Thursday, January 29, 2015

THE BRICS NATIONS – PRESENT SENARIO AND WAY FORWARD - Chandrika Yadav, Amity University, Gurgaon

      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*


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