Posted in Finance Articles, Total Reads: 1946
, Published on 17 September 2014
Look around at the affairs of the world or scroll through the news galleries; chaos, conflicts and dissension by various regional ethnic groups, border nations and regional blocs has become a common phenomena. Be it the continuing unrest in the Middle East since the Arab spring in 2010 or the recent Russia-Ukraine row, such events find a dark spot in the history of the world and become a litmus test for the world leadership which claims to be the harbinger of peace and change.
Amidst the speculations of a falling world order and the worries over failed states, BRICS caught the imagination of the world.
Why BRICS emerged?
The world took notice when the term BRIC (acronym for Brazil, Russia, India and China) was first coined by Goldman Sachs in 2001 and it predicted that by year 2050,Brazil, Russia, India and China would become bigger than the six most industrialized nations in dollar terms and would completely change the power dynamics of the last 300 years. Later South Africa joined the group in 2010 shaping BRICS in the present form. Interestingly, their currencies are called R-5(Real, Ruble, Rupee, Renminbi, Rand).These are the emerging economies with huge tapped potential representing more than a quarter of the earth’s landmass ,over 41% of its population, around 25 % of the GDP and nearly half of all the foreign exchange and gold reserves.
The reasons for the rise of BRICS are numerous. Globalisation enabled rapid economic growth for the group which now accounts for 30% of the world output. The strict conditionality and layers of obligations pertaining to credit advancement by the Bretton Woods arrangement established post World War II. The World Bank and the International Monetary Fund have witnessed the hegemony of the western world and thus developing countries have a smaller representation and say in their functioning. The group’s power increased in the aftermath of the global financial crisis which called for greater economic stability. The indication of the west’s recognition of BRICS came about when the former U.S. Secretary of State, Hillary Clinton, expressed the “determination to deepen engagement with the emerging centres of influence.”
Cornerstone of BRICS
Soon after its formation global advocates and think tanks started questioning the substance in the catchy phrase and feared it would reduce to a mere symbolism but it was the WTO summit at Cancun, Mexico in 2003 where these nations actually stood together and challenged the U.S.-European control of the institution. They emphasized the principles of non-intervention and opposed sanctions against the Syrian regime involving large scale civilian population massacre with impunity. The BRIC nations formally met in 2009 in Yekaterinburg, Russia to carve the roadmap for the future. From a loose, informal group to a strategic alliance, it is on the path of self-discovery.
The most significant announcement came from the recent summit in Fortaleza, Brazil on 15th July where the establishment of the long promised New Development Bank (NDB) and Contingent Reserve Arrangement (CRA) was announced. The bank and the currency pool aim to address the balance of payment pressures of the developing world and to fund infrastructure and health projects in these nations. A sum of $50 bn as start-up capital is assigned for the bank headquartered at Shanghai and is contributed equally by all the members and is expected to start operations by 2016.
The cracks in BRICS
The pluralistic character and the geopolitical differences are the factors raising scepticism for the success of the group. The relevance of Russia is doubted due to its slowing economic conditions and huge dependence on natural resources like oil and gas. Even the exclusion of Indonesia, growing faster than India is frowned upon by many economists asserting for BRIICS.
The non democratic character of China is a cause of concern as the dragon wishes to be the stalwart and an upper echelon in the region. Its predatory economic policies could cast a lengthening shadow over other’s interests. The undervalued currency and hidden export subsidies are a common knowledge. With the proposed bank, China could try to exercise greater control thereby fragmenting the integrity of the multiplex world order.
Economic fundamentals are different as well with Russia and China being the surplus nations offer support to the oligopolies politically. Brazil is plagued by high inflation and a protectionist tendency. Brazil ranks 75th out of 180 nations in the Transparency International Corruption Perception Index. China has an underdeveloped financial sector and rising wages and labour unrest due to the dwindling job market scenario. India suffers from inefficient governance and red-tapism. India is ranked 49th in the World Economic Forum’s Economic Competitive Index. South Africa being a neutral and a timid voice in the block lacks the clout. Thus a constant tug of war over resolutions and policies could be feared between these nations.
BRICS and India
India is perceived as a very significant player with both economic and soft power. Dr Manmohan Singh had been an active participant at the summits held earlier. With Mr. Narendra Modi in power after a sweeping win at the general elections in March this year, the “achche din” are what every Indian hopes for. Mr. Modi seems dedicated to involve the Asian partners and strengthen India’s strategic position and foreign policy in the region with frequent visits to the neighbours at the inception of his term.
India has a robust demographic dividend as around 60% of the country's population will be in the working age group by 2020.Trade can take a leap by developing the manufacturing potential and fostering the international trade relations. What India needs is a speedy and efficient implementation of plans to realise the dreams of more than a billion people.
Strengthening BRICS: A way forward
BRICS members as sovereign independent nations form a flexible group in which cooperation is based on consensus and it supports anti-imperialist tendencies. These nations share common set of concerns like creating efficient markets, generating sustained growth; generating employment to the burgeoning workforce, eliminating poverty, facilitating access to resources and services; addressing healthcare concerns and urbanization pressures and seeking a stable global order not periodically punctuated with violence arising out of the whims of the country with means and power.
Similarly BRICS led Development Bank would be the platform to incentivise trade expansion, investments and to help integrate the financial and stock markets. A word of caution though, lack of stringent rules for lending and borrowing could lead to undertaking mindless infrastructure and construction projects and unsustainable extraction of resources. So a careful monitoring mechanism and scrutiny is a prerequisite. This initiative would also intimidate existing global financial institutions to have an introspective and reformative approach.
The members should pledge to work together in the quest for:
I. Promoting cooperation for economic growth and development
II. Peace and security
III. Social justice, sustainable development and quality of life
IV. Political and economic governance
V. Progress through knowledge and innovation sharing
The BRICS nations will have to recognise their differences in terms of history, cultures, economic structures, political systems, resource endowments and levels of development to assume the role of a global governance and political leadership paving way for a long term strategic partnership.
The article has been authored by Srishti Chauhan, Jamia Milia Islamia University