Prelims level : International Mains level : GS -II Governance, Constitution, social justice and IR
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Why in News?

  • British Prime Minister Theresa May is set for a new political showdown in Parliament as MPs across the political spectrum expressed their intention to oppose her Brexit plans, when she attempts to gain their support through legislation set to be put to MPs in early June.


  • On Tuesday evening, following the latest instalment of cross-party talks with the Labour Party, The Prime Minister plans to bring forward the Withdrawal Agreement Bill in the week commencing June 3, thereby setting a tangible deadline for the talks that have continued with little outcome so far.
  • The date of early June has been set to enable the U.K. to leave the European Union (EU) before the start of the summer recess were the legislation to pass.

What is Brexit?

  • It is the abbreviation of “British Exit” from the European Union (EU).
  • 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.

Why the ‘Leave EU’ campaign?

  • The Leave Campaign argues that Britain is losing out a big deal by staying in the EU.
  • It has to pay millions of pounds each week as a contribution to the European budget.
  • The extremely bureaucratic nature of the European parliament is hurting British exporters
  • Migration from the European Union into Britain (mainly PIGS economies) is creating an imbalance in the welfare schemes of the UK government.
  • But those who oppose the campaign say that Britain is a net gainer if She stays in the EU.

Negative Impacts of the Brexit referendum on India

  • India will have to adjust to changing world order.
  • There may be foreign fund outflow and dollar rise.
  • Rupee may depreciate because of the double effect of foreign fund outflow and dollar rise.
  • This may increase petrol and diesel prices to an extent.
  • The government then may want to reduce additional excise duty imposed on fuel when it was on a downward trajectory. This may increase fiscal deficit unless revenue increased.
  • Prices of gold, electronic goods, among others may also increase.

Positive Impacts of the Brexit referendum on India

  • There are many who think a weakening British currency might be good news.
  • India being more of an importing country than an exporting nation, the overall effect may turn out positive for India (if the dollar doesn’t’t appreciate much against rupee).
  • With lower pound value, Indian companies may be able to acquire many hi-tech assets.
  • As investors look around the world for safe havens in these turbulent times, India stands out both in terms of stability and of growth.
  • Brexit might give a boost to trade ties between India and the UK. Britain will now be free to discuss a bilateral trade pact with India.
  • Due to the fall in the value of Pound sterling, those who import from the UK will gain. Indian export companies operating in the UK may also gain.

India ready to handle the Brexit?

  • The finance ministry said that the country has sufficient foreign exchange reserves to handle any impact. RBI Governor Raghuram Rajan said the central bank will infuse whatever liquidity is needed into the Indian market to keep it “well behaved”. SEBI and stock exchanges have beefed up their surveillance mechanism to deal with any excessive volatility. If exports to the UK are costly and imports are cheaper, India can think of utilizing the import-advantage by reversing the present trade scenario. Once the dust settles, India may be seen to be a net gainer and inflows would continue to gravitate towards the Indian shores.
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