Thursday, March 29, 2012

India: Rivalries won't undo the BRICS

At a New Delhi summit, five key emerging nations forge a platform at odds with the West on Iran and Syria.

By Jason Overdorf--NEW DELHI
GlobalPost (March 29, 2012)

As Indian business leaders pushed for measures to double trade between and among the so-called BRICS nations of Brazil, Russia, India, China and South Africa to $500 billion over the next few years, a host of mostly western naysayers stepped forward to claim that the BRICS are too deeply divided to emerge as a coherent negotiating bloc.

Wishful thinking? Perhaps.

“That's always been said, but they're actually moving forward,” said Raja Mohan, a senior fellow at the New Delhi-based Center for Policy Research. “The problem is the supporters and critics. You highlight those who fear it's going to be an anti-western bloc and those who say it can never amount to anything.”

There were arguably no big bang developments at Thursday's BRICS Summit in New Delhi. But several small yet significant steps forward suggest that the BRICS may indeed be a powerful bloc when it comes to issues where they share a common interest – such as increasing their power in economic institutions like the World Bank, protecting themselves from costly measures to deal with climate change, and fighting trade barriers in the US and Europe.

“In economic matters, alliance is possible since there is still a strong developed/developing country divide,” said Jabin Jacob, assistant director of the New Delhi-based Institute of Chinese Studies, an independent think tank. “Overall, however, if groupings such as BRICS aim to do more than economic cooperation, then ideological divisions will come to the fore.”

The nations were not able to agree on a candidate for the top job at the World Bank – which some claimed was needed to signal that the grouping had arrived as a new force in global economic relations. But they reasserted their call for reforming the World Bank and International Monetary Fund “to better reflect economic weights and enhance the voice and representation of emerging market and developing countries by January 2013,” according to a joint statement issued Thursday.

They laid some groundwork for an alternative financing agency of their own along the lines of the Asian Development Bank, directing their respective finance ministers to set up a working group to study the plan and report back at the next meeting. And they reached an agreement to allow members to extend loans to each other in local currencies that will send a clear-enough message on the grouping's dim view of the continued dominance of the dollar and the euro.

Perhaps most significantly, at least for those who fear that the BRICS may become an anti-western block, they also came together to resist US and European sanctions on trading with Iran, and they termed interference in the conflict in Syria “unacceptable.” On Iran, too, the BRICS explicitly opposed a military strike. Moreover, they asserted Iran's right to maintain a civilian nuclear program, and stated that any measures to prevent Tehran from developing nuclear weapons should be imposed through the International Atomic Energy Agency or the UN – a thinly veiled rejection of the present US and European sanctions on oil purchases.

“We respect UN resolutions,” Indian commerce minister Anand Sharma said Wednesday. “None of our [BRICS] countries are in violation of what the UN resolution says. The UN resolution does not forbid countries engaging in trade in essential commodities.”

As various pundits have pointed out, there are as many differences among the BRICS countries as there are similarities. Brazil, India and South Africa are committed to democracy, and, to varying extents, socialist-style programs to lift their peoples out of poverty, while China and Russia are richer, more authoritarian, and more laissez-faire in their economic policies. Similarly, China and Russia are already members of the United Nations Security Council, and, despite public noises to the contrary, appear to be keen to keep Brazil and India out. And China and India, at least, are in direct competition for natural resources and (soon) export markets, even as Beijing props up New Delhi's nemesis in Pakistan.

But while none of those problems are going away, the incremental progress made at the BRICS Summit this week suggests that those issues will not necessarily derail other efforts where there is more common ground. Moreover, as economic problems continue in the US and Europe, the two most significant players in the BRICS grouping – India and China – are coming into closer alignment not only in obvious areas like climate change and emissions caps but also in economics.

“It's a very diverse group,” said Mohan. “It's not constructed in a regional framework, so it will necessarily take a global perspective. The agendas of Russia and China are different. For Russia it will be geopolitics.... China is focused on money, which the Indians are quite happy to accept.”

Apart from their regional competition for political influence and resources ranging from oil to iron to water for irrigation, China and India can seem to be headed on a collision course economically. China's dominance of export markets in the US and Europe is so absolute that it appears to threaten India's bid to build its own manufacturing sector and thus bring its massive population from the farm to the factory. And because those same export markets are already saturated, the massive increase in bilateral trade between India and China over the past five years has been accompanied by an even more severe increase in India's trade deficit.

“There are huge asymmetries between India and China,” said Shrikanth Kondapalli, a professor of Chinese studies at India's Jawaharlal Nehru University. “China is a $6 trillion economy and India is a $1.7 trillion economy. Meanwhile, China is the largest exporting country in the world today, with nearly $1.6 trillion in exports, and India has only $250 billion in exports. There's no comparison.”

For the first eight months of 2011, India-China trade topped $48 billion — growth of about 20 percent over the same period last year. But India's trade deficit also widened to $16.8 billion. As a point of comparison, consider the figures for 2008 — when bilateral trade for the year was about the same as the total for the first eight months of 2011, at $52 billion, but India's trade deficit was only about $10 billion. In other words, assuming that ratio holds true for the full year, India's trade with China has grown some 40 percent over the past three years, but its trade deficit has increased 60 percent.

That leaves India with a huge challenge.

“For the Indian manufacturing sector to increase from 14 percent of GDP to 29 percent of GDP, India needs to cooperate as well as compete with China,” Kondapalli said.

Nevertheless, recent developments suggest that the faltering of the western economies has not only increased the relative might of India and China on the world stage, but also increased their interdependence and equalized them to some extent. Without anyplace else to expand its sales, China now needs India's market, and as it strives for a larger voice in world economic affairs it needs India's greater political legitimacy to temper concerns about its growing dominance.

“The Chinese needed this multilateral grouping,” Kondapalli said. “Their economy is much more dependent on exports than India's. Given the financial crisis, they are more desperate than India, so they need the BRICS position on trade protectionism [in the US and Europe].”

In return, India aims to leverage its trade deficit to complete the process of industrialization. An ever larger portion of its imports from China are capital equipment used to build power plants, roads, railways and other infrastructure that India needs before it can match China's price points in the export market. And a decision this week to allow Indian firms to take yuan-denominated loans will not only help China internationalize its currency but also help India source the trillion dollars it needs for infrastructure investments.

“What India is having to give up in terms of an import deficit it can make up by investing more in infrastructure,” said Amitendu Palit, a researcher at the National University of Singapore's (NUS) Institute of South Asian Studies and the author of an upcoming book on India-China economic relations. “If India's infrastructure improves, its cost of production will come down and it will become more competititve with the rest of the world.”

And that would make the BRICS all the more powerful.