Brexit and India

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As per the second quarter of 2020, India’s GDP contracted by 23.9 %, which perhaps was one of the worst in the world. The actual situation is even worse than this. India measures the growth in GDP as a comparison to the same quarter of the previous year, while a majority of other countries, including the US, compare it to the previous quarter. According to the report of Gita Gopichand, the Chief Economist of the International Monetary Fund, the actual GDP contraction, if compared to the previous quarter, is 25.6 %.

Another nation which had a poor performance was the United Kingdom. Although there were several other factors responsible for it, Brexit was the major one. Even though the economic shrink was expected, the pandemic made it dreadful and the contraction was recorded to be 20.4 %, according to the same report.

Source : Gita Gopichand

The expected questions which should ideally follow are, what is Brexit? Why were these decisions made even when they knew that the great nation would have to suffer? What measures are they applying, or should apply? How can Indians benefit out of this situation?

Here are all the answers.

History of EU and Britain’s Exit

After the second world war, in 1951, Germany and France signed a peace treaty in order to overcome the enmity that the countries shared since ages. According to the treaty, both the nations agreed to share trading, demolish the border tensions so that anyone who wishes to move across these countries could freely do so, and functioned as an alliance in decision making. This concept of promoting peace was welcomed by other European nations, most of them joining the alliance over the next couple of decades, forming the European Union (EU).

In 1999, a common currency, Euro, was adopted by all the nations. 

EU flags, European Parliament, Strasbourg

The European Union not only was a way to promote peace but also was a way to display an enormous power on the world map. A disadvantage of one country was compensated by the advantage of another. However, the merits of this Union can also be their demerits. Since they have a common parliament and the decisions made are to be followed by all the countries, disagreements arise and one such disagreement led to the exit of Britain.

In 2015, reacting to the refugee crisis from war driven countries, the European Union decided that every country would have to accept refugees in proportion to its population. The decision was upsetting for some nations, including Poland and Hungary, who were not ready to accept immigrants and a feeling of leaving the European Union, in order to have an independence in decision making, grew.

The Conservatives, right wing party of the UK, had a similar understanding because of the new immigration policies of the EU. This led to arguments and disagreements within the party and soon it was split into two groups; one group consisted of leaders who were against an exit from the EU and the other, led by the current Prime Minister, Boris Johnson, who were in favor of the exit. Following a pressure from the group which wanted an exit, a referendum was conducted in 2016, the results of which were quite surprising to the world. 52% citizens voted for an exit from the EU. Even though there were allegations that fake facts were spread across social media and that the people were manipulated, the results were sufficient in making the demand for Br-exit! 

A 2017 study showed that a majority of voters, who voted in favor of the exit, belonged to the lower income groups – victims of unemployment – and who belonged to the rural regions along with the old aged groups who thought that immigrants would take up their jobs. Thereafter, instability reigned in the UK for over four years. Finally, on 31st January 2020, Brexit happened.

Although the trade negotiations are still taking place as we are reading this.

Consequences

Although the consequences would be seen in the coming years, and would also depend on the policies that the Brits would come up with, immediate effects were seen during the pandemic. Since nations in the EU support each other, it was no surprise that the UK ended with economic numbers worse than the previous allies. A few reasons for this could be the unemployment which followed the exit. One third of the United Kingdom’s total imports came from the EU. Following the exit, many small scale businesses and workers lost their livelihoods, and firms started shifting their bases to other nations, including Ireland, which were still a part of the union. This led to massive unemployment with even the prices of goods and services now increased as trade became complicated.

Another political crisis that the nation would have to face in the coming times is the Scotland rift. When the Brexit referendum took place, Scotland as a nation voted in favor of staying in the European Union but failing to make the majority, they were forced for the exit – upsetting the Scottish.Thus, Scotland is seeking a referendum to opt out of the United Kingdom, which obviously would increase problems for the nation, especially for the economy. 

A worry for the European Union after Brexit is if other nations would now be interested in exploring options of independent operations. If the United Kingdom happens to be successful in operating all its policies, the world would see many other splits within the union and the dominance would have an end.

Solutions for the UK?

The exit was followed by an immediate lockdown due to the coronavirus outbreak, but right after when the situation kind of normalized, the UK came up with changes regarding the student immigration. As per the new policy, the government had announced that new routes for international students were to be opened, claiming that the UK would welcome the brightest and the best from around the world. The impacts of Improvements in the education sector have been realized by many nations around the world after the success which Germany had in the last decade after it opened up flexibility to international students. Perhaps, the UK is planning for the same in the coming years, since even the immigration laws for students have now been relaxed and the post-study work benefits increased.

Trade policies have been the talk of the town. Everybody is aware about the kind of advantage European Union has with its flexible trade policies within nations. The challenges that would be there for both the UK and EU would be about how the two giants are going to function their trade in the coming times. While Germany is in favor of having flexible trade with the UK, France is not in favor of the same. The UK would now have to rely on other nations across the globe and would have to look for a completely new set of policies, having a completely fresh beginning as a nation. Along with designing new policies, attracting firms worldwide, they would also have to take care of the firms which are wishing to leave the existing setup and joining hands with nations which are still a part of the union.

Role of India

As per the Indian Ministry of Commerce and Industry, the exports to the UK sum up to 3.4% of the total while for the EU, it is 17%. The imports are a mere 1.4% from the UK as compared to 11.5% from the EU. 

The trade figures for India were better, and significant, earlier. They have constantly declined over the past decade. In 2011, India had exported around USD 6.8 billion and imported around USD 3.16 billion, and thus were dominant in trade – giving a boost to the Indian economy.

In 2015, the imports had increased to USD 3.5 billion while exports had declined and stood at approximately USD 3.9 billion, eventually declining the economy.

Courtesy : Deloitte India
Courtesy : Deloitte India

Even though both the nations have had a rough time in history, if we look at the present, the last decade has been the worst for both economically. Metaphorically, holding each other’s hand could be a wise option for both. As per reports, Indian exports are dominant by travel followed by telecommunications, computer and information services for around 22.8%, possibly because of the fact that UK companies are using contracted telecom services from India. Also, the financial services account for 2.3% of the total exports of services. The exit could now mean that the Kingdom would be now opened to other services which they had been taking from other nations, which were part of the union, previously. This could possibly increase a broader scope for exports, which India has been lacking since a few years. 

For the UK, since the GBP is on a decline, they need investors who could fill the voids. The Indian automobile sector could possibly lead in this situation. In the Financial Year of 2016, as per the Indian Ministry of Commerce and Industry, exports of automobiles to the UK were around USD 0.53 billion while the imports were a USD mere 0.12 billion. The ever growing IT and telecom industries could also mark their territories on the world map through the doors of the UK. 

Moreover, the Indian students can now benefit from the new student immigration policies of the UK. It could give fair and equal opportunities to the Indian students, who were given relatively less preference, as firms operating in the EU prefer the EU students in order to save costs.  

Looking at the current situation, these could possibly be wise solutions to both the nations. However even if they don’t opt for these options, it would be interesting to witness the economic graphs of both the nations, amidst all the political disagreements within their respective borders, and the policies with which they come up in the coming times.