Uploaded by : DreamGains Financials, Posted on : 24 Jun 2016


What is BREXIT???

British withdrawal from the European Union, often shortened to Brexit is a political goal that has been pursued by various individuals, advocacy groups, and political parties since the United Kingdom (UK) joined the precursor of the European Union (EU) in 1973. Withdrawal from the European Union is a right of EU member states under Article 50 of the Treaty on European Union.

In 1975, a referendum was held on the country’s membership of the European Economic Community (EEC), later known as the EU. The outcome of the vote was in favour of the country continuing to be a member of the EEC.

The UK electorate again addressed the question on 23 June 2016, in a referendum on the country’s membership. This referendum was arranged by parliament when it passed the European Union Referendum Act 2015. The result of the referendum was to leave the European Union. The result must still be ratified by parliament.

United Kingdom European Union membership referendum, 2016

In 2012, Prime Minister David Cameron rejected calls for a referendum on the UK’s EU membership, but suggested the possibility of a future referendum to gauge public support

In January 2013, Cameron announced that a Conservative government would hold an in-out referendum on EU membership before the end of 2017, on a renegotiated package, if elected in 2015.

The Conservative Party won the 2015 general election. Soon afterwards the European Union Referendum Act 2015 was introduced into parliament to enable the referendum. Despite being in favour of remaining in a reformed European Union himself, Cameron announced that Conservative Ministers and MPs were free to campaign in favour of remaining in the EU or leaving it, according to their conscience. This decision came after mounting pressure for a free vote for ministers. In an exception to the usual rule of cabinet collective responsibility, Cameron allowed cabinet ministers to publicly campaign for EU withdrawal.

In a speech to the House of Commons on 22 February 2016, Cameron announced a referendum date of 23 June 2016 and set out the legal framework for withdrawal from the European Union in circumstances where there was a referendum majority vote to leave, citing Article 50 of the Lisbon Treaty. Cameron spoke of an intention to trigger the Article 50 process immediately following a leave vote and of the “two-year time period to negotiate the arrangements for exit”

Result of referendum, 2016

Choice Votes %
Leave 17,410,742 51.9
Remain 16,141,241 48.1
Valid votes 33,551,983 99.92
Invalid or blank votes 26,033 0.08
Total votes 33,578,016 100.00


Impact on World Economies at large:

  • Britain would no longer be subject to EU budget rules, which limit a government’s budget deficit to 3 percent of gross domestic product and public debt to 60 percent of GDP.
  • It could therefore run whatever budget shortfall it wants without admonishment from the European Commission and other EU ministers. It would also be free from the Commission’s monitoring and advice on future actions.
  • Financial services firms based in Britain, from banks to clearing houses and funds, could lose their money-spinning EU “passports”, which allows them to sell services across the 28-nation bloc with low costs and a single set of rules.
  • The passporting system has contributed to making London one of the world’s most important financial centres.
  • Some American, Japanese and other non-European banks that have European headquarters in London have said they would consider moving parts of their business inside the European Union, in the event of a Brexit.
  • The rest of the EU has a trade surplus in goods of about 100 billion euros ($110 billion) with Britain, while Britain exports some 20 billion euros in services than it imports, principally due to financial services.
  • Brexit campaigners say if would be in the EU’s interest to agree a free trade deal with Britain even if it leaves the bloc.
  • However, there tends to be more of a focus on goods than services in free trade deals. Switzerland, where financial services are a larger share of GDP than in Britain, has no general access to EU financial service markets and runs a financial services trade deficit with the bloc.
  • Leaving the EU could make UK energy infrastructure investment costlier and delay new projects at a time when the country needs to plug a looming electricity supply gap.
  • The uncertainty after Brexit could make energy investors demand higher returns for the risk of less favourable conditions. Oil and gas majors BP and Shell are among energy companies who warned about the potential downside.


Impact on India after Brexit:

  • Indian IT companies get anywhere from 6-18 percent of their revenues from the UK. The UK has traditionally been the gateway for Indian IT firms to enter Europe and they have set up a large presence in the UK to serve the EU markets from their headquarters in London.
  • Also, the immediate fallout of Brexit on the IT industry in India would be the impact of the decline in the value of the British pound, which would render many existing contracts losing propositions unless they are re-negotiated.
  • Tata Motors-owned Jaguar Land Rover (JLR) has reportedly predicted an estimated 1 billion pounds loss by 2020 post Britain’s exit from the European Union (EU).
  • Europe represented 24 percent of the total sales of 521,571 vehicles, making it the single biggest market for the company, ahead of the UK at 20 percent.
  • The British exit will also lead to greater investments into less risky assets like gold and increase the overall outflows from the domestic equity markets.
  • India invests more in the UK than in the rest of Europe combined, emerging as the UK’s third largest FDI investor. Access to European markets is therefore a key driver for Indian companies coming to the UK, as per CII.
  • Britain ranks 12th in terms of India’s bilateral trade with individual countries. It is also among just seven in 25 top countries with which India enjoys a trade surplus.
  • As per data with the Commerce and Industry Ministry, India’s bilateral trade with Britain was worth USD 14.02 billion in 2015-16, out of which USD 8.83 billion was in exports and USD 5.19 was in imports. The trade balance thus was a positive USD 3,64 billion.
  • Brexit may actually strengthen India’s position as a truncated EU may have to rework its negotiation strategy in order to gain market access.
  • From an India point of view, it is also necessary to appreciate that post Brexit, it is unlikely that UK financial market and its financial expertise will evaporate overnight.
  • However, in the longer run, Brexit could help strengthen India-UK economic relationship as the UK seeks to compensate for loss of preferential access to EU markets.