What is Brexit?

Brexit is the popular term for the withdrawal of the United Kingdom (UK) from
the European Union (EU).

In a referendum on 23 June 2016, 51.9% of the UK voters voted to leave the EU.
The British government invoked Article 50 of the Treaty on the European Union
the UK is thus on course to leave the EU on Friday, 29 March 2019.

What is EU?
The UK joined the European Communities in 1973 with membership confirmed by
a referendum in 1975

Under the Maastricht Treaty, the European Communities became the European
Union on 1 November 1993, reflecting the evolution of the organisation from an
economic union into a political union.

Why did UK vote for Brexit?

Loss of sovereignty: Lots of Britons felt that there was a loss of sovereignty since
many of the important decision regarding UK were taken by EU and not the
elected government. They believe that the decisions about the UK should be
taken in the UK.

Immigration: Since the inclusion of eastern European countries (Poland, Belarus,

Hungary etc) in EU, a lot of eastern Europeans have migrated to UK changing the
lifestyle of native population. Around a third of leave EU voters expressed
immigration as major reason for them to vote for Brexit.
There was also a lot of age factor deciding voting behavior. Some studies suggest
that older voters voted to stay outside of EU (in favour of Brexit ) while younger
voters voted for staying in EU (against Brexit)

Also, poor neighborhoods voted more for exit compared to richer people who
voted to stay in EU

Impact on EU
There was an immediate governance challenge post Brexit with PM resigning and
no one from Brexit camp willing to take up the job, this has been resolved with
Theresa May becoming PM.

But there are long term consequences with EU putting on hold the plans for
greater European financial integration. Plans for EU Migration Bonds etc have
been put on hold till there is greater clarity on future on EU

Anti establishment movement have gained because of Brexit with far right parties
becoming strong. Marine Le Pen made it to last 2 candidates in French elections,
though ultimately lost

Brexit will increase Germany s political and economic supremacy in the EU a

prospect that other EU members don t like.

Brexit will harm the EU s cohesion, confidence and international reputation.

Impact on UK
Immigration was cited as the second-most important reason for those voting to
Leave EU. However, some forecasts indicate that i igratio ows to the UK will
remain relatively high after Brexit.
Most economists, including the UK Treasury, argued that being in the EU has a
strong positive effect on trade and as a result of Brexit UK's trade would be worse
off if it left the EU.

Others argued for the benefits of being free of EU "red tape" regulations.
Additionally, not contributing to the EU budget will save money for UK.

Reports suggest that Britain would lose up to 70 billion due to reduced economic
growth if it didn't retain Single Market membership. Financial services provided
from UK will lose access to EU market and will suffer because of Brexit. This
indirectly accounts for up to 71,000 jobs and 10 billion pounds of tax annually.
Some banks have already announced plans to relocate some of their operations
outside the UK.

Hard exit/Soft exit

The terms "hard Brexit" and "soft Brexit" are used unofficially by news media.
These terms are used to describe the possible future relationship between the UK
and the EU after withdrawal.

Hard Brexit could involve the UK trading with the EU like any other non-EU-
member country under World Trade Organization. UK will have liberty to accept
or reject movement of European countries citizens. Soft Brexit might involve
retaining membership of the EU single market for goods and services. There can
be some free movement of people, according to European Economic Area rules.

Under EU rules, any citizen of EU country can go and stay/work in any other EU
country. This will change if UK goes for hard exit. In case of hard exit, citizens of
other countries can not enter UK and vice versa. In case of soft exit, some of these
movements will be allowed.
Impact on India
Currency volatility: there were initial fears of currency volatility in case
pound and Euro depreciate impacting Indian exports negatively. These
concerns have been not been found to be true
Access to EU: Britain was always India s gateway to EU. With Brexit, now
Indian firms will face short term distress
Many of the trade agreements India has with EU will have to be signed
separately with Britain
India is 3rd largest investor in Britain. If Britain economy suffers because of
Brexit, Indian investments will suffer too. These concerns have largely been
addressed now with Britain economy performing well post Brexit
Indian IT companies may need to establish separate offices and hire
different teams for the UK and the EU after the fallout, putting heavy
expenditure burden on IT companies in the near-term.
After Brexit, India may increase its exports to the UK, as the goods supplied
by EU producers will be subject to the same tariff as applicable to goods
imported from India. Thus Indian exports will get level playing field vis a vis
EU countries
References
1. https://en.wikipedia.org/wiki/Brexit