Economic Highlights

New Delhi, 24 October 2016

BRICS Economics

CHANGING FINANCIAL MAKEUP

By Shivaji Sarkar

Political brouhaha subdued the economic gains made at the Goa BRICS summit. Business talk at the meet, as also on the sidelines, has largely played a significant role. This would include India pitching for a mechanism against black money; deals signed with Russia and India would total around $23 billion and include the sophisticated S-400 missiles and Rosneft purchase of 98 percent of Essar oil and its refinery. Besides, another $25 billion Russia-India oil pipeline is being worked out.

A significant agreement at the meet was the setting up of an international credit rating agency. This is so because of late, India, Russia and other developing nations have voiced their unhappiness over the way rating agencies function. In fact, Finance Minister Arun Jaitley has repeatedly expressed concern over the bias and methodologies of some of the western agencies.

The BRICS declaration stresses on a shared vision of transforming the global financial structure on fairness and equity. At the conclusion of the Summit, Prime Minister Narendra Modi stated: “In order to further bridge the gap in the global financial structure, we agreed to fast track the setting up of a BRICS Rating Agency”.

President KV Kamath of the New Development Bank (NDB), formed by BRICS, also expressed concern over big three rating agencies –S&P, Fitch and Moodys, all based in the US. On the other hand, international rating agencies still have their reservation about BRICS and are propagating that the group has “limited success or is tottering”.

The NDB, however, now plans to more than double its commitment to support infrastructure projects to the tune of $2.5 billion by 2017. It has assured $911 million this year and shall next year raise $1.5 billion from multiple sources. Importantly, Russia, China and South Africa have shown their seriousness to make NDB a success by paying two years of their commitment in advance. The BRICS business council too has been told to work in close coordination with NDB.

In late September, Jaitley had called upon strengthening capitalisation of the IMF-World Bank so that countries like India could benefit from soft funding. A stronger NDB, finally aimed at having $100 billion capital, would give a greater boost to developing economies. The bank is keen to reduce the cost of borrowing for member countries by doing local currency borrowings as these do not require hedging.

India having committed $250 billion will be among the first countries to raise the money in local currency. The NDB plans to float a rupee-bond early 2017. At the same time, it proposes to raise 10 billion yuan in China in the medium term. Further, it is making similar strategies in other markets. Headquartered in Shanghai, the bank intends to increase its staff to 300 from the present 60 and is likely to open a centre in South Africa shortly.

More significant was the move to ensure that multi-nationals do not dodge taxes, along with norms to curb black money and bring those accused of corruption and tax evasion to justice. The issue has not only been discussed in detail by the G-20 but has led to its implementation. Some large IT companies were told to pay huge taxes by the UK soon after the G-20 move.

Taxes, BRICS leaders agreed should be levied at the point where activity takes place and not where their registered office is.  This is because there are MNCs and other large groups, which have presence across borders, end up paying no tax anywhere and even shift their profits. BRICS is also confabulating on norms to bring to book white collar criminals, who cross international borders to avoid action.

BRICS meet also discussed repatriation of black money as per UN Convention against Corruption and other relevant international legal instruments. Apart from tightening the global  system and taking forward the basic economic agenda of BRICS, India also had success in getting support of Brazil, Russia and Bay of Bengal group, BIMSTEC, members, including Thailand and Myanmar, on India’s bid for Nuclear Suppliers Group (NSG) membership.

The $25 billion Russia-India pipeline from Siberia is being studied in detail, with three routes being discussed. The shortest is through the Himalayas into northern India, and does pose several technical challenges. The other is through Central Asian nations, including Iran, to western India. The third would be longest through China and Myanmar into north-east India.

India has also signed agreements with Myanmar in power, banking and insurance.
A MoU was signed on banking supervision between the Reserve Bank of India and the Central Bank of Myanmar while another was inked for designing an academic and professional building programme for the insurance industry of Myanmar.

There were agreements pertaining to construction of 69 bridges on the Tamu-Kalewa section of the trilateral highway connecting India, Myanmar and Thailand. New Delhi is also keen on cooperation in the field of renewable energy and traditional medicines. This apart, the agreements with Myanmar would make borders with India secure and curb insurgent activities in both the countries. It will bring the two nations closer and may put an end to parallel governments in place on both sides of the border.

However, India is not the only one to have deals with other countries. China too has used the opportunity to create its market in the neighbourhood. President Xi Jinping visited Bangladesh just before the summit and promised $20 billion aid against India’s promise of $2 billion. Apparently, China is trying to create a large manufacturing base and make Dhaka more dependent on it. It is also wooing Nepal for closer ties, including extension of the railway track from Tibet.

The question that arises is whether BRICS is becoming a platform for mutual competition? To some extent, yes. However, both Russia and China are seen giving preference to their interests-- more than the common interest of BRICS. Thus, anti-Assad groups of Syria were forced to be named in the declaration but not those operating in Pakistan.

Despite such and other problems, BRICS is emerging as important group and moreso with the inclusion of BIMSTEC. It is becoming a larger forum that includes almost two-fifth of the world population. Its development bank is poised to be a competitor with World Bank. BRICS proposals are undeniably creating ripples in the world economic scenario and it is expected to bring about significant changes. For India, it is a unique forum through which it is trying to change the regional geo-politics. It can be safely said that the economic grouping of BRICS is likely to become a competitor to the western world. ---INFA

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