Brexit has opened a Pandora's box for UK; it's a mixed bag for India
A referendum is a powerful and rather blunt instrument of democracy. Often existing as a complement to representative democracy, when crafted with enough checks and balances, it can be an application of direct democracy.
However, it is also prone to over-usage by dictatorial or demagogic leaders to express oppressive policies through a tyranny of the majority.
It can undermine Parliament which enables representative politicians to tackle complex issues through deliberations.
Questions with far-reaching consequences could be left to binary answers emerging from the whim and transient mood of the electorate.
When modern referendums are held in the West, an austerity aggrieved citizenry blaming immigrants can unleash tectonic consequences.
With Brexit decided, the British have dismantled the post-War European consensus towards integration, while shattering both their primary political parties.
Assuming a parliamentary ratification of the referendum result and a subsequent activation of Article 50 of the Lisbon Treaty, Britain will choose to revamp its relationship with Europe.
In seeking to exit the European Union, the British have unwittingly opened a Pandora's box.
The Scottish government, led by its First Minister Nicola Sturgeon, is now aiming for second referendum for independence for Scotland along with seeking talks with the European Commission to ensure Scotland's membership of the EU.
Northern Ireland's Sinn Féin, a republican party seeking a United Ireland, is now advocating a referendum on Irish unity.
The Spanish government, meanwhile, has called for joint sovereignty over Gibraltar. French ministers have asked for an abrogation of the Treaty of Le Touquet (2003), which allows British border forces to carry out Dover.
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| Dalal Street in initial stocks after Brexit. (PTI) |
David Cameron has seemingly sleep-walked his nation into potential dissolution. There will be long-term consequences.
The British pound declined by ten per cent to the dollar by June 23 night, a historic collapse comparable to Black Friday, while global stock markets lost $2 trillion.
British European commissioner Jonathan Hill has resigned, leaving his portfolio for Financial Stability, financial Services and Capital Markets Union bereft of British influence.
Financial institutions based in the city could be stripped of their "EU passports" that allow them to sell financial services to European clients.
Investment banks are already warning of moves to relocate or lay-off personnel based in the city to Europe.
The reviving British housing market is primed for misery, with house builders' shares declining. Standard & Poor has warned that the UK could lose its AAA rating soon, while Moody's has cut its outlook to negative.
Budgets for universities, the NHS, regional councils like Cornwall, the arts and science research will have significant cuts. This mistrust of transnational trading arrangements will lead to a rise in intolerance against immigrants and free trade. A recession is coming and globalisation could be the victim.
For India, Brexit offers a mixed bag. India's Sensex has been affected by the collective bloodbath, opening 700 points lower on June 24, while investors lost a collective Rs 4 lakh crore. Emerging markets such as India will see a short-term collective sell-off from investors, who seek a flight to safety.
The rupee will face significant downward pressure, having fallen already to 68.22 against the dollar on the morning of June 24.
Brexit volatility will impact foreign investments, given a slowdown in global growth and limited financing. Over the short-term, the rupee could even touch Rs 70 vis-à-vis the dollar.
On a medium-term scale, Indian companies operating in the UK (over 800, contributing over $4 billion to the British economy) can face significant headwinds.
The India-UK bilateral trade is worth $14.02 billion, with India exporting $8.83 billion and importing $5.2 billion worth of goods.
While negotiations will take about two years to lead to an exit, the springboard provided by the UK to the European market will vanish.
IT companies, working primarily with financial services customers in the city, are expected to take a significant hit to their earnings (30 per cent of their $100 billion revenues comes from the European market), given forex volatility, and their customer base.
The automobile sector could face a downturn, given a decline in exports of cars and auto components to Europe, along with a regressive margin impact from the British pound and the euro's depreciation.
Any Indian manufacturing based in the UK could face import tariffs from the EU, depending on how the new regulatory regime is drawn up.
With immigration conflated with the European question in this referendum, migration norms are likely to be tougher, potentially imposing quotas on Indian applicants.
Brexit should lead to a rethink in India's foreign policy towards the EU - our historical ties with the UK notwithstanding, Germany should attract greater attention now.
For silver lining, look at oil prices - every $1 drop in the Brent crude's price leads to decline of $1 billion in India's import bill. The economy's fundamentals remain strong while the RBI offers significant liquidity.
With India's record foreign exchange reserves of $340 billion, the rupee is expected to remain stable over the medium term. Once the volatility settles, investors are likely to see India as one of the few promising bets over the horizon. India remains a domestic-focused economy, offering macro-economic stability and government promising fiscal probity.
Its virtues should continue to shine.
Post-Independence, India's experience with referendums has been limited. The Constitution does not seek referendums in our democratic space to establish legitimacy.
On January 16, 1967, a referendum was held in the then Union Territory of Goa, Daman and Diu. The referendum, often termed an opinion poll, offered Goans a choice between staying as a union territory and merging with Maharashtra.
Goans, in a significant majority (54 per cent of an 82 per cent turnout) voted against the proposed merger.
While calls for referendums in different states and regions persist (Delhi seeks to become a full-fledged state), any future referendums should be crafted with care, offering checks and balances.
Parliamentary deliberation should not give way to the whims of an aggrieved citizenry.
(Courtesy of Mail Today.)