From left to right: Brazilian President Dilma Rouseff, Russian President Dmitry Medvedev, Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma at the fourth BRICS summit in New Delhi.
The fourth BRICS summit being held in New Delhi has invited a lot of optimism and curiosity from various corners of the world, albeit a trifle bit scepticism among the western countries. It is important, in the present context, some fundamental but immensely important facts and figures about BRICS. My current endeavour is to unravel very recent history of BRICS and how it is pertinent and compatible in the world theatre in light of the ongoing summit in New Delhi.
Backdrop
The term BRIC was coined by Goldman Sachs (GS) economist Jim O’Neill in 2001 to emphasise the growing power of emerging economies of Brazil, Russia, India and China. According Goldman Sachs’s prediction in 2001, as BRICs are growing at impeccable pace, the combined economies of these four countries could eclipse combined economies of the current richest countries of the world by 2050. Mexico and South Korea are also emerging economies but O’Neill didn’t include them because they were yet to realise their potential. Goldman Sachs was actually surprised at South Africa’s inclusion. South Africa was formally admitted to the group on December 24, 2010, thus adding an ‘S’ to the BRIC.
In a report, titled Dreaming with BRICS: The Path to 2050, Goldman Sachs, for the first time, elaborated the potential of the BRIC countries combined. “The BRICs could become an important source of new global spending in the near future — and if things go right, their economies together could be larger than today’s G6 (US, Japan, Germany, France, Italy and the UK) by 2039.” Inter alia, the document also envisaged, India’s economy could be bigger than Japan’s by 2032, and China’s would overtake the US by 2041 (and become the no. 1 by as early as 2016). It argued India and China were dominant suppliers of manufactured goods while Brazil and Russia were predominantly raw material suppliers. Mutual and lasting cooperation between these four countries can produce unprecedented outcomes.
Goldman Sachs published its first follow-up report in 2004 and detailed more optimism regarding the BRIC’s potential. It predicted that the number of people with more than $3000 per capita (middle class) would be doubled by 2010 and would reach 800 million. The second follow-up report titled India’s Rising Growth Potential was released in 2007. It predicted that India’s influence on global economy will be bigger and quicker than that of previous years and that India has 10 out of 30 fastest growing cities of the world.
The most Panglossian view was presented in 2010 in a document Is this a BRIC Decade. It said BRIC has produced 25% of total global GDP and their contribution in global GDP growth was 36% in the last decade from 2001 till 2010. In the present decade, their combined GDP would be 33.3% of the global GDP and contribution to the growth of global GDP would be 49%. The BRIC actually preempted the earlier predicted timestamp of overtaking rich economies by 2018 and not 2050.
Basic BRICS statistics
Some information regarding these countries, in fact, bolsters the Goldman Sachs idea. The BRICS countries encompass more than 25% of world’s land coverage, more than 40% of the world’s population and their combined GDP is around $18 trillion. The table below provides some statistics on variety of parameters (this is 2011 data, some of the might undergo changes).
This gave the accumulated strengths and weaknesses; commonalities and differences of the group countries. This also provides some information regarding the areas which needs cooperation; coordination and common interests of these countries.
Previous summits
The first BRIC summit took place at Yekaterinburg in Russia along with the Sanghai Cooperation organisation summit on June 16, 2009. Since then, the world has witnessed BRIC summits every year — second summit at Brasilia in Brazil in April 2010; third at Sanya in China in April 2011. The summits have emphasized multi-polar democratic world order, reform in international institutions, early conclusion of the Doha development round of trade negotiations, endeavouring reach millennium development goals, international terrorism, development of humanity, PSS (peace, security and stability), sustainable common development based on the principles of openness, solidarity and mutual understanding.
Delhi summit
This Delhi summit is of paramount importance in terms of accelerating inclusive growth, innovative institutionalisation, organised stands on global issues and economic cooperation. India, being the draft-country of the Delhi Declaration this year can achieve milestones which can attract worldwide encomiums. The Delhi summit is being held amid complicated international situations, the precarious Euro zone crisis and fragile economic recovery all over the world. India, currently being a non-permanent member of UNSC, needs to churn out future plans and lay down solid foundation.
- BRICS Bank: India, is, in fact, pioneering a very optimistic idea of setting up a BRICS Bank. The primary reason behind this idea is a greater role in global financial management. The other reasons are multilateral cooperation in local currencies, infrastructure development and social development. The outbreak of economic slowdown (late 2007) and concomitant volatility in US dollar has necessitated such kind of arrangement among the emerging economic group countries. Also, BRICS countries arrested all sorts of shocks during economic turmoil and are spearheading economic recovery till today. In global economy, China ranked second and India fourth in terms of purchasing power parity. Russia and South Africa are within the top 10. All these countries have a huge amount of foreign exchange reserves. Notwithstanding phenomenal achievement, they are not able to participate actively in deciding how to utilise the funds of World Bank (WB) or modalities in International Monetary Fund (IMF). Additionally, WB and IMF, for some years, have failed in delivering to the needs of developing and under-developing countries. There have been accusations of intervening in internal matters of these countries. All these facts, actually, bolsters the idea of setting up an exemplary financial institution which is effective and democratic in operation. The Delhi Summit decided on to go with a feasibility study of this India-authored South-South Bank. “We have directed the finance ministers to examine the proposal and report back at the next summit,” Prime Minister Manmohan Singh was quoted as saying.
BRICS Exchange Alliance: Another welcome move is announced in the Delhi summit is on a BRICS Exchange Alliance. This will offer an opportunity to the investors of one of these five countries to bet on the performance of stock markets in other four countries in their domestic currency and vice versa. These derivative indexes will be cross-listed in the respective stock exchanges from March 30, 2012. This will lead the BRICS investors to take part in each other’s development, to deepen financial integration and to reap benefits of derivative markets of emerging economies.- Stands on international incidents: BRICS have been consistent supporter of resolving international conflicts through dialogue and consensus. Together, they discard deployment of external forces, browbeat mechanisms and refrain from use of gun-boat diplomacy. Manmohan Singh’s statement, “We agreed that lasting solution to the problems in Syria and Iran can only be found through dialogue“, actually testifies the value BRICS believe in.
- On economy: Like every summit, the BRICS again called for increasing their voting rights in IMF. They criticised the international monetary policy of the rich economies which is heavily imbalanced and creates illegitimate obstacles for other countries to grow. BRICS held the developed countries responsible for the global macroeconomic uncertainties and procrastinating on structural reforms of international financial institutions.
Going forward
The BRICS operating mechanism, since its inception, have steadfastly improved. The area of operation is now wide-ranging. They are able to instill invaluable faiths in other developing and under-developing countries since 2009. This rare opportunity cannot be missed. The BRICS Bank could be a tangible step towards achieving the goal of being the “defender” of these countries. BRICS need to persuade such countries to be part of this Bank which needs to be operated democratically in other forums like G-20. The failure of WB and IMF should be kept in mind while formulating modus operandi of the bank.
Some corners in the world find cynical role of China. According to them China may influence and take a dubious role in strengthening the renminbi vis-à-vis the US dollar. This needs to be tackled by intelligently managing capital structure, i.e. all the countries would equally contribute in capital formation of the bank and no one should hold an upper hand in deciding financial matters. The group, at the initial phase, collectively decides by consensus and with time devolution of power to other party countries should be sought. Also, the bank needs to operate in local currency and try to avoid using international countries as far as possible.
The BRICS countries need to learn from each other. For example, India is successfully managing a country-wide employment guarantee scheme, Brazil is successful in providing securing social security. China and Russia, similarly, have their own zones of expertise. Regular exchanges of experts and meetings can help them learn from each other and implement them efficiently.
They also need to expedite the ongoing flagship programmes, bring in comprehensive efforts to realise summit goals. They need to work more closely to for “common development of the world, which is conducive to a more balanced world economy, more reasonable international relations, more effective global governance and more durable world peace.”
BRICS will, in future, bring in salubrious world order.
