an ambitious China and an increasingly protectionist US.
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