AIR spotlight summary on “BRICS as a driver of World Economy and Recession”
The 8th BRICS summit in Goa ended with a declaration, the larger commitment for driving the economy remains paramount as the BRICS forum was initially conceived as the forum between emerging economies. The time when it was conceived in 2001 the world was facing an economic crisis.
The present status of BRICS countries
- Today Brazil, Russia and South Africa are in recession, the world economy is in a bad state. The bright spot is that the China remains as a power house in the region for the last 20 years, but now its growth rate has reduced to 6% to 7%. India has shown a healthy trend of around 7% growth rate.
- When BRICS was formed it was expected that it will form the core of future economic growth in the world. Now some of those optimism and assumptions have not come true. But overall performance of the BRICS countries combined together is not bad, because China and India are growing at around 7%. Overall the condition is not very dismal.
- Three countries of BRICS are facing recession because of slump in commodity market and crude oil market. There are problems with existing regimes in Brazil, charges of corruption, and instability in South Africa. In Russia it is because of the slowdown and decline in the oil prices, and also the western sanctions.
- Four of these countries are very large countries. So railways, road, infrastructure are major concerns for all of them. Unless these are improved the economy will face hurdles. China’s One Belt One Road initiative is basically to improve the infrastructure and connectivity between china and rest of Asia, Europe and other parts.
- Green energy and green development is one area which BRICS is emphasising. New Development Bank has created separate fund for green technology.
The future of BRICS
- Brazil is likely to come out of recession. There are predictions that the worst in oil prices is past. There will be likely increase in oil prices which would lead to improvement in Russian economy.
- The issue of BRICS is that, instead of economic grouping it is to create an alternative economic order, to change the unequal Bretton woods order dominated by World Bank and IMF. It was suppose that BRICS will form the voice of the developing countries that earlier did not play a significant role in the international economic order.
- We have some good initiatives like the New Development Bank and the reserve pool. It is believed that these two will create some form of supplementary mechanism for World Bank and IMF.
- There is a BRICS Business Council which is meeting regularly. They came up with the idea of Angel Investor’s network to support Entrepreneurship and Innovation basically for young entrepreneurs. In western countries for example Silicon Valley has such Angel Investors networks which basically helps and promotes young innovators to come out with new ideas and supports them.
- There is yet another proposal for BRICS rating agency which would be another way of looking at credit rating of various economies. We have moody’s and standard and poor’s which are western construct.
Role of China in BRICS
- Sceptics always doubted the BRICS grouping because of the sheer geographical distance between the countries. The intra BRICS trade is still the issue of concern. Within BRICS in the trade component, China continues to be the biggest beneficiary in terms of its exports to other countries.
- There is imbalance in trade among BRICS countries; overall BRICS trade is 1% of the global trade which is not so impressive. India and Brazil are raising concern about the imbalance in trade. Unless China is able to address this concern, there will be problems.
- Investment is another area where China is pushing for. It is talking about Free Trade among BRICS countries. India and most BRICS countries are not enthusiastic about the idea of free trade because that will only benefit China.
- Infrastructure development remains the priority. China is keen on this because it wants to fund the infrastructure plans including the OBOR, on which still India is not very clear on its position. Within the economic development model which BRICS is looking at and which is led by China, India has its own reservations.
Impact of Brexit
- Britain would like to strengthen its economic ties with countries like China and India. They won’t have any other option if their trade and economic cooperation with rest of the European countries is going to face problems. It is quite possible that our trade with Britain and our economic cooperation would increase because of Brexit.
- India and China will have to work very hard to take forward BRICS from the slump.
- While the primary issue is economy, over the years other issue have come up and most importantly is the climate change. India and China are bracketed among the top polluters of the world. Both countries are ready to join and sign environmental negotiations and treaties. India has been given more time to reduce the emission of CFCs.
- There are discussions about involvement of China in a significant way in India’s infrastructure projects including railways and roads.