WINTER SEMESTER 2018-19

REVIEW-2

INDIA AND CONTEMPORARY WORLD

(HUM 1024)

PROJECT TITLE: INDIA’S RELATION WITH EUROPEAN UNION

AND EFFECT OF BREXIT ON INDIA

UNDER THE GUIDANCE OF:

PROF BANGALORE MORARJI

BY:

AHMAD RAZA (15BCL0017)

PRABHAT KUMAR (15BCL0032)

INDIA’S RELATION WITH EUROPEAN UNION AND EFFECT OF BREXIT ON INDIA

India-EU bilateral relations date to the early 1960s with India being amongst the first
countries to establish diplomatic relations with the European Economic Community in
1962. A Cooperation Agreement signed in 1994 took the bilateral relationship beyond trade
and economic cooperation. The Cooperation Agreement together with the Joint Political
Statement signed in 1993, opened the way for annual ministerial meetings and a broad
political dialogue. A multi-tiered institutional architecture of cooperation has since been
created, presided over by the India-EU Summit since 2000. The first India-EU Summit took
place in Lisbon on 28 June 2000 and marked a watershed in the evolution of the
relationship. Since then, fourteen annual bilateral Summits have been held. 1

Recent decision of UK to leave EUROPEAN UNINON (EU) has been a matter of discussion in
European country as well as in India. Britain being one of strongest stakeholder in EU
influences the union most and certainly Brexit will have impact on trade on all over the
world especially Asian countries. A large trade between India and EU besides significant
number of Indian diasporas residing in UK is going to be affected.[1]

This project is an attempt to give insight on historical perspective of INDIA-EU relationship

and impact of Brexit on countries particularly on India.

Introduction

What is the difference between the great Britain , UK , and England and Europe

Source: Encyclopedia Britannica, Inc./Kenny Chmielewski

1Sachdeva, G. (2008). India and the European Union: Broadening strategic partnership beyond
economic linkages. International studies, 45(4), 341-367.
What is EUROPEAN UNION?

The European Union (EU) is a political and economic union of 28 member states that are
located primarily in Europe. The EU has developed an internal single market through a
standardised system of laws that apply in all member states in those matters, and only those
matters, where members have agreed to act as one. EU policies aim to ensure the free
movement of people, goods, services and capital within the internal market, enact legislation
in justice and home affairs and maintain common policies on trade, agriculture, fisheries and
regional development. A monetary union was established in 1999 and came into full force in
2002 and is composed of 19 EU member states which use the euro currency. 2

Need for a UNION:

There are various stages in economic integration of the regions and forming a economic and
political union is the last stage of economic integration.

Economic integration is an arrangement between different regions that often includes the
reduction or elimination of trade barriers, and the coordination of monetary and fiscal
policies. Economic integration aims to reduce costs for both consumers and producers and to
increase trade between the countries involved in the agreement.

There are seven stages of economic integration:

1. Preferential trading area,

2. Free trade area,
3. Customs union,
4. Common market,
5. Economic union,
6. Economic and monetary union, and
7. Complete economic integration.

The final stage represents a complete monetary union and fiscal policy harmonization.

One of the advantages of economic union is that it provides bigger markets for the countries
and bring together all the big economies. The countries which are engage in trade are less
likely to have war with each other.3

2Falkner, G., Treib, O., Hartlapp, M., & Leiber, S. (2005). Complying with Europe: EU harmonisation
and soft law in the member states. Cambridge University Press.

3
Scott, J. W. (1999). European and North American contexts for cross-border regionalism. Regional
studies, 33(7), 605-617.
WHY BREXIT:

BREXIT = BRITAIN + EXIT

Sources: Preliminary results data from the BBC, British Office of National Statistics

Now we should try to understand why the majority of Brits favored an exit from the EU and
learn lessons.

1. EU charges billions of pounds for UK to be its member.

2. Too much red tape : Red tape is an idiom that refers to excessive regulation or rigid
conformity to formal rules that is considered redundant or bureaucratic and hinders
or prevents action or decision-making. It is usually applied to governments,
corporations, and other large organizations. Things often described as "red tape"
include filling out paperwork, obtaining licenses, having multiple people or
committees approve a decision and various low-level rules that make conducting
one's affairs slower, more difficult, or both
3. robs members the right of control over its own affairs. Example can be given of fishing
rights for people of england
4. immigration effecting UK hard
5. britain could reinvent itself as a singapore style supercharged economy.4

4
Foster, R. F. (2008). Luck and the Irish: A brief history of change, 1970-2000. Penguin UK.
There are certainly other reasons which we need to see as following :

Economics

Opponents of the EU argued that it is a dysfunctional economic entity. The EU failed to

address the economic problems that had been developing since 2008… for example, 20%
unemployment in southern Europe.5

The difference between the lives of southern Europeans and Germans—who enjoy 4.2%
unemployment—is profound. Europe as a whole has stagnated economically.

The argument for remaining in the EU was that the alternative was economic disaster.
However, staying in a stagnated organization to solve British problems seemed short-sighted
and made little sense to opponents.

They believed that remaining in the European Union would make Britain follow Europe’s lead.

Obviously, they didn’t think that Europe would throw up trade barriers against Britain. The
UK is Germany’s third most important export target. The last thing Germany wants is a trade
war with Britain

Similarly, the threat that London’s banks would decamp for Frankfurt is logistically
implausible. Clients from around the world enjoy visiting London, and in finance, it’s the
clients that matter.

The European Union didn’t create the existing financial relationships. Britain’s financial role
goes back almost two centuries. The EU is a system that aligns with financial reality. It does
not create it.

If London’s banks were to move to Frankfurt, New York would become a unique magnet. In
the end, the Europeans need a financial centre in London. They will not lock it out.

Sovereignty:

There’s a growing distrust of multinational financial, trade, and defence organizations created
after World War II. The EU, the IMF, and NATO are good examples of this.

Many who oppose the EU believe these institutions no longer serve a purpose. Not only that,
these organizations take control away from individual nations. Mistrust and fear of losing
control made Brexit a reasonable solution to them.6

5
Blanchard, O. (2004). The economic future of Europe. Journal of Economic Perspectives, 18(4), 3-
26.
6
Mearsheimer, J. J. (1990). Back to the future: Instability in Europe after the Cold War. International
security, 15(1), 5-56.
But for the supporters of the EU, such organizations are self-evidently valuable. They may
need to be tweaked but not abandoned.

The immigration crisis in Europe was a trigger. Some EU leaders argued that aiding the
refugees was a moral obligation. But EU opponents saw immigration as a national issue, as it
affected the internal life of the country. Steering clear of this issue was an important driver
for the “leave” vote.

The EU doesn’t understand the power of nationalism. It attempts to retain nationality as a

cultural right. On the other hand, it deprives individual nations of the power to make many
decisions.

This may have worked before 2008, but it has become increasingly difficult to accept.

Political Elitism

Finally, the political leadership of Britain faced a profound loss. The “leave” voters rejected
both the Conservative and Labour parties. Both parties had endorsed remaining with the EU
and saw many of their members go into opposition on the issue.

Ultimately, it was a three-way struggle. Two established parties wanted to remain in the EU,
and a third faction, drawn from both parties, opposed it. People in this third group saw both
of the establishment parties as hostile to their interests.

This should be considered in the broader sense.

The possibility of Brexit frightened financial markets. They said so loudly. What they did not
grasp was the degree to which they had lost legitimacy in 2008.

Most “leave” supporters believed that the financial industry’s recklessness and incompetence
had created a disaster for many. Besides, they saw no benefit to themselves in the success of
the financial industry… even though it wasn’t true.

It’s vital to understand that Brexit was a vote against the British elite. Voters thought
politicians, business leaders, and intellectuals had lost their right to control the system.

Voters thought the elite had contempt for their values—for their nationalism and interests.

This is not a new phenomenon in Europe. This is not a British phenomenon, either. It is
something that is sweeping Europe and China. And with the rise of Donald Trump, it’s also
presents in the United States.7

7
Sundquist, J. L. (2011). Dynamics of the party system: Alignment and realignment of political parties
in the United States. Brookings Institution Press.
Trump’s entire strategy is to attack both the Democratic and Republican leadership… and the
elite who have contempt for the nationalism and moral principles of those beneath them. It’s
a shift in politics that the West is undergoing. Now, it’s in London.

Dark side of leaving European Union

Britain leaving the European Union would be a terrible idea - both economically and
politically.

The forecasts are unanimous: Brexit would wreck the economy, according to everyone from
the UK Treasury, the International Monetary Fund, the OECD, several independent research
houses, and the banks. So it does not look like we have much of a chance of keeping a strong
economy if we leave.

UK treasury would be hit

The UK Treasury - George Osborne is drawing up an emergency budget to plug a £30 billion
($43 billion) budget "black hole" in case Britain votes to leave the European Union next week.
Britain will face cuts to spending and consider increases to income tax and fuel duty.

The Institute of Fiscal Studies - Carl Emmerson, Paul Johnson, Ian Mitchell, and David Phillips
said in a report titled "Brexit and the UK's public finances" that while Britain would suddenly
find itself £8 billion better off after ending payments to the EU, the UK economy would
actually then shrink over the course of two years. This supports Osborne's bid to find ways to
plug the holes in the budget should Britain leave.

Leaving the EU would most likely increase borrowing by between £20 and £40 billion in 2019-
20. Getting to budget balance from there, as the government desires, would require an
additional year or two of austerity at current rates of spending cuts. Or we could live with
higher borrowing and debt.8

Every sector will be affected by a Brexit - for worse

The biggest issue with a Brexit is that the Leave campaign cannot guarantee how Britain would
manage the severing of ties with the EU. They can propose what they like, but consider the
viewpoint of the people on the other end of the deal - countries in the EU that we trade with,
or the US, which says that Britain will go to the back of the line. It does not bode well for us
at all.

8
Emmerson, C., Johnson, P., Mitchell, I., & Phillips, D. (2016). Brexit and the UK's Public
Finances (No. R116). IFS Report.
it is unlikely that those countries would suddenly stop buying our stuff completely. That is not
being called into question.

The major issue is that it will become a lot more expensive for Britain to ship out or bring in
goods. This is because we will not have tariff-free access to EU markets under EU rules.

Take a look at sterling falling against the dollar after a number of polls showed that the Leave
vote has gained a massive lead:

Immigration and the service industry

Britain is not a manufacturing hub like it was in the 1950s anymore. Everything from steel to
cars can now be produced cheaper abroad. While that is lamentable, it is not the be-all and
end-all for Britain. We have evolved into a nation that has other strengths that are enviable.
Even without manufacturing we still have low unemployment levels of 5% and a growing
economy. That is because we are a service economy. Services - everything from the media, to
working in a shop, to financial services - are Britain's lifeblood.9

Take a look at this chart from the Office for National Statistics showing the services industry's
contributions to the economy:

Source: Office for National Statistics UK

If we were to leave the EU, we would make our services instantly less competitive for all the
reasons illustrated above. This massively ties into the immigration issue.

Source: Deutsche Bank, ONS

9
Peston, R. (2012). How Do We Fix This Mess? The Economic Price of Having it all, and the Route to
Lasting Prosperity: The Economic Price of Having it all, and the Route to Lasting Prosperity. Hachette
UK.
Philippe Legrain, the former economic adviser to the president of the European Commission,
published a report showing that refugees repay double the money countries spend taking
them in, in terms of the economic activity they generate.

India-United Kingdom bilateral economic relations

India and the United Kingdom share close and friendly ties. The bilateral relationship that was
upgraded to a strategic partnership during PM’s Narendra Modi’s visit to the UK in November
2015 during which the foundation for enhanced Partnership for the future was laid. The key
commercial announcements made during the visit includes in the areas of energy
management business for efficient, clean and economical energy, healthcare, financial
institutions, pharmaceuticals, MoU to foster joint collaborations on bond and equity issuance,
with a strong focus on green infrastructure finance, telecommunication and to deepen
research and development exchanges. The India-UK economic engagement was further
reinforced by several important initiatives during PM’s visit to UK. It was agreed that the City
of London could play an important role in channelling investments into Indian infrastructure
projects, leveraging its capital and expertise. Government of India announced its intention to
issue the first Government-backed Rupee Bond in London and announced their plans to raise
finance through the City of London. The inaugural meeting of the revived India-UK CEO Forum
was convened by the two Prime Ministers. Commercial deals worth over £9.3 billion between
Indian and British companies were announced.10

Trade Relations

10
Ahmad, A. (2018). Before and After 9/11: Indo-US Counterterrorism Cooperation. Journal of
International & Global Studies, 9(2).
India’s bilateral trade with UK and EU

Foreign Direct Investments: UK is the 3rd largest inward investor in India, after Mauritius, and
Singapore with a cumulative equity investment of US $23.11billion (April 2000-March2016).
UK ranks first among the G20 countries and accounts for around 8.01% of all foreign direct
investment into India for the period April 2000 –March2016. Foreign Direct Investment in the
last three years has dropped from US$24.2billion in 2013-14to US$40billion in 2015-16.India
continues to be one of the largest source markets for FDI projects in the UK. According to the
UK Trade and Investment (UKTI) in their ‘2014/15 Inward Investment Annual Report’, India
undertook 122 FDI projects in 2014-15 in the UK, marking an increase of 65 per cent over last
year and making it the UK’s third largest source of FDI, accounting for over 9,000 new jobs.
According to UK Office for National Statistics, the value of Indian FDI into the UK has
registered a notable increase between 2004 and 2013, from £164 million to £1.9 billion. UK
attracts more Indian investments than the rest of the EU altogether.11

11
Gelb, S., Calabrese, L., & Tang, X. (2017). Foreign direct investment and economic transformation
in Myanmar. China: Carnegie-Tsingua Center for Global Policy.
Impact of BREXIT on India

1. Economy-In the wake of current developments in the world economy such as BREXIT,
India’s economic resilience has strengthened during the recent times on account of factors
such as announcements of big bang FDI reforms and a significant jump in FDI inflows,
narrowing current account deficit, declining trade balance due to fall in commodity prices and
several measures undertaken by the Government to boost up investments sentiments in the
economy. Therefore, India’s strong macroeconomic fundamentals and conducive policy
measures undertaken by the government in the recent times will help in mitigating the impact
of adverse international developments.12

2. Trade -At present, India’s trade with Britain stands at around US$ 14 billion. Britain’s exit
could also mean Britain and EU could compete for trading with India and enter into long term
relationships with increased growth of trade

3. Trade Creation for Indian Businesses-India’s export to the UK is expected to increase as

there may be trade diversion in favour of India from other (remaining) EU countries. Similarly,
India’s import from the UK is expected to increase as there may be more incentive to British
exporters to further explore the Indian market. Overall, there exits opportunities of trade
creation for India due to possibility of decreasing intra-regional trade among the EU countries.

4. Bilateral Trade and Investment Agreements-It is expected that the EU will take a more
favourable look to complete its negotiations with India to conclude the EU-India Bilateral
Trade and Investment Agreement (BTIA).

5. Services-With the enhancement of bilateral trade in services, there could be generation of

employment opportunities for skilled and unskilled workforce in the services sector, other
trade related services between related enterprises, professional, management consulting and
R&D services. India-UK bilateral trade in services6isapprox. £2.5 billion-£3billionin the recent
years.

6. Investment and Capital Flows-The investment inflows from EU to India will continue and
are also not expected to be impacted by the BREXIT vis-a-vis India’s growth resilience and
promising potential growth trajectory. On account of BREXIT and expected depreciation of
the British Pound, in future, Indian investors in the UK may get more favourable investment
opportunities. The British investors may like to divert their investment to India and other such
countries where they expect to get better returns. Overall, there could be investment creation
for India and strengthening of the capital markets of both the nations. Further, BREXIT may
result in slowdown in real estate prices and with a depreciating Pound; the UK will provide
longer term investment opportunities in the real estate sector to India.

7. Migration and employment opportunities-With BREXIT, the UK will no longer be obliged to

offer quota-based jobs to the citizens of the EU countries. This might open up the market for
skilled and semi-skilled labour for Indian migrants, including temporary workers, in the UK.

12
Rossi, U. (2017). Cities in global capitalism. John Wiley & Sons.
8. Tourism-In response to Brexit's impacts, travelling to the UK will become cheaper,
facilitating increase in tourist movements and educational travel with the big drop in the value
of the Pound, and then we could see a surge in leisure tourism to Britain, as travelling may
become cheaper.

9. Financial Market-The impact of BREXIT on financial markets wasshort lived due to strong
macroeconomic fundamentals of the Indian economy and markets have regainedtheir
stability in due course of time.

10. Currency-The fluctuations in currency markets will be for a shorter period on account of
India’s decent FOREX reserves position and strong policy measures taken by the central bank
in the recent times. However, volatility in the currency markets cannot be ruled out as and
when the negotiation of the UK breakout from EU progresses.

To sum up, BREXIT will not have much impact on Indian economy primarily because India is
run by domestic demand and supply; although a few effects, both positive and negative can
be envisaged in some industries individually.

References:

1. https://www.clearias.com/brexit-how-does-it-affect-india-and-the-world/

2. http://phdcci.in/live_backup/image/data/Research%20Bureau-

2014/Economic%20Developments/paper/BREXIT%20Impact.pdf

3. https://www.businessinsider.in/Here-is-an-avalanche-of-reasons-why-Britain-

should-stay-in-the-EU/articleshow/52775720.cms. Accessed on 24th march 2019

4. https://www.theweek.co.uk/brexit-0. Accessed on 24th march 2019

5. https://en.wikipedia.org/wiki/Red_tape

6. https://www.investopedia.com/terms/b/brexit.asp. Accessed on 24th march 2019

7. https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-

brexit/#1e2510261f9d. accessed on 24th March 2019

8. https://www.youtube.com/watch?v=vqBebM0BQVI. Accessed on 26th march 2019

9. https://en.wikipedia.org/wiki/European_Union

10. https://www.nytimes.com/interactive/2019/world/europe/what-is-brexit.html.

Accessed on 26th march 2019

11. Rethinking Language, Text and Context: Interdisciplinary Research in Stylistics in

Honour of Michael Toolan. Accessed on 26th march 2019

12. Alex May, Britain and Europe since 1945 (1999). Accessed on 26th march 2019

13. "The Brexit vote, economics, and economic policy". Oxford Review of Economic Policy.

Accessed on 26th march 2019

14. "Brexit: Everyone Loses, but Britain Loses the Most". Referred on 24 March 2019

15. "Brexit and the UK's Public Finances" (PDF) (IFS Report 116). Institute for Fiscal

Studies. May 2016. Accessed on 26th March 2019