Author: Parveen Kaswan (Follow for more updates)
BRICS, the group of fastest growing markets of the world, are meeting for the first time on African soil in the South African city of Durban. BRICS is a group of five emerging economies including Brazil, Russia, India, China and South Africa. At their fifth summit, BRICS nations have decided to setup a development bank to overhaul the global financial system. This announcement has became the hot news all over the world.
As head of Goldman Sachs Jim O’Neill back in 2001, coined the acronym BRIC (Brazil, Russia, India, and China) to highlight the role of developing economies in world finance. Earlier, it was considered just a virtual organization, now BRICS is a global reality. The term has taken on a life of its own, as much a symbol of the countries’ global political emergence as it is a sign of market dynamism.
These countries were ranked 8,9,10,11 in terms of GDP ranking in the last decade and now two of the first three top rankers in PPP terms are from BRICS. It was started outside the ambit of G-7, which were formerly the 7 largest and wealthiest (not intended as GDP, but global net wealth) nations on Earth. Now, in the current scenario, growth is flagging all over the world. The major contributors to world growth are China, India and Brazil. The acronym has come into widespread use as a symbol of the shift in global economic power, away from the developed G7 economies towards the developing world. It is estimated that BRIC economies will overtake G7 economies by 2027.
IMF is dominated by G-7 nations and formation of a development bank will be a step forward to counter the western dominations on economic front. It has potential to become the engine of change at global level. Talks are also going on for new reforms at International Monetary Fund in terms of voting rights for developing nations. These talks will not be helpful for India in bigger perspective because of China’s presence in G-20 and as such, China will hold much of the new voting rights. So, this kind of equal & unified stand and common approach in bringing the contemporary reality in economic field and world order will be more helpful in projecting India as a global leader.
Japanese economy is contracting, US is growing at 1-2 % and EU’s growth is also stagnant. They are all locked with their demographic issues. In such situation, it is not wrong if we will call China and India as the drivers of the world growth.
The BRICS bloc of states is now an economic giant representing about 40 percent of the world’s population. It also holds an estimated USD 4.4 trillion of foreign reserves and is responsible for a fifth of global gross domestic product. It has also shown substantial, steady economic growth with 2012 figures boasting an overall 4 percent GDP growth compared to 0.7 percent for the G7 nations.
According to initial statements the reserve pool of central bank money would be made available to emerging economies facing balance of payments difficulties or could be tapped to stabilize economies during crises.
In his latest interview, Jim O’Neill of Goldman Sachs stated :
“… I think is a fascinating idea that is being championed by India and, probably also by Brazil. However, it remains to be seen whether the Chinese really like this plan. At this point, it would be important for the BRICS countries to launch concrete projects if they want to be more than a club that is loosely tied together. They have already agreed on measures to facilitate trade between them and issued joint demands on some foreign and environmental policy topics. More can be done.”
Specifically for India, he added:
“Politicians in India fatally believe that things will get better by themselves and that they don’t need to do anything to contribute to this. Nevertheless, the country remains highly interesting. Besides, with its very young population it enjoys a demographic advantage.”
Russia as an important member of the group is looking towards BRICS Development Bank as a step of Rebuilding ‘Aging’ World Finance. Also, in initial talks, Russia favours contribution of 10 billion USD for each country. According to some experts, the proposed development bank and reserves pool reflect frustration among emerging nations fr the reliance on the World Bank and International Monetary Fund, which some see as reflecting the interests of rich nations. Looking at the track record of BRICS nations and the importance it is getting in recent times, Egypt’s President Mohamed Morsi hopes to make Egypt a part of E-BRICS and include it in emerging market peers in the BRICS group.
I think, to reduce the domination of developed countries on World Financial Institutions such as IMF & World Bank, is a welcome step. Undoubtedly, sooner or later, BRICS is going to outrank the G-7 as expected and projected.
For Further Study:
1. The Statesman: Brics development bank on anvil ; accessed on 27th March, 2013.
2. The Daily Beast ; accessed on 27th March, 2013.
3. Spiegel International : Goldman Sachs’ Jim O’Neill: BRICS ‘Have Exceeded all Expectations’ ; accessed on 27th March, 2013.
4. Bloomberg: Russia Sees BRICS Development Bank Rebuilding ‘Aging’ World Finance; accessed on 27th March, 2013.
5. The National: Morsi hopes BRICS will become E-BRICS; accessed on 27th March, 2013.