Dr Ashwani Mahajan
A conference of Finance Ministers of BRICS nations took place in Durban (South Africa), on 26-27 Mach 2013. The group of the fastest emerging economies of the world, namely Brazil, Russia, India, China and South Africa is called BRICS. These five nations are not only progressing fast, they are also challenging the economic supremacy of the developed world. The sheen of the countries dominating the world ten years ago has faded, while these five nations have proved their economic might in the world.
USA, European nations and Japan are still treated as the developed countries on globe, mainly due to their high per capita income, which makes standard of living in these nations high and better, than people living in developing countries. Even today these disparities are alarming. On the basis of purchasing power parity, India’s per capita income in 2011 was 3590 US$, while in China, it was 8390 US$; in case of developed world it was 38,524 US$. This disparity is even sharper, when taken on exchange rate basis. Therefore if India is at 134th position and China at 101st, it is because of low level of per capita incomes. BRICS nations, despite their high rate of growth, have a long way to go, before they can reach the standard of living of the developed world. Mutual understanding and cooperation, among these nations can help improve their living standards. According to a recent report of OECD (Organization of Economic Co-operation and Development), China may surpass USA in terms of economic might, by the year 2016. But in proportion to its population, it will take a long time to reach the level of USA. Today these BRICS nations have 40 per cent of world population, but their collective GDP, which was only one sixth of world GDP in 2000, though has reached 27 per cent of the world GDP now; due to large populations of these BRICS nations, there is a big gap between living standards of developed and BRICS nations.
Last BRICS summit was organized in Delhi, in which heads of the states took part. Earlier this group was named BRIC, as it included Brazil, Russia, India and China only and South Africa joined this group only two years back. In the last few years, due to fast rate of growth in China and India and stagnation in developed countries, China has become economically second most powerful country and India the third most powerful country, pushing Japan to 4th position in terms of purchasing power parity. Recession in the developed world also is seemingly not affecting BRICS nations in any significant way.
Not a Talking Shop Anymore
Critiques of BRICS used to call it a talking shop, incapable of any meaningful action program. This criticism may be relevant for the initial years after the formation of the BRICS, but now it is no longer the case, as its philosophy, discussions and the action programs have undergone a major change.
Last year in BRICS Summit of heads of the States, it was decided to promote trade amongst BRICS countries in local currencies. It is notable that except China, all BRICS nations are facing the problem of trade and balance of payment deficit. In such a situation, trade in local currencies amongst BRICS group, may significantly relieve them from the requirement of dollars and maintaining their reserves. It is noteworthy that in 2011-12, India’s imports from China, Brazil, Russia and South Africa had reached 53 billion US$, whereas India’s exports to these nations were only 27.3 billion US$. India’s trade with other BRICS nations has mostly been in deficit. Total trade amongst the BRICS nations has reached 230 billion US$ in 2011-12 and is expected to reach 500 billion US$ by 2015. Taking this decision of trade in local currencies forward, bilateral Agreements have been made in Durban Summit of Finance Ministers of BRICS nations.
BRICS Development Bank
Last year it was decided in BRICS Summit that it would move forward for the formation of BRICS Development Bank, and the finance ministers of these nations would present a report in this regards in the Durban meeting. Formation of BRICS Development Bank, has not only been accepted in principle, significant progress is also seen in the talks in this regards. With the BRICS Development Bank taking shape, it can challenge the supremacy of international financial institutions, like World Bank, IMF etc. It is realty that there has been a major shift in the economic power balance of the world in the last two decades. Though these nations now, are contributing 27 percent to world GDP, significantly up from only one sixth, international financial institutions are neither willing to change their attitude towards them, nor their style of functioning.
Restlessness of BRICS nations is giving birth to the possibilities of a strong BRICS Development Bank. Proposed bank may provide finance for the developmental and infrastructure projects in BRICS nations.
International Monetary Fund has been providing adjustment loans for international payment disequilibrium with some conditions.
A new structure in the name and style of ‘Currency Swap Lines’ has also been proposed in this summit of finance ministers of BRICS nations, which shall open new avenues for borrowing from the foreign exchange reserves of member nations.
It is noteworthy that China has huge reserves of dollars, lying unused, from where BRICS nations facing balance of payment deficit may draw loans on short term basis, and thereby reducing their dependence on IMF. But, Needed a Change in China’s Attitude
Many possibilities are emerging from the unity of BRICS nations; however it is imperative that the most powerful nation in BRICS, China changes its attitude. China has dispute of one or the other kind, with almost all other countries. For instance there are border disputes with India; with Russia it has trade disputes and with Russia it has issues pertaining to status.
Manner in which China has been challenging India’s sovereignty on Arunachal Pradesh border and showing high headed approach with other nations, unity of BRICS nations is getting adversely affected. If such things persist, it would be difficult for BRICS nations to effectively challenge the might of powerful countries like USA and others.
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