Another BRIC In The Wall

Prime Minister Narendra Modi, who enjoys inventing slogans as acronyms, has done it again at an international gathering. Addressing the G-20 summit in Antalya, Turkey, he rechristened BRICS with a socially conscious string of words — ‘Building Responsive, Inclusive and Collective Solutions’. It is just as well. Barely a month earlier, Goldman Sachs, which coined the term BRICS to create an investment portfolio, quietly merged it with a larger emerging market fund. The media declared BRICS broken, worse, dead. Unfortunately it was just when India was getting ready to take over the chair of the international organisation with the same name that was inspired by BRICS fund. With a new mission, Modi was trying to breathe new life into the organisation. With the dissolution of the BRICS fund, it turned out to be a moment of transition — from its inception as an investment vehicle into an exclusively regional grouping.

The transition was a long time coming. When Jim O’Neill, the economist who coined the term BRIC, came up with the catchy acronym to pithily encapsulate a group of diverse emerging economies to market as an investment vehicle, those fast growing countries were exciting and dynamic prospects. But that moment has passed. With China’s economy cooling and oil prices plunging through the floor, resource-producing BRICS members like Brazil and Russia have lost their luster. Economic woes were compounded by political problems, such as Brazil’s massive corruption scandal involving the president and Russia’s Crimean misadventure. China has its own problems, with its stock market crisis and woes in the state-controlled banking sector. Beijing’s forex reserves ($3.4 trillion), though the envy of the world, have dropped to their lowest levels in two years. India’s promise too has yet to be delivered, with growth remaining sluggish, and the government unable to implement long-awaited economic reforms. Thus, Goldman quietly pull the plug on its BRICS fund.

However, with its appeal as a hot investment prospect diminished the five nation grouping is now trying to put more flesh on the structure inspired by the investment fund acronym. China, the strongest of the five economies, whose GDP is almost double of the rest of the countries’ combined, has taken on the role of leadership with greater vigor. It took the initiative to create a BRICS development bank, New Development Bank, that could lend some credibility to the organisation and reinforce its claim to leadership. To ensure India’s whole-hearted participation in institutions created to challenge the Bretton Woods system, the Chinese installed an Indian banker in charge of the new bank. Fortuitously the moment was for scheduled change of leadership from Russia to India. Prime Minister Modi took the opportunity to redefine what BRICS now stands for, given the host of problems confronting the acronym’s erstwhile members. His new coinage to define the role of BRICS was vague enough to be acceptable to all, though given China’s dominance any ‘collective solution’ would be more aspirational than operational.

The nature of BRICS’ leadership would become apparent when the first loans are announced. According to press reports, the first loans would go to China and India. China, of course, wants BRICS to be more than a self-help economic club. By hosting a meeting of the BRICS media organisations for “promoting a closer international partnership”, China wants to ensure that member countries present the world a narrative that reflects its own ideological position and demonstrates international leadership. India, as the chair of the group, will have the responsibility to ensure that BRICS does not become a mere mouthpiece for its Chinese paymaster.

(This story was published in BW | Businessworld Issue Dated 28-12-2015)