Table 1:Decadal growth rates of the BRICS economies (%).
Source: Calculated from World Economic Outlook Database, April 2018, IMF.
“Each of the BRICS countries has multiple and different attributes and thus each has a huge potential to develop. Brazil is extremely rich in resources such as coffee, soybeans, sugar cane, iron ore, and crude oil, with around 60 million hectares of arable land (just 7 per cent of its land area) but with an agricultural area of 31.2 per cent of the total land area. Russia is noted for its massive deposits of oil, natural gas, and minerals. India is a strong service provider with a rising manufacturing base, while China is seen as the manufacturing workshop of the world with a highly skilled workforce and relatively low wage costs. South Africa is … . It is a medium-sized country with a total land area of slightly more than 1.2 million sq. km and around 12 per cent arable land area. It is the world’s largest producer of platinum and chromium and holds the world’s largest known reserves of manganese, platinum group metals, chromium, vanadium, and alumino-silicates” (Government of India, 2012: 3).
But do these differences in economic size, population, and growth drivers get reflected in their macroeconomic policies?
Macroeconomic Policies in BRICS
We discuss the macroeconomic policies under the three broad heads of monetary policy, exchange rate regime, and fiscal policy.
Monetary Policies
At the current juncture, out of the five BRICS countries, three economies (viz., Brazil, India, and South Africa) have adopted inflation targeting as the framework of the monetary policy. This is in sync with the global fashion of adoption of inflation targeting in order to rein in inflation and fiscal profligacy as well as to assert a certain degree of independence of central banks. While for the most part, the Bank of Russia has had several goals for its policy, there was a gradual shift toward full-fledged inflation targeting since early 2015, abandoning the exchange rate targets in November 2014 (Korhonen and Nuutilainen, 2017). China is perhaps the only country in the block which continues to adopt a multiple indicator approach but an implicit exchange rate targeting (Table 2).
In the context of monetary policy, a discussion on inflation is in order. There are several difficulties in comparing inflation rates across the BRICS countries. First, inflation numbers for the Russian Federation are not available till 1993. Second, both Brazil and Russia had experienced astronomical inflation rates during the 1990s. Illustratively, during 1990–1995 Brazilian inflation rate was 1,400%, and it started tapering off since the mid-1990s; similarly, inflation for Russia during the 1990s was more than 200%. In fact, Brazil had yearly inflation rates well above 1,000% from 1989 (except 1991) until the Real Plan stabilized inflationary momentum (Garcia et al., 2019).5 While such a hyperinflationary trend in Brazil was reflective of unbridled monetary expansion, in the case of Russia, removal of long-maintained price controls and dismantling of the erstwhile socialist regime seemed to have played major roles. Figure 3 plots inflation rates for India, China, and South Africa since 1991 and for Russia and Brazil since 2000. It appears that at least in the recent past inflation did not turn out to be a major problem in these countries.
Table 2:Monetary policy framework in BRICS countries.
Source: Khundrakpam (2012) and respective central banks’ websites.
Figure 3:Consumer price inflation in the BRICS economies (% per annum).
Source: Calculated from World Economic Outlook Database, April 2018, IMF.
Table 3:Exchange rate and monetary policy regimes in BRICS countries.
| Exchange Rate Arrangements | Monetary Policy | |
| Monetary Aggregate Target Framework | Inflation Targeting Framework | |
| Other Managed Arrangement | China | — |
| Floating Exchange Rate | — | India, Brazil, South Africa |
| Free Floating | — | Russia |
Source: IMF (2016).
Exchange Rate Regime
A related issue in this context is the choice of exchange rate regime in these countries. The IMF’s exchange rate classification system groups India, South Africa, and Brazil under the floating exchange rate regime while that of the Russian ruble is branded as free floating (Table 3). Although Chinese RMB is classified by the IMF as ‘other managed arrangement’, China has been seen widely as a currency manipulator by the global community. A recent report of the US Treasury commented:
“(A)fter engaging in one-way, large-scale intervention to resist appreciation of the renminbi (RMB) for a decade, China’s recent intervention in foreign exchange markets, tightened capital controls, and increased discretion over setting the daily fixing rate of the RMB have likely prevented a disorderly currency depreciation that would have had negative consequences for the United States, China, and the global economy” (US Treasury, 2017).
Exchange rate movements are reflected in Table 4. While both South African rand, and Indian rupee showed two-way movements, the Russian ruble has bouts of instability. Of late, Brazilian real too showed volatility. The Chinese yuan after remaining almost constant for a long time started appreciating slightly during 2006–2013; since then, however, it has stared depreciating.
Table 4:Exchange rate movements and current account balances in BRICS countries.
Note: For the purpose of calculating exchange rate movements, exchange rates have been calculated with the home country’s currency as the numeraire; e.g. in calculating Yuan’s exchange rate, it is expressed as USD per one RMB.
Source: Calculated from exchange rate data available from Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org).
A key difference between these economies is the extent of current account balance. Three countries, viz., Brazil, India, and South Africa, have been consistently having current account deficit since 2008. China and Russia, on the contrary, have been experiencing current account surplus. Of course, in case of Russia the extent of current account surplus has come down in tune with fall in oil prices. In the case of China too, the amount of surplus has come down since the global financial crisis and associated efforts toward ‘rebalancing’, whereby China has been repeatedly counseled by the global community to increase its consumption and reduce savings.6 Former US Fed Chairman Ben Bernanke is the chief exponent of this view, who in a lecture delivered Chinese Academy of Social Sciences in 2006 commented,
“China today is