JOIN USBRICS sans cement
When five nations – Brazil, Russia, India, China and South Africa (BRICS) – that are on a fairly rapid economic growth trajectory, compared to the other nations in the world, meet to plan for a common bank to address their funding needs for infrastructural and other developmental investments, it is certainly a significant event. The recent meeting of the BRICS nations held in Durban has to be seen in that light.
BRICS nations comprise 43 per cent of the world’s population and about 16 per cent of global trade. The total exports of goods from these nations were US $ 2,361 billion out of the exports figure for the world of $ 14,950 billion (2010 data). Together, these five nations’ share of global incremental gross domestic product (GDP) for the period 2010-2016 is predicted to be over 36 per cent in nominal dollar terms. Whereas, the predictive figure for the US and European Union put together is a little below 30 per cent.
Clearly, the economic rise of the BRICS nations is noteworthy. But the quandary has always been whether there is enough incentive for these nations to really act together. It seems like a good idea for one rapidly growing economy to support another speedily rising economy. However, such thinking presumes that all these nations are in a hurry to support a ‘win-win’ situation. Now that is really a trillion dollar question.
First of all the intra-BRICS trade at the current $230 billion is quite small, a little over 5 per cent of their volume of trade with the world (2010 data exports and imports put together) of about $4,500 billion. About half of the intra-BRICS trade consists of China’s trade with India and Russia. Thus, the trade is mainly China-directed. There is nothing new in saying that any nation, BRICS or the other, would need to enlarge its trade with China. The relevant question would be: How long would China see a gain promoting a united BRICS? What India or Brazil thinks may be less significant.
Let us also understand that 70 per cent of the combined GDP growth of the BRICS nations during 2000-2010 was accounted by the growth of Chinese economy alone. China is a 70 per cent player, while rest of the four – that includes India – together account for only 30 per cent. Since the Chinese economy’s growth rate is noticeably higher than that of the other BRICS nations, the divide between China and BRIS (C for China removed) is going to grow even further. How long will ‘C’ have interest in BRIS?
And, without ‘C’ does BRIS have any meaning? Therefore, the sustainability of the contemplated BRICS Bank is in question. The main beneficiary would be China, who may use the funds for its own capital needs and probably for financing its goodwill projects in the continent of Africa -- projects which again will make the mineral and other natural wealth of Africa more easily accessible.
Security threat
One cannot view international economics separate from politics. BRICS has nations that are at loggerheads on several hard to resolve issues. India regards China as a huge security threat on its long and very difficult northern frontiers. China has been seeing red in our ventures to explore petroleum in south-China Sea. Territorial disputes will carry a lot more weight than a not so high present trade and an elusive future trade prospect.
Indian business investment in China has to be of a category that can be wound up at short notice with minimal loss of capital. Any other kind of Indian FDI in China would be unwise. The present balance of defence capability is such that Indian capital outflows to China will have to worry a lot more than the other way around. The talk of the two-way trade dictating the politics between these two countries is just a wishful thinking that us Indians better not indulge in and repent later.
Our trade prospects with Brazil are fraught with logistical problems, simply because of the huge nautical distance between the two countries. Only such trade that does not face a problem due to geographical distance can flourish. That could be in IT, communications and tourism sectors in the main. However, the quantum of this trade depends significantly upon the growth in other sectors. The present volume of bilateral trade which is at a meager $10 billion will have to wait long for any sizable increase to materialise. Brazil has large iron ore deposits, but that is not our need, although the fast growing Chinese industry needs it.
With Russia, we have long-standing cooperation in the nuclear, defence, science and space fields. During 2010 our imports were over $6 billion and exports from India to Russia were around $2 billion. However, much of the trade is in arms. About two-thirds of Russian arms exports are to India. Three-quarters of India’s arms imports are from Russia. So, the Indo-Russian trade rests more on threat perceptions than on economics. The current total bilateral trade between South Africa and India is around $10 billion. The trade is dominated by India’s imports of gold.
When G-8 countries join together for trade talks, they have a common economic philosophy, have similar political systems and, more importantly, have few political problems and border disputes of China-India and Russia-China kind. Hence, such groupings may find common ground in economic action. But, BRICS consists of three large enemy nations put together – enemies who have fought war and who are constantly making war-like gestures. BRICS Bank may not compete with World Bank or IMF. But India’s pro-US tilt over the past few years may put a restraint in its ardor. The five BRICS nations have shown economic resilience in the wake of the current global crisis. This buoyancy has indirectly helped to dampen the predicament worldwide, and hence more is expected of this ‘group’ in terms of some direct action in international interest. The proposition of BRICS bank will go against this global undercurrent of anticipation.
(The writer is former professor at IIM, Bangalore)