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The BRIC power... - Views on News from Equitymaster
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  • Dec 22, 2005

    The BRIC power...

    Time and again, we evaluate India's candidacy as a member of the BRIC nations that are supposedly 'poised to become global economic superpowers'. The relevance of such evaluation stems from the fact that countries like China and Brazil are leaving no stone unturned to fortify their positions and it is pertinent for us to reconfirm our faith in India from a long-term perspective.

    The 'BRICs' story is not simply about growth successes of developing economies. What makes the BRICs special is that they have the scale and the trajectory to challenge the major economies. Looking across the developing world today, the BRIC nations clearly stand out on both their economic and demographic size. The BRICs' impact on the global economy has continued to grow over the last few years, through a wide range of dimensions. The recent report on BRIC nations released by Goldman Sachs also highlights certain interesting facts in this regard.

    1. Growth and Trade: Between 2000 and 2005, the BRICs contributed roughly 28% of global growth in US dollar terms and 55% in purchasing power parity (PPP) terms. Their share of global trade continues to climb at a rapid rate. At close to 15% currently, it is now double its level in 2001. Trade amongst the BRIC nations has also accelerated, with intra-BRICs trade now nearly 8% of their total trade compared to 5% in 2000. Also, India (in intellectual property) and Brazil (in agriculture) have illustrated their policymaking leadership among developing countries through the WTO negotiation process. The BRICs' share of oil demand is moving steadily higher, with an estimated 18% share in the current year.

    2. Capital Flows: The BRICs have played an important part in global financial developments. Latest estimates suggest that the BRICs now hold more than 30% of world reserves. While China is the dominant holder, Russia, India and Brazil have also accumulated sizeable proportions. Also, despite the reserve accumulation, real exchange rates in each country have appreciated over the last couple of years. BRICs' current accounts continue to be in surplus, reflecting the group's key role in the global savings supply. With China's surplus increasing sharply, the BRICs' current account is estimated at around US$ 240 bn in 2005 (close to 6% of BRICs' GDP). Further, the BRICs' share as a destination for global FDI also continues to rise (now 15% of the global total, nearly three times higher than in 2000).

    3. Markets: BRICs' stock markets have got gradually re-rated since 2003, with Brazilian, Russian and Indian indices all up by around 150% over that period. China however, has been the only exception in this regard. The BRICs' market capitalisation is currently close to 4% of the global total.

    India's positioning...
    In the light of the above facts, it may be interesting to note that the recent report on BRIC nations by Goldman Sachs positions India fifth amongst the fastest growing nations in the world by 2025, based on the countries' real GDP. The same is founded on extrapolations based on changing demographics, per capita income and contribution to world trade.

    Also, by 2050, while China is expected to replace USA as the world's largest economy, India will not be lagging far behind in the third position. Nevertheless, it must also be noted that global economists have "identified" a new group of 'BRICs' that are expected to give the BRICs a run for their money. Christened as the 'Next Eleven (N-11)', this group shows broad representation by region and includes Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.

    While the 'India story' has a sense of realism attached to it, what we are apprehensive about is the pace at which the 'India story' could unfold. Given the fact that coalition government is the name of the game going forward, there is a crying need for a ruling government with a 'backbone' to move the economy in its path to progress and development in the long term. Otherwise, like Mr. John Maynard Keynes put it rightly "In the long term, we are all dead".



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