THE
BRICS NATIONS –PRESENT SENARIO AND WAY FORWARD
BRICS-is
the acronym for an association of five major emerging national economies:
BRAZIL, RUSSIA,INDIA, CHINA and SOUTH AFRICA. The grouping was originally known
as ‘BRIC’ before the inclusion of South Africa in 2010.The BRICS nations are
all developing or newly industrialised countries, but they are distinguished by
their large , fast growing economies and significant influence on regional and
global affairs.
BRICS
–Brazil, Russia, India, South Africa and
China – these countries have become a rage in the past decade and the
darlings of the investors aboard. But, if we see these countries` current
growth rates then the picture seem to be
changing and the prognosis is in fact not very good .Some eminent personalities
like Mr. Ruchir Sharma , head of the emerging markets equity and global macro
at Morgan Stanley Investment Management company has tagged the term ‘BRICS’–“AS
A MERE MARKETING PLOY”. He also opines that the clubbing of these economies
together is also something which is peculiar in its own sense. These countries
have their own objectives and goals to achieve and sometimes even contradictory
for that matter and hence clubbing them together is not a very good idea but
rather a gimmick to affect people`s /investors expectations.
The
problems concerning BRICS are many. The most prominent one are crowding out of
private investment and a formation of a state that is no longer affordable with
a weak infrastructure through excessive state intervention in Brazil .In India,
policy paralysis, corruption, crony capitalism, high fiscal deficit and current
account deficit are some of the problems. In China, unlike the other BRICS
nations, state intervention has up till been very honest and intelligent but we
see state intervention in every corporation. In case of, Russia, the
instability of an authoritarian regime with Putin as its leader is one of the dangers
looming over it. In South Africa, there`s a sense of complacency that is
keeping the government from triggering reforms. During 1980-90, SA developed an
economy heavily under state control and rest in the hands of cartels. Sadly,
the situation is pretty much the same even today.
BRICS
will need to simultaneously deal with their capacity constraints, the inflation
pressures and the effects of financial markets volatility on the capital flows
and exchange rate .As Oliver Blanchard (Chief Economist at the International
Monetary Fund since September 1, 2008) made clear, “these countries will not
grow at the rate they did before the (financial) crisis.”
*Student, MA (Economics) mobile: 9910401654 & Asst.
Professor, Amity School of Economics, mobile: 9910772084
According
to Fitch(Fitch Rating Inc. is a jointly owned subsidiary of Hearst Corporation
and FIMALAC ) India will be the only BRICS country where growth picks up in
2014, to 5.6% with an expected further increase to 6.5% in 2015 and 2016 due to
expected business improvement.
On
the other hand, the rating agencies see the Chinese economy witnessing a
slowdown in the years to come. Fitch expects China`s GDP growth to moderate to
7.2% in 2014,6.8% in 2015 and 6.5% in 2016.Where as Brazilian economy is expected
to annually change by 2.5%(2013) and that of South Africa is of 1.9%(2013) and
Russia 1.3%(2013).
The
present situation of BRICS nations is somewhat not –so-suprising.Between2003-2011,
GDP in current prices grew by 35% in the US, 36% in Great Britain where as
during the same time period and the GDP of BRIC nations witnessed a tremendous increase.
For example China’s GDP expanded by 346%,Brazil by 38%, India at 203% and
Russia by around 331%.But this expansion in nominal GDP did not happen only in
BRICS but also in other countries as well which did not enjoy as much limelight
as the former. The hidden fact behind these astounding statistics is that
expansion induced by real increase in output was really meagre in these nations.
For example, in case of Brazil, only 11%of the nominal GDP expansion could be attributed
to increase in real output.
One
of the problems common to these nations is lack of financial deepening and
naturally financial illiteracy. For instance, in India there is staggering 80%
of the population outside the ambit of its banking system. China has reached
that level of per capita income where it has to establish more and better
financial institutions for better appropriation of funds. The same goes for
other countries too!
Brazil
has managed its interest rates , exchange rates and foreign funds flows along
with diversification of commodities it export to avoid vulnerability, build
better infrastructure to increase efficiency in the system. If Russia also
invests in infrastructure diverting funds from altruistic state welfare
expenditure, its productivity will hopefully increase. If India can rein in its
never ending scams, bring back the black money from tax havens, let its central
bank work independently, it still has a big role in global economy. Government
of India has already started taking reform measures like providing 100% access
to bank accounts the people, trying to bring black money back etc. China is
already shifting its focus from investment induced to consumption based growth.
It is also keeping its currency from appreciating which until now has been the
biggest of all factors in driving its exports up. South African government has
encouraged more savings and investment, liberalisation of product market
regulation, easier access to credit for small businesses as a measure to its
problem.
Brazil,
Russia and South Africa have witnessed growth rates heavily dependent on
external commodity demand. Today, with China investing heavily in alternate
sources of energy, global slowdown and other factors have probably put a halt
to their growth stories.
One
thing that is very much evident is that the BRICS economies have increased
their real productivities and are also tackling their domestic issues. In fact
whenever crisis hit hard, they do the “cleaning up” of the mess by dealing the
situation with proper set of reforms and before it’s too late. Take for instance;
situations did worsen in India till the famous economic reforms salvaged the
economy from collapse in 1991.
Economists like Swaminathan S.Ankaleshwar
Aiyar (prominent Indian journalist and columnist) have portended of a next
Asian Financial Crisis but has admitted that the impact would not going as hard
as the earlier crisis faced by the global economy.
We
can conclude by saying that the party is not over for these countries and it is
the time that BRICS nations take a central stage on the international platform,
to reflect them as a growing and stable economies. If the BRICS tackle problems
of the respective economies, by channelizing potential and resources with the
help of each other, the chances of success will be more.
The
bust of a boom can only be delayed by ahiatus !
. -ChandrikaYadav
-Dr.Meenal Sharma*
