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BW Businessworld

The Group For Change

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The concept of Brics nations as a ‘group' is a misnomer. Today, the idea portrayed is that there are these five nations working together with mutual interest to move ahead and in the process provide support to the world economy. The fact is when this concept was invented, it simply meant choosing the four largest emerging markets (later on South Africa joined) and extrapolating their growth prospects based on some bold assumptions that looked inviting at that time. The Brics met recently in Delhi to promote mutual economic interests, but remain quite disparate in terms of economic structures, politics, governance, social mores and diplomacy. Also, there is little physical proximity that promotes such an alliance. It is against this context that one should read The BRICS Report, an output of the finance ministry.

The report is an excellent exposition of a comparative economic picture of the Brics, which account for about 25 per cent of the world GDP and 40 per cent of the population. Intuitively, there is scope for leveraging this strength and importance to bring about global growth. The report, rightly, does not support the decoupling hypothesis — that their prospects are not really delinked from the West. It does note that while the financial crisis proved this group did better than developed economies and drove ahead of the world economy, there were strong links with developed nations through trade, finance, commodity and, above all, confidence. But a recovery here was swifter. This underlined their relative domestic strengths, which included resilient and well-regulated financial systems. The timing of this report is interesting as these nations seem to be struggling as much with the present sovereign debt crisis as the developed ones.

The report showcases the strengths of these nations and highlights how they have built their own foundations.

Interestingly, they followed unique models of development and growth. Brazil had farming, biofuel, anti-Aids missions, conditional cash transfers and regulation of capital flows, which helped it come forward. Russia worked on reforms and inflation and its major gains were on the budgetary side with the oil stabilisation fund working well. India worked on the 8-9 per cent growth path, which was spearheaded by private initiative. Caution was exercised on capital account convertibility, a prudent thing to do. The report also talks a bit about the RTI and MGNREGA programmes as major gains. But in the current scenario, quite a few of these achievements would come under question. China's transformation from a controlled to open economy is well known and its capacity to create infrastructure and welcome foreign fund has been amazing. South Africa's sound macroeconomic management and the orderly development of its financial sector have made it a major power for the entire continent.

While balancing these strengths with challenges, the report points to what the countries should look at closely. The answers are more generic in nature in terms of reforms, financial sector development, efficiency, social spending, etc. But importantly, it talks about areas of cooperation. They are general in nature as given the size of the economies, and that they have started talking to one another, there are a plethora of opportunities for them to work together for mutual benefit. But, for this to work, there should be consensus on trade and investment issues.
 
Hopefully, this report should reach policymakers of all the five countries so that they can get down to examining the feasibility of leveraging synergies. While it is not clear whether this is an official document, there are acknowledgements to various experts from all the nations, which add weight to the notion that going ahead, there could be something happening in terms of cooperation within the group whose influence can transcend the region.

Sabnavis is chief economist at CARE Ratings

(This story was published in Businessworld Issue Dated 18-06-2012)