Research reports of global investment banks are perhaps more known for their topicality and contemporary policy relevance rather than analytical rigor. After all, these reports are primarily meant for assistance of their clients’ investment strategy. Thus, it may not be an exaggeration to say that these reports are typically known to have a relatively short shelf life. But when the Goldman Sachs Global Economics Paper No.: 66, titled Building Better Global Economic BRICs, was brought forth by the London-based Goldman Sachs Economic Research Group (led by Jim O’Neill, M.D. & Head of Global Economic Research) in 2001, the authors of the report also might not have realized that they were about to create history. From the vantage point of 2018, it seems that the report has stood the test of time and generated enormous research output and a movement toward economic cooperation among these nations.
Initially the focus of the analysis was confined to four economies, viz., Brazil, Russia, India, and China — thus giving birth to the acronym of ‘BRIC’ economies. In projecting future GDP trends in BRIC economies, the Goldman Sachs 2001 report considered a number of scenarios.2 The report arrived at a startling result: “Over the next 10 years, the weight of the BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policy in the BRICs” (Goldman Sachs, 2001). In particular, in all four scenarios, the relative weight of the BRICs rises from 8.0% at present (in current USD) to 14.2%, or from 23.3% to 27.0%, converting at purchasing power parity (PPP). Subsequently, in a sequel to the original report, Goldman Sachs argued: “If things go right, the BRICs could become a very important source of new global spending in the not too distant future. … India’s economy, for instance, could be larger than Japan’s by 2032, and China’s larger than the US by 2041 (and larger than everyone else as early as 2016). The BRICs economies taken together could be larger than the G6 by 2039” (Goldman Sachs, 2003). Such discussion has been the subject of a number of academic studies as well.3
Interestingly, the discussion was not limited to academic research or research reports of investment banks. In due course, BRIC economies emerged as a formal group after the meeting of the leaders of Russia, India, and China on the margins of G8-Outreach Summit in July 2006 in St. Petersburg. The grouping was formalized during the first meeting of BRIC Foreign Ministers on the margins of the UN General Assembly in New York in September 2006 (Government of India, 2016). Later, in the aftermath of the global financial crisis, the BRICS block got a shot in the arm and the first BRIC Summit was held in Yekaterinburg, Russia, in June 2009. Subsequently, the foreign ministers of BRIC nations, at their meeting in New York in September 2010, agreed that South Africa may be invited to join BRIC. Accordingly, the group of ‘BRIC countries’ was extended as ‘BRICS countries’ so as to include South Africa, and South Africa formally joined the group in April 2011.
More recently, following the report from the Finance Ministers at the fifth BRICS summit in Durban (2013), the BRICS leaders signed the Agreement establishing the New Development Bank (NDB) (formerly referred to as the BRICS Development Bank) which is expected to, ‘strengthen cooperation among BRICS and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to collective commitments for achieving the goal of strong, sustainable and balanced growth’.
Are all these developments pointers toward the emergence of BRICS as a new kid on the global economic power block? Are these five countries going to pose a threat to G7 economies in the years to come? This chapter argues that there are ample dampeners in the way of this expectation turning out to be true. While such a possible outcome could be reasoned out using differing viewpoints, viz., economic, social, or political, my focus here is somewhat limited. In particular, I will argue that the differences in macroeconomic structure and economic policies could make the BRICS block (and not necessarily individual countries) fragile with little cohesion.
The rest of the chapter is organized as follows. First, I look into select metrics of economic importance of BRICS economies. This is followed by a discussion of three aspects of macroeconomic policies, viz., monetary, fiscal, and exchange rate. The trade pattern of the BRICS block is discussed next. Before I conclude, the case and future of economic cooperation between these countries is explored.
Size of the BRICS Economies and Their Growth Trajectory
The first element of heterogeneity is perhaps reflected in the differing sizes of the BRICS countries. In 2017 in terms of GDP (at PPP), as against the US $23 trillion economy of China, India stood at US $9.5 trillion, and Brazil, Russia, and South Africa stood at US $3.2 trillion, US $4 trillion, and US $766 billion, respectively. Put differently, in 2017, the size of the Chinese economy was roughly 2.5 times of that of the Indian economy, while it was nearly 7 times and 6 times for Brazil and Russia, respectively, and for the South African economy it was 30 times! This is more effectively demonstrated in these countries’ share in global GDP at PPP (Figure 1(a)), where China clearly, as the biggest economy in the world (in terms of PPP), emerged much bigger vis-à-vis other partners. Moreover, as China has surpassed the US economy in terms of share in global GDP (at PPP), the share of BRICS has surpassed that of the G7 economies (Figure 1(b)). Thus, by 2016, BRICS emerged as the biggest economic power in terms of share in global GDP (at PPP).4
Figure 1:Share of the BRICS economies and G7 block in global GDP (at PPP).
Source: Calculated from World Economic Outlook Database, April 2018, IMF.
Of course, this does not mean that the extent of well-being across these economies is so different. Differing population size is the key to understand trends in per capita GDP. After all, in 2017 in terms of population, China (1.4 billion) and India (1.3 billion) were far above Brazil (207 million), Russia (144 million), and South Africa (57 million). Thus, effectively, the economic sizes of the BRICS countries are at variance with average well-being (Figure 2). Illustratively, in 2017, in terms of per capita GDP, Russia at nearly US $28,000 was way above Brazil (US $15,600) or China (US $16,660), while India’s per capita GDP at nearly US $7,000 was the lowest.
The growth performance of the BRICS countries also differed considerably. Notwithstanding recent deceleration, China grew at about 10% for nearly 25 years. Indian growth too has registered a steady acceleration since the initiation of its reform program in the early 1990s. After tumbling in the 1990s, Russian growth experienced a roller roaster movement in sync with petroleum prices. Brazil and South Africa too experienced lower growth rates in comparison with China and India (Table 1).
More importantly, the economic drivers varied grossly across these economies. While over the years China has become a global manufacturing hub, India’s growth has been driven primarily by domestic consumption and its vibrant services sector. Russian growth has been the outcome of its oil and gas opulence; in the case of Brazil and South Africa, commodities played major roles. The BRICS report of the Government of India has aptly noted,
Figure 2:Per capita GDP of the BRICS economies