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Analysis

Updated on: Thursday, May 30, 2019, 11:33 AM IST

BRICS’ jerky record could spell doom

Antalya: Prime Minister Narendra Modi with Russian President Vladimir Putin, Brazilian President Dilma Rousseff, Chinese President Xi Jinping and South African President Jacob Zuma posing for a group photo before the BRICS meeting in Antalya, Turkey on Sunday. PTI Photo by Vijay Verma(PTI11_15_2015_000106B) |

Antalya: Prime Minister Narendra Modi with Russian President Vladimir Putin, Brazilian President Dilma Rousseff, Chinese President Xi Jinping and South African President Jacob Zuma posing for a group photo before the BRICS meeting in Antalya, Turkey on Sunday. PTI Photo by Vijay Verma(PTI11_15_2015_000106B) |

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Unlike the South Asian Association for Regional Cooperation which appears to have run into a stone wall, the five-nation BRICS group seems to be flickering on. But too much need not be read into the current three-day meeting in Kochi of representatives from Brazil, Russia, China, South Africa and, of course, the host country India. The most that can be said of this second meeting connected with decentralisation to be held here after India took over the BRICS chairmanship is that no one wants to sacrifice a forum for potentially constructive effort to political differences or economic neglect.

The main problem BRICS faces is neither China’s claim to India’s Arunachal Pradesh nor differences over Pakistan’s abetment of terrorism – though both are truly formidable obstacles to cooperation — but the group’s uneven economic record. Even Goldman Sachs, which coined the BRIC acronym (the S for South Africa was added later), admits that the group’s “halcyon days” are over. The most that an impressive range of joint Indo-Russian initiatives announced during the recent Goa summit could signify was that bilateral relations are not without substance. Russia, like its predecessor Soviet Union, is after all one of the few countries prepared to transfer strategic technology to India.

A buoyant China alone could not have sustained the group’s original rationale. True, China is the world’s second largest economy, five times larger than India’s, but it is precisely because of its size and because it is the world’s largest consumer of commodities, that slowing demand in China threatens growth throughout the developing world. China is responsible for about 40 per cent of emerging-market output, according to Goldman Sachs. “In a world where China is slowing,” says the firm’s chief emerging-market macro strategist, Kamakshya Trivedi, “it is going to be hard for the aggregate to go back to the kind of growth rates of 2005 to 2007.”

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The slowdown and a collapse in commodity prices that has knocked one-third off their value in the past two years mark the end of an era of rapid expansion for BRICS. It was tipped as a global economic engine at the start of the century and by 2010, China’s economy was expanding at an annual rate of 10.6 per cent. This year’s growth is forecast at 6.5 per cent.

Brazil, which is central to BRICS, is also the most vulnerable member. Its hosting of the football World Cup and Olympic Games was most impressive, but the recession that grips Brazil is the worst since the 1930s. This is compounded by a corruption scandal involving more than half of the country’s politicians from all parties, and inflation that halved the currency’s value. Brazil’s triumphant heyday under the charismatic Lula (LuizInacio Lula da Silva) who was in power from 2003 to 2010 seems a distant memory. The impeachment of his once highly popular successor, Dilma Rousseff, tore the country apart and coincided with the economic decline.

That Russia survives, and with such a robust president as Vladimir Putin, is the great wonder of the contemporary scene. “Russia is isolated with its economy in tatters,” Barack Obama declared (no doubt with some glee for the Cold War continues to be waged as vigorously as ever) in his State of the Union address on January 20, 2015. It seemed true too of what was until recently the world’s 10th biggest economy. The Russian currency was in free fall, while the federal budget was losing revenues and beginning to rely extensively on reserves accumulated in previous years.

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Given Russia’s dependence on energy exports, which are affected by Western sanctions, many experts – Western of course – predicted collapse with a decline of 10 per cent or more, comparable to the 2008-09 crisis. But though Russia’s economy did plunge into a crisis and could not halt its decline for six consecutive quarters, the real scale of the shocks was significantly smaller. The fall in GDP was 3.7 per cent in 2015, and most experts have revised their earlier gloomy assessment to foresee a drop of around 1 per cent this year. Oil prices’ rebound from their nadir allowed the rouble not only to stabilise, but to gain a foothold. A 10 per cent fall in private consumption has not led to any visible increase in social tension.

Short-term forecasts for the Russian economy are still gloomy, and do not envisage a rapid post-crisis recovery. In the medium and long run, if the conflict in eastern Ukraine is not peacefully resolved and Western sanctions are not removed, the economic situation may worsen. But no one any longer fears (or hopes for) a collapse. The simple structure of Russia’s economy and Mr Putin’s pro-market policies will prevent chaos, even if they don’t immediately impact the economy’s sluggish growth.

Labour and student unrest further compound the troubles of a South Africa that hasn’t been the same without Nelson Mandela. The African National Congress, the party of independence like our Congress, seems to be flagging, also like India’s Congress. Jacob Zuma, the president, and several of his ministers are accused of corruption.

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There remains India. The economy is showing signs of gaining momentum and some reports suggest business confidence picked up between April and June. Also that households have benefited from favourable tailwinds due to public sector pay rises and a near-normal monsoon. In addition, the current account came close to balancing in Q2 FY 2016 due to a lower oil bill and subdued gold imports, highlighting reduced vulnerability to external risks. However, the massive bad debts of state-owned banks expose the extent to which economic management is determined by political factors.

Shatrughan Sinha, film actor and Lok Sabha member from Bihar, spoke for many others, especially American and Singaporean businessmen, when he tweeted, citing a recent World Bank ranking, “India still ranks a poor 130 in the world in terms of  ‘Ease of doing Business’. Sadly, up only one place from 131 last year!” It was a dig at extravagant BJP propaganda boasting of Narendra Modi’s skill in running a business-friendly administration, holding up Gujarat as proof.

More to the point, perhaps, the CPI(M) publication, People’s Democracy, drew on a survey by the Modi government’s Labour Bureau to complain that unemployment was at a five-year high of 5 per cent of the workforce aged 15 and above. “Over a third of the people at work are employed for less than a year. Based on the Census 2011 figures, 5 per cent of those above 15 years would work out to 2.3 crore persons,” it said. “Further, 35 per cent underemployed would mean nearly 16 crore persons.”

With such an uneven record, BRICS can hardly claim to be the Third World’s engine of growth in the near future. But at least the Kochi conference on “Participatory Local Budgeting and Decentralisation” keeps alive the hope of cooperation across Africa, Asia, Europe and South America.

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Published on: Saturday, November 05, 2016, 08:49 AM IST
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