Bric Countries India Opportunities And Challenges Economics Essay

India has now become the tenth largest economy in the world however it needs to engage more dynamically with the other emerging economies to move up the ladder in realising her dream to become one of the leading economic powers in the world. The world is looking at India due to her impressive economic growth. India being the fourth largest economy in terms of purchasing power parity attracts large FDI in different sectors. All these coupled with economic reforms undertaken in 1991 by Narsinhma Rao government, has made India the second fastest growing economy in the world . Thus to become economic power India needs to accelerate its economic reforms and take further steps to overcome institutional and infrastructural bottlenecks.

35. There has been increase in the share of industries over the years however the revival of manufacturing sector is the reason for rapid growth in GDP. India has become one of the favourite destinations for IT, pharmaceuticals, biotechnology, automobile, consumer goods etc. As per the recent reports [14] published, India has pulled ahead of China to lead the Forbes list of best countries for new jobs. However the potential to engage with other BRIC countries to fuel her economic growth have not yet fully exploited. There is a requirement for India to move beyond cosmetic ties & forge strong cooperation in fields of trade, IT sector, energy, science and technology and defense and space technology sector to enable mutual benefit of all countries in the group and fuel her economic growth.

36. As per the Goldman Sachs report [15] India will be the third largest economy in the world and by 2030, when it will outperform Japanese economy. To realise this dream, India needs to improve its rural infrastructure such as electricity, roads, irrigation and transport to generate employment and should also at the same time invest heavily in social infrastructure. The de-regulation of economy, simplification of procedures and relaxation of entry barriers for business activities is must for further growth in FDI. The urgent need to improve infrastructure in rural areas for its development so that it not only participates in the growth of the country but also adds to it. [16] 

Brazil

37. Brazil is the largest economy in Latin America and the eighth largest in the world, based on nominal GDP and ninth largest by purchasing power parity. Brazil is one of the fastest growing economies in the world with an average growth rate of 5 %. As per Goldman Sachs report Brazil will become one of the five largest economies in the world in the times to come, thus becoming one of the most sought after industrial destination. Brazil is member of various economic organizations. At present its 60 % of exports consist mostly of manufactured or semi manufactured goods. Its main trade partners as per recent reports are Latin America (25.9 %), EU (23.4 %), Asia (18.9 %), the United States (14.0 %), and others (17.8 %). Brazil has a broad base in the sophisticated technological sector that ranges from automobile, petrochemicals, fertilizers, submarines, aircrafts, space research and also a pioneer in many fields, including deep water oil research, ethanol production and blending. [17] Thus it offers great opportunities for India to get into economic and trade ties to exploit potential of Brazil and thus further increasing the mutual trade which has not yet reached the desired level. [18] 

38. In recent years India has realised the mutual trade potential of the two countries, which is evident from the frequent interaction of leaders from both countries and various trade agreements between the two countries. In January  2004  president  Lula da Silva visited  India  and preferential  trade  agreements between  India  and  Mercosur [19]   was  signed.  India and Brazil also sign co-operation  agreement  on  tourism,  peaceful  uses  of  outer  space,  exemption  of  visa  requirements  for  diplomatic  and  official/service  passport  holders, co-operation  between  Indian  Space  Research  Organization  (ISRO)  and  Brazilian  Space  Agency.  

39. In November 2006 India’s Prime Minister Manmohan Singh visited Brazil on the sidelines of IBSA’s first summit which was a  visit  by  an  Indian  Prime  Minister  after  an  interval  of  38  years. In acknowledgment  of  ”strategic  relationship” that two countries share, issues such as  energy  security,  international  security  situation  including  terrorism and  setting  up  a  joint  committee  on  Bio fuels were discussed. Both  countries  vowed  to  create  conducive  environment  to  further  increase  in trade  and  investment.  The  National  Institute  of  Metrology,  Standardization  and  Industrial  Quality  (INMETRO)  and  the  National  Physical  Laboratory  of  India  (NPLI)  agreed  on scientific  and  technological  co‐operation  in  the  areas  of  Chemistry,  Physics  and  Engineering  Measurement  Sciences.  MoU  in  the  field  of  Human  Settlements,  Plant  Health  Protection,  MoU  between  Bureau  of  Indian  Standards  &  ABNT,  MoU  between  Petrobras  and  ONGC/OVL  were  signed.  

40. During visit of Brazilian President to  India  in June  2007,  talks to increase strategic  partnership in  the  areas  of  Space,  Nuclear  Energy  for  Peaceful  use,  Defence,  science  and  technology  and  fight   against   terrorism were given boost. MOU  was signed to increase the current trade from US $ 3.1 billion to US  $  10  billion  by  2012. Agreement in the fields of infrastructure development, space  cooperation, Economic  co-operation in the fields of Oil  and  Natural  Gas, Space,  Medicines, Ethanol  etc.  India and Brazil   agreed to establish defence  committee to increase co-operation in defence sector. The setting up of Indo‐Brazilian  Joint  Commission covering  co-operation  in areas  like  agriculture,  science  and  technology,  trade  and  investment,  energy,  Education,  Defence,  space,  nuclear  energy,  health,  culture  and  sports will give boost to the mutual trade and understanding which will help in furthering the trade between the two countries. [20] .   

41. The increasing co-operation between the two countries is evident from the increasing visits of heads of state and heads of various ministries. Both countries shares common ideology on UNSC reforms for more participation of developing countries in the UN and making UNSC more democratic, legitimate and representative. The relation between India and Brazil are improving and are favored by development in domestic and world affairs. There exist opportunities for mutual co-operation in political and economic matters thus giving boost to South – South diplomacy. They are the leading economies suggesting inter-state coalition forums such as BRIC, IBSA etc for increasing co-operation among developing countries.

42. The India’s Union Minister of Commerce and Industry, Mr. Kamal Nath has reiterated the importance of economic relations with Brazil. He stated that “Brazil being the largest trading partner in Latin America has special importance for India. Over the years, Brazil has emerged out as our biggest partner in the Latin American region. However, I feel that considering the huge opportunities of mutual interests, the volume of trade is still low and it could be enhanced manifolds by efforts of governments and trade bodies of our two countries. Our mutual investments have also increased in recent years, particularly in the field of information technology, biotechnology and pharmaceuticals. Areas of mutual interests between our countries cover pharma, aviation, engineering products, agriculture based industries including equipments and food processing industries, energy including ethanol, chemical products, auto parts and vehicles and two wheelers, IT, banking and urban infrastructure. India and Brazil must continue to be close partners in the UN, WTO and other international foray on issues such as social development, health care, sustainable economic development and poverty alleviation.”

43. In the past few years, Brazil has emerged out as the biggest trade partner in the Latin American region. India and MERCOSUR have agreed to give tariff concessions, ranging from 10% to 100% to the other side on 450 and 452 tariff lines respectively. The Preferential Trade Agreement has come into force. In recent years more and more investments have been directed from the India to the Brazil, especially in the areas of information technology, biotechnology and pharmaceuticals. [21] However time and maturity is still needed to take bilateral ties and converging interest to new heights. Bilateral relations between India and Brazil got a boost by the visit of Indian Prime Minister, Dr. Manmohan Singh to Brazil in April 2010. The bilateral trade in recent years had reached US$ 5.6 billion in 2009 and is likely achieve target of US$ 10 billion by 2010. The leader’s called on business and industry in both countries to utilize the opportunities available in the areas of energy, agriculture, mining, pharmaceuticals, infrastructure, construction and defense research, among others, to further expand bilateral investments.

44. The challenges that both the countries are facing in realising the trade target needs to be addressed on priority. The challenges that both the countries faces to reach the pinnacle of bilateral trade are :-

Lack of sustainable growth of Brazil economy.

The issues affecting the Brazilian growth, trade with Brazil and attractiveness [22] for investment by own industries are :-

The informal economy (black market, tax evasion, counterfeiting).

Macroeconomic barriers (instable exchange and interest rates).

Poor public services (health system, education and justice).

Lacks of infrastructure (transport, water and energy).

Reforms required at different levels in order to make Brazil a safer place to invest.

Un even growth with Brazil in various region.

(vii) Potential of investment in infrastructure and communication is

yet to be exploited.

(viii) Economic reforms to make India a more favorable destination for investment for Brazil, at the same time India needs to invest more proactively in Brazil to reap benefits.

(ix) Reducing the protectionist regime in the field of agriculture and technology.

Russia

Relations with India have always been and I am sure will be one of the most important foreign policy priorities of our country. Our mutual ties of friendship are filled with sympathy, and trust, and openness. And we must say frankly that they were never overshadowed by disagreements or conflict. This understanding – this is indeed the common heritage of our peoples. It is valued and cherished in our country, in Russia, and in India. And we are rightfully proud of so close, so close relations between our countries [23] .

Dmitry Medvedev

45. The economy of Russia is 12th largest economy and 7th largest by purchasing power parity in the world. After Soviet Union collapsed, Russia is moving from centrally planned, globally isolated economy to market based economy to regain its global significance and economic power. It is claimed by some analysts that, it was the Russian president Vladimir Putin who was behind the idea of co-operative coalition of developing economies [24] . Russian economy has continued its recovery since 1998 financial crisis. Ever increasing prices of oil and natural gases in the world have continued to be the engine behind the impressive growth. Russia is superior to other countries in BRIC as far as economic development is concerned and has the highest GDP per capita. Russia has great potential both as market and as resource. The biggest strength of Russia is its natural resource wealth which has attracted foreign investor’s attention. Off late Russia has consolidated its influence over Central Asia’s energy resources and has increased its strategic dominance in Europe’s energy markets [25] .

46. The sweeping political reforms initiated by the then Russian president Vladimir Putin including control of state on oil and gas industry. To gain more economic control in the Central Asian Region (CAR), it formed an economic bloc with Ukraine, Belarus and Kazakhstan. The new Russian foreign policy doctrine grants higher priority to political and economic relations with India compared to previous doctrine and relations with India and China are considered to be the Russia’s most important vector in Asia. As part of BRIC bloc, Russia plans to shift its focus of foreign trade from Europe to Asia giving priority to India and China. Oil and gas dominates Russian exports, however the share of engineering goods is increasing day by day.

47. The bilateral trade between India and Russia is growing annually at 30% and has reached US $ 10 billion this year. The new areas of investment identified for co-operation are banking, IT, telecommunications, nuclear co-operation and pharmaceutical sector. The key elements of Indo – Russian relations are :-

(a) Defence co-operation.

(b) Mutual trust and understanding.

Energy security.

Convergence of interest in CAR and Afganistan.

Cross border terrorism.

48. It is acknowledged by both countries that the bilateral trade is much below potential. There is great potential in the field of oil and gas co-operation, defence technology, joint space exploration, Information technology, banking, nuclear co-operation and pharmaceutical sector. Russia considers India as its long term partner and ally. India can play important role in Russia’s energy strategy. India has invested approximately US $ 1.7 billion in Sakhalin 1 project and willing to actively participate in Sakhalin 3 project to include joint exploration of oil in East Siberia which will help in achieving the goal of energy security. In India, policy makers have taken various initiatives to address the requirement of increasing energy demand, as Indian economy has become increasingly sensitive to volatile international oil market. [26] 

49. The co-operation in the field of defence constitutes the most important feature of Indo-Russian bilateral ties today. It has given India access to sophisticated weapons and advanced technologies at a time when others were not willing. The defence cooperation reflected the convergence of their larger geopolitical interests. A majority of Indian military equipment is of Russian origin. Despite the fact that Indian policy makers are engaged in diversifying the sources of military equipment and technology acquisitions, because of the long-established ties and ongoing projects, Russia is likely to remain for the foreseeable future the major defence partner of India. On their part, the Russian policy-makers and defence industry managers are aware of the need to adapt to the new market dynamism and growing competition in the Indian arms market [27] . The Major Joint Development and Production Projects in the field of defense/civil co-operation are :-

The BrahMos supersonic cruise missile.

The 5th Generation Fighter Aircraft.

The Medium Transport Aircraft Development Programme (MTA).

Co-operation in Space – the GLONASS.

The modernization of Admiral Gorshkov renamed as Vikramaditya.

Multirole Combat Aircraft (MRCA).

The civil nuclear agreement.

Co-operation in defence R&D cooperation.

Co-operation in the development of INS ARIHANT ( Indigenous nuclear submarine).

50. Apart from defense co-operation the various Scientific and Technological collaborations and interactions that are undertaken by both countries as under :-

(a) Russian- Indian Centre for Advanced Computing Research (RICCR) was

founded in 2000.

(b) The setting up Indian Technology Center in Moscow under The Technological Partnership Accord signed during President Vladimir Putin’s visit to Delhi in 2002.

(c) Two central agreements on space co-operation :-

(i) Exploration and use of Outer Space for Peaceful Purposes.

(ii) Long term co-operation in the field of Jjoint development operation and utilization of Russian Global Navigation Satellite System (GLONASS).

(d) Co-operation in the fields of Information technology, pharmaceuticals, telecommunications, hydrocarbons, energy and power.

(e) The agreement on Intellectual Propriety Rights.

51. Though the strategic partnership between India and Russia has been marked by close interaction on various bilateral matters, however the same is lacking on various international matters.

The composition of bilateral trade has not changed but volume has shrunk, to exploit the consumption boom India needs to impart dynamic impulse to economic co-operation.

The overall commodity import from Russia have reduced due to cheaper and better quality goods from China, Europe and US.

Rupee debt payment has been the main irritant in Indo Russian bilateral trade relations.

The defence and technical co-operation has been growing at a rapid pace, however the trade and economic ties are lagging behind, in spite of plethora of agreements, initiated and optimism displayed by the leadership.

As India diversified its defence acquisition from countries like France, Israel, US etc Russia stopped supply weapons to India on prices and terms offered by former Soviet Union. In April 2001, an Indian parliamentary report recommended that India should go for global bids for its defense procurements [28] .

(f) Delay in supply of equipment has been a constant problem. The deadlines set for the supply of Su-30 MKI and up-gradation of MiG-21 to MiG-21-93 level were not met. The problem of availability of spares on time remains acute till today with complaints of sub standard systems and spares being supplied.

(g) In the defence acquisition, the contractual obligations are not met, for instance Tangushka, Air Defense system.

(h) Russia is apprehensive of India’s diversified defense equipment sources.

China

“We (China) will stay on the path of open development and further expand the breadth and depth of opening-up. We will deepen the level of opening-up in the coastal areas, accelerate opening-up in the inland areas and upgrade opening-up in the border areas [29] .”

Chinese President Hu Jintao

52. The Chinese economy is the world’s second largest economy surpassing the Japanese economy in 2010. It is the fastest-growing economy, with average growth rate of 10% for the past two decades. It is the largest exporter and second largest importer in the world. The two most important sectors are agriculture and industry. In fact china is considered as the Shop floor of the world. China is largest creditor in the world and owns approximately 25% of US Treasury Bonds. [30] China understands that it has to play more active role in international affairs to sustain its double digit growth, thus China has started engaging actively with energy and resource rich countries to include Brazil, Russia and India. The emergence of China is marked by consistent economic growth, restructuring of its state owned enterprises, industrial and infrastructure development, growing foreign direct investment and positive trade balance. The effect of economic reforms with export led strategy has paved the way for phenomenon of Chinese growth.

53. As per experts the rise of India and China is changing the global balance. Together they account for more than 40 % of world’s working age population and more than 19 % of global economy in Purchasing Power Parity term. It is believed by experts that Asia’s place in the world depends on how India and China work together as they rise and avoid ending up in opposite camps. To exploit the opportunity each offer for sustained economic growth they should not be paranoid and suspicious instead co-operate and compete economically and progress further. However India’s perceptions and policies with respect to China, as well as Sino-Indian relations, have determined and defined by two critical events

(a) The Sino – Indian war of 1962.

(b) The nuclear explosions by India in May 1998.

54. There have been some changes as well as shifts in this perception since late 1980s. Officially, India and China do not consider each other as security threat. However security issues still keep on influencing Sino – Indian relations. The Chinese experts on international affairs feels that there has been a major shift in the China’s assessment of India which is based on the following facts :-

(a) India’s rapid economic growth and increasing influence in international affairs.

(b) China accords highest priority to relations with India as it falls in four major categories of countries that is developing country, neighbouring country, rising power and influential player in world affairs.

(c) Chinese foreign affair expert state that, China has realised that relation with India will be critical to stability in Asia.

55. Of late bilateral relations between India and China were poised to enter vibrant and dynamic phase which is based on the common recognition of the fact that growth, development of both would make positive impact on regional and global peace, security and stability. China becomes the focal point of Indian “Look East policy”. The bilateral trade between the two countries has already crossed US $ 50 billion mark and is likely to exceed US $ 100 billion mark by 2015 [31] . China became the largest trading partner of India. Experts believe that India and China needs to work closely to avoid potential points of conflict. The scope for bilateral trade which needs to be further exploited by both India and China, exists in following sectors :-

(a) Textile and apparel sector.

(b) Leather, chemical and dyes.

(c) Industry and manufacturing.

(d) Marine, tea and coffee.

(e) IT, telecommunication, Pharmaceutical and shipping industry.

(f) Automotive industry.

(g) Plastics, organic chemicals and cotton.

(h) Steel and cement.

56. Bilateral trade is hugely skewed in favour of China, which enjoys a surplus of US $ 24 billion. During the recent visit of Chinese premier Wen Jiabao in Dec 2010, China agreed to reduce the trade deficit by providing increased access to Indian industries in IT, pharmaceuticals and agricultural sector. The visit will give a boost to the bilateral trade between the two countries. Both countries agreed to improve economic co-operation in infras­tr­uc­ture, IT, telecommunication, banking and environment pro­te­ction. Agreement also reached to give increased access to Chinese companies in Road, railways and manufacturing sector. During the summit both sides signed six agreements in the fields of banking, green technologies, media, water reso­urces and culture. China has agreed to improve market access for Indian industry and offer more platforms for Indian products in Chinese market. Though both countries accounts for 10 % of global output, the bilateral trade is just 0.2 %. Hence there exist scope for increase in bilateral trade. Though the bilateral trade between the two countries is rising, India and China needs to evolve a mature relationship. The challenges that both countries face which affects the bilateral trade between the two countries are :-

(a) Indian industries oppose Regional Trade Agreement (RTA) with China.

(b) India is reluctant to grant Market Economy Status (MES) to China.

(c) Chinese investment in telecommunication, port development and cargo carriers are subjected to security clearance.

(d) The contradictory nature of economic ties and security issues.

(e) The trust deficit.

(f) India’s growth moving into double-digit figures, keeping in mind that India’s energy imports exceed China’s, thus Chinese and Indian interests are likely to compete, if not clash in this sector.

(g) China’s activities in Indian Ocean to achieve energy security have led to concern in India.

(h) China sees the Indo – US relationship as a mean to contain China.

57. Thus India needs to exploit all the opportunities that other BRIC countries offer for its economic growth and at the same time needs to reduce the trust deficit and improve relations in the area where differences exist to give a boost to its bilateral trade with BRIC countries. Indian foreign policy makers needs to engage BRIC countries dynamically to fulfil her dream of becoming one of the economic power by 2030.