The Challenges And Opportunities For India Economics Essay

“If the (India-Russia-China-Brazil) relationship progresses, then you basically have the world’s heartland- two billion people allied with a formidable technological power in Russia. That would be a disaster for the United States.”

Maynes [1] 

CHAPTER 1

INTRODUCTION

1. The bipolar world has long ceased to exist and the world is now moving towards a multi polar world with emergence of various regional forums with common energy, economic, climate and trade agendas. One such forum which has attracted attention of leading economies is BRIC. The key players among the emerging economies are the quartet of Brazil, Russia, India and China popularly referred to as BRIC. The BRIC concept was first proposed by Goldman Sachs in 2003. It is estimated by experts that the economies of BRIC countries could outstrip the economies of G-6 countries in near future. BRIC with 40% of the world’s population and output is seen as the group which can alter the future of global economy. India being the largest democracy and one of the fastest growing economy has a definite role to play in the emerging world order with special reference to the BRIC.

2. The BRIC countries have consistently displayed high annual growth rates since 1980. BRICs share in the global economy has increased by 1.5% over the last decade. The rapid development of emerging economies and BRIC in particular, presents both opportunities and threats for sustained economic growth of India. It is almost nine years since Goldman Sach gave the term “BRIC” in its Global Economics Paper, “Building Better Global Economic BRICs”, published in 30 November 01. An short form for the economies of Brazil, Russia, India and China, the term was first significantly used in a Goldman Sachs report, which predicted that by 2050 these four economies would be wealthier than most of the current major economic powers. The forum has managed to increase its presence on the global stage in the past years and is countering the influence of western power in various forums. The BRIC nations are also looking in future for a more multi-lateral world and use the forum as a vehicle to pursue this aim. However as per studies carried out by many analyst doubts whether the BRIC concept has graduated from mere theory, to real, actionable practice?

3. As per studies carried out by economist, the BRIC thesis suggests that India and China would emerge as the world’s dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant in supplying raw materials. As per the thesis evolved by Goldman Sachs, these countries are not only a political alliance or a formal business association but they have the potential to form a powerful economic bloc. Nevertheless, these countries have taken steps to increase their political co-operation on various international forums of trade and economics. [2] 

4. The thesis put forward by Goldman Sachs [3] suggests that the economic potential of Brazil, Russia, India, and China is such that they could be among the four most leading economies by the year 2050. The thesis was proposed by Jim O’Neill, global economist at Goldman Sachs. These countries together encompasses almost 25% of the world’s land coverage and 40% of the population and hold a combined GDP of 15.440 trillion dollars. In fact, by the end of 2010, their combined GDP is already 15% of the global economy. China has overtaken Japan this year to become the second-largest economy in the world. The BRIC countries are among the biggest and fastest growing economies and emerging markets in the world. [4] 

5. 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 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. 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.

6. The economies of China and India, whose recent growth has been triggered by foreign investment and exports of manufactured goods, are vastly different from resource-fuelled Russia and, to a lesser extent, Brazil. The opportunities among BRIC nations to further their economic co-operation are evident. Brazil and Russia in future will continue their leadership roles in developing and trading natural resources, while India and China will remain global players in manufacturing, services and technology sector. All four economies have recently bounced back from recession and are key players in sustaining the global recovery. As per the current trends, the group’s combined share in global GDP should reach 60 percent by 2050. The countries’ growing economic influence has turned BRIC into a major economic bloc in the new multi polar world order. [5] 

7. India’s economic growth since independence in 1947 has been well below potential as compared to its population growth, hindered by low productivity. Tentative steps to reform the economy in 1985 and then fundamental reforms of 1991, has impacted the growth with economic growth averaging 6% annually. Since 2003, there has been a consistence increase in India’s potential growth to nearly 8% from 5%-6% seen in the previous decade. Growth in the productivity has been the key driver behind the progress in the GDP growth, contributing nearly 50% of overall growth since 2003. The drivers of growth are various sectors, important of which are agriculture, services sector and industry. Industry is increasingly becoming an important growth driver, contrary to general belief that India’s growth is services driven. Almost 25% of the services are directly related to industry, in the sectors such as trade, transport, electricity and construction. Recent jump in the productivity are in part due to a turnaround in industry productivity, which has transited from negative to positive cycle.

8. India’s current growth rates of about 8% have been achieved without much increase in domestic capital accumulation or FDI, raising the prospects that further increase in FDI could result in boosting further growth. India is well below its efficiency in the productivity frontier, due to inefficiencies in the production sector. However, services productivity has remained strong over the past decades. Labour has moved into industry from agriculture, at the same time capital has moved to services since 2002.

9. As per economists and experts, India will remain a low-income country for decades, with per capita incomes below its BRIC peers, however there exists opportunities and capabilities to fulfil its growth potential, thus it can become a source for driving the world economy and a key contributor in the recovery of world economy from the recent recession. India’s forthcoming urbanisation process has implications for increasing demand for housing, infrastructure, and demand for consumer durables. Given the considerable implications, India’s ability to turn potential into reality should be of importance not only for its 1.1bn population, but also for the recovery and growth of the global economy.

10. The People’s Republic of China is the world’s second largest economy both in nominal and PPP terms after the United States. It is the world’s fastest-growing economy, with average growth rates of 10% for the past 30 years. It is also the largest exporter and second largest importer of commodities in the world. The country’s per capita GDP (PPP) is $6,567 (98th in the IMF ranking) in 2009. The provinces in coastal area of China are more developed, as compared to the regions in the hinterland which are less developed.

11. According to the experts, China and India “are competing with the west for “intellectual capital” by seeking to build state of the art facilities, investing in high, value-added and technologically intensive sector, and utilising successfully technological knowhow to generate entrepreneurial activity. However India needs to resolve its problem of mass poverty and thus long-term political stability and achieving immense potential growth prospects. According to My Pocket World in Figures, 2007 Edition edited by The Economist, adult literacy in China is 90.9%, Brazil 88.6%, Russia 99,4% and India a mere 61%. What do foreign investors want to do in a country with 40% illiterate people? [6] 

12. Russia has been a star performer in 2008 in the entire Euro-Asian region. This performance is not only driven by high-energy prices but also market driven. Instead of oil and gas – which will remain solid performers for Russia – the country economy will be driven by domestic consumption growth, higher demand for major commodities and enhanced political stability. 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 [7] .

METHODOLOGY

Statement of the Problem

13. There is an requirement for India to move beyond cosmetic ties and forge cooperation in various fields of trade, technology and defense sector to fuel her economic growth.

Hypothesis

14. India has the potential to maximize engagement with other countries in the BRIC forum in fulfilling her aspirations of developing into an major world economic power by 2030.

Justification for the Study

15. The significance of emerging Indian & Chinese economy which is driving the world economic growth post recession is becoming increasingly critical. The complementing economies of India, Brazil, Russia and China can ensure consistent growth rate in these countries in general and India in particular. It is therefore pertinent to carry out an in depth study of the opportunities and challenges BRIC poses for India in the new world order to fulfill her dream of emerging as an major economic power.

16. Scope of the study limits itself to the genesis and vision of BRIC and assessment of opportunities and challenges each country of the group offers to India. The study further focuses to assess the implications of the BRIC on Indian foreign policy which will further the exploitation of opportunities offered by the forum.

Methods of Data Collection

17. The major source of data collection has been through books, periodicals, news paper and internet. The primary sources of data collection which have also been appended in the bibliography are as follows :-

(a) Reference books.

(b) Newspapers and magazines.

(c) Articles on issues of New world order and relevance of BRIC in the emerging world order.

(d) Internet.

Organisation of the Dissertation

18. It is proposed to study the subject in the following manner :-

(a) Chapter I – Introduction. This chapter discusses the overview of the paper and brings out the methodology to include statement of the problem, method of data collection and justification for the study.

(b) Chapter II – BRIC : An Insight, Relevance & Vision in the New World Order. This chapter dwells on the relevance, genesis for its inception and the way ahead for the forum. The chapter will discuss the studies carried out by various economist and institutions to bring out the significance of BRIC in present day international forums of trade and economies.

(c) Chapter III – India & Other BRIC Countries : Opportunities & Challenges in New World Order. This chapter brings out the opportunities, BRIC forum offer to Indian economy in sustaining a growth rate of 8-10%. The chapter will bring out the challenges ahead for India in fulfilling her dream of emerging as a world economic power by forging concrete ties with BRIC countries.

(d) Chapter IV – BRIC : Impact on India’s Foreign Policy. This chapter would include India’s foreign policies towards other BRIC countries and recent developments. This chapter will also discuss various options open to India to engage more dynamically with other BRIC countries in future.

(e) Chapter V – Conclusion. Brazil, Russia, India and China, collectively known as BRICs, are the current buzz on everyone’s global economy radio as a result of their incredible economic growth. Researchers have linked BRICs as a potential team with China and India acting as dominant global suppliers of goods and services and Brazil and Russia as their commodity and raw material suppliers.