Daily Editorial Analysis for 15th July 2021

  1. Home
  2. »
  3. Editorial Analysis July 2021
  4. »
  5. Daily Editorial Analysis for 15th July 2021


Five years later, Brexit continues to divide

Why in News

  • The British referendum five years ago was supposed to settle the United Kingdom’s historical love­hate relationship with Europe, but while the full consequences of Brexit will not be analysed for decades, the U.K. remains as divided as ever, and the way people voted in 2016 forms a large part of their identity.
  • The referendum dominates British politics as the most significant event since the Second World War, resulting in two general elections, ousting two premiers and threatening the political geography of the U.K.

Loose ends

  • British Prime Minister needed a rapid departure from the European Union (EU), and the Withdrawal and Trade and Cooperation Agreements of December 2020 were rushed through.
  • The U.K. imports 70% of the fish it consumes; the industry only contributes 0.12% of GDP and employs 0.1% of the workforce but has political traction.
  • In May, after 60 French fishing boats massed to blockade Jersey over fishing rights, naval units from both Britain and France deployed off Jersey, a farcical reminder of the loose ends of Britain’s exit from the EU.

Case of Northern Ireland

  • Northern Ireland, part of the U.K. but in the EU’s single market, and therefore, obliged to follow EU rules, is another case in point.
  • The EU’s external border would be in the Irish Sea between Britain and Northern Ireland, and goods for Northern Ireland would need to be inspected there, which is politically untenable for the U.K.
  • The alternative would be that the EU would itself impose inspections to protect its single market and structure a border either on the island of Ireland or between Ireland and the EU, which are both equally unfeasible.
  • Tensions predictably arose between Britain and the EU over the import of chilled meat products from Britain to Northern Ireland, with Britain seeking an extension of the transition arrangements from June 30 by three months.
  • It seems Britain is questioning Brexit agreements rather than following them, while boasting about its COVID­19 immunisation compared to the EU and the success of the City of London in maintaining its status against hostile EU legislation and incentives for banks to move to European capitals.
  • To supporters of Brexit, it looked as if the EU wanted to punish Britain for leaving, if only to discourage its other members from doing the same.
  • Thus, after membership of the EU for almost 50 years, mutual trust is lacking, and two versions of a rules-based order are colliding. This was apparent during the G­7 summit, when bilateral meetings between Mr. Johnson and EU leaders lacked warmth.
  • The EU conceded the Northern Ireland postponement and persuaded its member States, especially France and Germany that are losing patience with Britain, to avoid a trade war over British sausages.
  • Such recriminations may become a permanent feature of U.K.­EU relations as a small nation plays a poor hand against the world’s largest trading bloc while seeking trade deals with distant countries, which even official forecasts suggest will produce negligible benefits.

Scotland’s calculations

  • In Scotland, the National Party, which seeks an exit from the U.K., has grown in popularity since the Brexit vote.
  • Scots voted in the referendum by 62% against 38% to remain in the EU, but were dragged out by the overall result.
  • For many Scots, leaving the U.K. is the clearest path back to the EU, and anticipate that among other benefits, the EU will grant Scotland least developed status and subventions on the scale enjoyed by the Irish Republic. This is as much an anti-Westminster stance as an effort to join the EU since the chances of an independent Scotland jumping the queue of EU applicants and of all member States approving Scottish membership are not great.
  • Nevertheless, the prospect of a break­up of the United Kingdom is of grave concern to London.
  • Meanwhile, a vote on reunification in Ireland seems more probable now than at any time since the Good Friday Agreement of 1998 which brought an uneasy peace to fratricidal factions in the North.

In perspective

  • The International Monetary Fund warned that the British economy faced a 10% GDP decline in 2020.
  • In first quarter 2021, food and drink exports to the EU declined by nearly 50% and export of services also shrank.
  • At least 500 British companies have relocated to Europe. The Brexiteers who forecast a clean break with the EU either underestimated or ignored the practical inconveniences of leaving, including the vast paperwork involved in exporting and importing with the EU, but the success of British COVID­19 vaccination compared with the EU’s bungled efforts has enabled Brexiteers to claw back some ground.
  • In sum, most people have accepted Brexit though few are satisfied with the divorce settlement.
  • No version of Brexit will satisfy everyone, and it has left the United Kingdom less united.


The inflation challenges

Inflation challenges in India

  • India has an inflation problem. The Consumer Price Index (CPI), India’s benchmark inflation measure, grew at 6.26% in June 2021.
  • This is the second consecutive month that CPI has landed above the Reserve Bank of India (RBI)’s upper tolerance limit of 6%. Wholesale Price Index (WPI) grew at 12.07% in June, the third consecutive month of double-digit wholesale inflation.
  • And the prices of fuel, largely a tax-driven phenomena currently, are at a record high. An overwhelming share of Indian workers are employed in the unorganised sector. This means that their earnings are not indexed to prices.
  • Any sharp inflationary spike, therefore, puts a squeeze on purchasing power and demand. The rise in diesel prices will have a particularly adverse effect on farm incomes for the kharif season.
  • The minimum support prices announced by the government were based on cost estimates, which would have escalated significantly now.
  • This is concerning even in normal circumstances. But it is particularly so when the economy had two back-to-back pandemic-driven disruptions within a year after a prolonged slowdown.
  • In a recent interview, RBI governor described inflation as a transitory phenomenon. But this may not be the case. International crude oil prices are expected to stay at their current levels, maybe even rise.
  • Unless the government cuts taxes, petrol-diesel prices will not come down. Their cascading effects will proliferate further.
  • Inflation numbers in advanced countries will only strengthen inflationary expectations. Independent economists have warned that there could also be a rise in services inflation as restrictions are eased and demand picks up.
  • To be fair, RBI’s hands are tied. Any movement in the direction of rolling back liquidity or raising rates will administer a demand shock to the system.
  • The current inflationary environment is not a result of excess demand. India’s situation is precarious because it is lagging on the post-pandemic recovery curve vis-à-vis other advanced countries and China whose demand is pushing up international commodity prices.
  • It is clear that the political executive is taking a calculated risk in flirting with inflation, although this position may change as the Uttar Pradesh elections come closer.


  • What the government must realise is that economic variables don’t necessarily adhere to calculations based on political calendars.
  • It must act on inflation before it causes more distress and erodes demand further, making an equitable recovery even more elusive.


Current Affairs

Recent Posts