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Will Brexit impact Indian markets?

23 June, 2016

The world is watching closely on whether the United Kingdom will continue to remain a part of the European Union (EU) or exit it. Brexit, as it has come to be known as, essentially refers to the referendum in which Britons or the Commonwealth residents permanently residing in the UK and registered to vote in that country have been asked to choose whether they would like the UK to remain within the European Union (EU) or exit it.

Here are a few frequently asked questions on Brexit:

Which side appears ahead in the opinion polls?

In the last few weeks, opinion polls indicated that the ‘Leave Campaign’, which was calling for the UK’s exit from the EU, was leading. The latest opinion polls, however, seem to indicate that the ‘Remain’ campaign, which wants the UK to stay within the EU might just scrape through. This turn-around follows the assassination of a young British MP Jo Cox, who was with the ‘Remain’ campaign and was killed by someone who was opposed to her views.

What is the reason behind referendum?

Before the 2015 General election, British Prime Minister David Cameron had said that if he won the elections, he would hold a referendum.

The people in favour of Brexit want tighter border control to solve the issues pertaining to immigration, which is seen as having a toll on their economy. Especially after the 2008 crisis, the number of workers moving from the Euro zone countries to the UK in search of employment has increased manifolds.

Some of the Brexit supporters have shown their concern about immigrants using scarce public services.

How could a possible Brexit impact Indian markets?

If Britons do vote for an exit today, analysts have predicted the stock markets in the US and the UK could take a hit and this is likely to have an impact on Indian markets, too, as foreign investors might want to hedge their losses by selling off in emerging markets such as India.

In a statement earlier this week, the Reserve Bank of India said it is keeping a close watch on the developments in the UK and it will take necessary steps to ensure stability in the Indian financial markets. “In the run up to the referendum in the United Kingdom on its continuing in the European Union, uncertainty about the poll outcome has resulted in some amount of turbulence in global financial markets, including in India. The RBI is maintaining a close vigil on developments and will take all necessary steps, including liquidity support, to ensure orderly conditions in financial markets,” the central bank said in a statement.

What could be the impact on UK-based global companies, several among which operate in India?

The EU gives the UK-based companies access to a common market. Although these companies would continue to do business with European companies, even if the UK exits, their dealings could be impacted as the UK would have to renegotiate its term of engagement with the rest of Europe. Several among these companies, therefore, could find it tougher not just to comply with EU regulations but also to raise money from fellow EU companies.

Could it significantly impact immigration into the UK?

In all likelihood, yes. Citizens of EU countries can, at present, freely travel to and work in the UK but if the country decides to exit from the EU such free movement might no longer be possible. Not only could EU citizens wanting to travel to the UK be required to obtain UK visa, London may also impose limits on how many EU citizens it would allow to immigrate to and live in Britain. As for non-EU citizens belonging to countries such as India, there may be no immediate impact on immigration. Having said that, the right wing political parties in the UK could demand substantial immigration and employment curbs on all non-EU citizens as well. Simply put, it could make it tougher for Indians to study in the UK and find a job there.

Which side are Indian/South Asian origin voters on-Remain or Leave?

Several news reports say that Britons of Indian or South Asian origin largely support the ‘Remain’ campaign and almost all of the top British politicians of Indian origin, too, are campaigning for the UK to remain within the EU. The only Indian-origin politician of note who supports the ‘Leave’ campaign is Priti Patel, who is also a minister in the David Cameron government.

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Will Brexit impact Indian markets?

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