Tuesday, December 13, 2011

Importance of BRIC

The importance of Brazil, Russia, India and China (BRIC) in the world economy has increased manifold since the acronym was first coined nearly seven years ago. Few could have imagined then how the American economy would collapse and bring down with it much of the rest of the world. It is worth revisiting the original formulations on the significance of these four major countries that were made by representatives of a major American investment bank — now a much-maligned tribe and justifiably so — to understand why these economies would together influence the future of the planet we live in.
In October 2003, a report by two economists then employed by Goldman Sachs, Dominic Wilson and Roopa Purushothaman, argued that over the next half-century, the four countries of Brazil, Russia, India and China would become a much larger force in the world economy than the Group of Six (G6) developed countries, namely, the United States of America, Japan, Germany, France, Italy and the United Kingdom. According to the report, in 2050, India’s economy would be the third largest in the world after China and the United States. However, in terms of per capita income measured in US dollars, India would come last among the 10 countries being compared.
Economic Stability
The four BRIC economies taken together would be bigger than the G6 by 2039, it was pointed out. By 2025, these countries could account for over half the size of the G6 whereas the combined Gross Domestic Product (GDP) of the four economies were worth less than 15 per cent at the time the report was written.
The report predicted that in terms of US dollars, China would overtake Germany by 2007, Japan by 2015 and the United States by 2039. India’s economy could be larger than all but the United States and China in 30 years and Russia would overtake Germany, France, Italy and the United Kingdom. Of the current G6 countries, only the US and Japan may be among the six largest economies in the world by 2050.
What is noteworthy is that the Goldman Sachs report pointed out that India has the potential to show the fastest rates of growth over the next 50 years compared to the other nine nations. The real rate of growth of India’s GDP could be higher than five per cent over the next 30 years and close to five per cent till as late as 2050, the report claimed. India would be the only country among the BRIC economies recording growth rates significantly above three per cent per year. These figures appear rather conservative today — the Indian economy has grown by over nine per cent four years in succession and even at a time when the world economy is in recession, the most pessimistic estimate of this country’s GDP growth rate would be four to five per cent.
Goldman Sachs Report
It is important to note the downside that was mentioned in the Goldman Sachs report. Despite much faster growth, individuals in the BRIC "are still likely to be poorer on an average than individuals in the G6 economies by 2050". The exception would be Russia, which would catch up with the poorer among the G6 countries in terms of income per capita by 2050. China’s per capita income could be similar to where the developed countries are now (about $30,000 per capita per year) for, by 2050, the per capita income in the US would be roughly $80,000. By way of contrast, India’s per capita income would be a much lower $18,000 against around $50,000 in Russia and over $26,000 in Brazil, the report prognosticated.
A second report focusing only on India was written by Ms Purushothaman in April 2004 in which she pointed out that India and China (together account for 40 per cent of the world’s population) have both witnessed strong growth, both have surplus labour and both countries have diasporas to contribute to economic development. Yet, according to her, India was 10-15 years behind China in the "reform process", suggesting that better growth was yet to come in India.
Ongoing Economic Crisis
While pointing out the differences in economic orientation, Purushothaman did not mention the important political differences between the world’s two most populous nation-states: India is a heterogeneous, noisy, anarchic democracy while Chinese society is relatively more homogeneous, regimented and wary of granting its citizens excessive political freedom. On hindsight, it is also apparent that the BRIC report by the economists engaged by Goldman Sachs erred extremely on the side of caution. After the ongoing economic crisis, it has become apparent that the gap between the BRIC countries and the G6 would narrow at a much faster pace than had been anticipated.
India currently has no choice but to engage with Brazil, Russia and China in a more proactive manner, simultaneously competing and collaborating with them. Over the past three years, China has overtaken the United States as India’s largest trading partner. Russia, the world’s largest exporter of oil and natural gas, had been badly hit by the sharp fall in world oil prices but is expected to revive with oil prices firming up and expected to rise further. The International Monetary Fund (IMF) projected in April that Russia’s economy would grow by 0.5 per cent in 2010 after shrinking by six per cent during the current calendar year.
Changing Geo-Political Realities
With more than an element of hyperbole, there is no gainsaying the potential of Brazil becoming the "granary" of the planet, China the world’s "factory" and India, its "communications centre." Many in this country, particularly the Left, have been critical of Prime Minister Manmohan Singh for his ideological "tilt" towards the imperialist and capitalist US and the West. But in today’s recession-hit world, economic ideologies have turned upside down and India certainly cannot ignore the rapidly-changing geo-political realities or the fast shift in global economic power balances.
There is one glaring omission in the BRIC combine that needs urgent rectification. The acronym needs to be made BRICS with the addition of the letter "S" to include South Africa, the most powerful economy in the continent of Africa. That would make the grouping truly representative of the world and, perhaps, even a formidable combination for the future.

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