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Brexit: Does it matter for India?

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  • June 17, 2016

    On June 23, 2016, the United Kingdom (UK) will hold a referendum on a straightforward and decisive question: “Should the United Kingdom remain a member of the European Union (EU), or leave the EU?” This article examines the key debates on the British referendum and its effect on the European project of integration. It also looks at the effects, if any, of Brexit on India in terms of trade, FDI inflows and the Indian diaspora in Britain.

    The key issue underlying the referendum is whether Britain would be better off by remaining in or leaving the EU. During his visit to Brussels on February 19, 2016, Prime Minister David Cameron engaged in hard negotiations on the issues of sovereignty, immigration and child benefits, economic governance (Eurozone) and competitiveness. His renegotiated EU deal included securing a commitment to exempt Britain from further political integration into the EU and not requiring Britain to fund Euro bailouts. But due to stiff opposition from other EU members, Cameron failed to secure the demand for banning migrant workers in the UK from sending child benefit money back to their home countries.1 While Cameron deserves credit for obtaining a deal that serves British interests, he has, however, not been able to convince the British public in this regard.2 Critics aver that his deal will make little difference and that it falls well short of what he had promised while announcing his plan for a referendum.

    The referendum has created deep divisions within the British Cabinet, with Cameron asserting that “a vote to leave is the gamble of the century.”3 16 members of his cabinet back him and he also enjoys the support of the Labour Party, the Scottish National Party (SNP) and the Liberal Democrats. London’s new mayor, Sadiq Khan, has also pledged to fight until the moment the polls close to persuade Britons to vote to remain inside the EU. On other hand, about half of the Conservative MPs, including five cabinet ministers, the UK Independent Party (UKIP) led by Nigel Farage which won the last European elections, Boris Johnson, former London city Mayor, the Democratic Unionist Party (DUP) and others are in favour of leaving the EU.

    A Brexit poll tracker by Financial Times says that 47 per cent of the public is in favour of leaving the EU, 44 per cent prefers remaining in the EU, and 8 per cent is yet to decide.4 It indeed appears that the referendum would be a close call.

    Key Debates

    One important question in the debate is with regard to sovereignty and laws. And it centres on how far the UK has the ability to make its own laws and decide how it is governed. The ‘leave’ campaign is of the view that most UK laws are made in Brussels and that other member states can indeed force through decisions against the UK’s wishes. ‘Leave’ advocates cite instances when the British government was repeatedly defeated in cases brought before the European Court of Justice (ECJ). For them, Britain leaving the EU is the only way to regain full sovereignty. On the other hand, the campaign to stay in the EU argues that only a minority of UK laws derive from the EU and that Britain still retains a veto in important areas. Further, Cameron’s EU deal allows national parliaments to block legislation.

    The second vital debate is with regard to immigration and free movement of people within Europe. Total net migration to the UK is running at over 300,000 a year despite the government’s target of cutting it to under 100,000. The most recent official figures put net migration from EU countries at 184,000 a year and from non-EU countries at 188,000.5 The leave campaign argues that the highly unregulated flow of migrants into Britain has caused a severe strain on public services like the National Health Service, Schooling, etc. But the ‘stay’ side is of the belief that immigrants, especially those from the EU, pay more in taxes than they take out. For his part, Cameron is seeking to put a stop to “welfare tourism” by limiting some benefits for new immigrants. In particular, he wants a four-year ban on benefits, including those paid to employed persons and being claimed by migrants who arrive from the rest of the EU. Even if the UK were to leave the EU, Britain would still have to accept free movement of people to gain full access to the single market.

    The third debate is intrinsically linked to the second and centres on the question of jobs and unemployment conditions in Britain. While the stay side argues that, since three million jobs are tied to the EU, there could be a jobs crisis if the UK leaves the EU, the leave campaign claims that there will be a jobs boom in the absence of the fetters that EU regulations impose.

    The fourth debate revolves aroundpolicing and security. The stay side points out that the UK would benefit from the continued sharing of intelligence through membership in Europol. And it also highlights the fact that the European Arrest Warrant has returned over 1,000 criminals to face justice in the UK. But the leave side claims that Britain would continue to co-operate with other European countries to fight terrorism even after Brexit.

    The fifth debate, which is of particular interest to India, is related to matters of trade and economy. Brexit, according to Cameron, would cause an economic shock and slower the growth rate. But the leave side counter-argues that UK companies would be freed from tougher, rigid, EU regulations. Further, the UK would also have the opportunity of negotiating trade agreements on its own terms with other countries.

    BREXIT and India

    Brexit could cause instability in the markets in the short term and that would adversely affect India. 800 Indian businesses with more than 110,000 employees are likely to take a hit in the short term.6 The Federation of Indian Chambers of Commerce and Industry (FICCI) has warned about considerable uncertainty for Indian businesses operating in the UK and Europe if Brexit were to ensue.7

    On the positive side, Brexit would provide a fillip for an India-UK free trade agreement (FTA) in the immediate future. There is empirical data to show that Indian FDI in the UK is increasing and that there is no dramatic shifting of Indian funds from the UK to other EU countries, despite the forthcoming Brexit referendum.8 India, moreover, prefers to deal with Britain rather than with the complex institutional architecture of the EU. Notwithstanding these positives, the fact remains that Britain staying on in the EU is also likely to be of value for India. After all, the UK is a gateway to Europe and it is a preferred destination for Indian investors in terms of language, culture and ease of doing business.

    Finally, Britain is home to the largest Indian diasporic community, whose lives are indeed likely to be affected by the result of the referendum. The UK’s employment minister, Priti Patel, who is of Indian origin, has come out in favour of Brexit. She has claimed that: “Many members of the Indian diaspora find it deeply unfair that other EU nationals effectively get special treatment. This can and will change if Britain leaves the EU. A vote to leave the EU is a vote to bring back control over immigration policy to the UK.”9 The FICCI and Indian origin members of the House of Commons and House of Lords have, however, contested Patel’s claims on Brexit. Keith Vaz, Labour MP for Leicester East and chairman of the home affairs select committee, has put the issue succinctly thus: “Britain's place is in a reformed Europe. We cannot be isolated. We must be at the heart of the EU, leading, not following.”10

    Conclusion

    The Brexit referendum has raised a healthy, albeit sometimes exaggerated, debate. Its result will provide the government with a mandate to act upon the will of the people. The referendum is bound to have long term political and economic implications for India. Euroscepticism is on the rise and other member states may follow suit with their own referendums demanding more powers for national parliaments from Brussels. Whatever be the outcome, certain serious questions are likely to be raised about the very project of European integration.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

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