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BRIC economies doing fine, have weaknesses too

G. Srinivasan

New Delhi , Dec.14

THE country's economic growth rate is drawing the attention of global commentators. Its performance has been broadly hailed ever since a publication by Goldman Sachs Global Research Centres in 2001 that included Brazil, Russia, India and China (BRIC) as the likely super achievers by the middle of this century in the world economy.

An update on how the BRIC countries have progressed, along with a detailed study of the prospects for another set of developing countries, a group the report christens the N-11 (the Next Eleven), is issued by the Goldman Sachs Economic Research Group.

The Next Eleven consists of Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. Some of the nuggets of the performance of the BRIC countries (the original four countries) capture the state of play in this important economic group in the global economy.

Between 2000 and 2005, the BRIC countries contributed roughly 28 per cent of the global growth in dollar terms and 55 per cent in purchasing power parity terms. Their share of global trade continues to climb at a rapid rate. At close to 15 per cent, it is now double its level in 2001.

Trade among the BRICs has also accelerated, with intra-BRICs trade nearly 8 per cent of the total trade compared with 5 per cent in 2000. There have been countless signs of developing trade relationships, including the sharp spurt in Brazilian trade with China, Chinese investment commitments in Brazil and the exponential growth in trade between China and India.

India (in intellectual property) and Brazil (agriculture) have also illustrated their policy-making leadership among developing countries through the WTO negotiation process.

Latest estimates suggest that the BRICs hold more than 30 per cent of world reserves. China is the dominant contributor, but Russia, India and Brazil have all also piled up substantial reserves. Stating that the BRICs' current accounts continue to be in healthy surplus, reflecting the group's key role in the global savings supply, the report said the BRICs are increasingly important counterparts to the US current account deficit.

Yet all is not hunky-dory as far as the economies of BRICs is concerned. Even as the BRICs have so far grown more than envisaged, the report rightly cautions that "current success is obviously no guarantee of future performance." The updated projections taking due account of the recent economic data and the latest demographic projections show that China would overtake the US by 2040 (slightly ahead of 2003 projections), while India would overtake Japan by 2033 (slightly later than earlier projections due to the recent improvements in Japan's economic performance).

The report has developed a Growth Environment Score (GES) aimed at summarising the overall milieu in an economy using 13 sub-indices that are broadly captured in five basic areas such as macroeconomic stability, macroeconomic conditions, technological capabilities such as penetration of personal computers, phones and internet, human capital (education and life expectancy) and political conditions (political stability, rule of law and corruption).

In this scorecard, the BRIC performance is revealing. China ranks the highest (16th) followed by Russia (44th), while Brazil and India are further behind (at 58th and 60th place respectively) out of 133 developing countries.

That China tops the list of the big-population developing economies (BRICs plus N-11) by a sizeable margin should not be lost on India's policy makers and economic managers.

As the GES sub-components focus on the strengths and weaknesses of each of the BRIC countries and on the areas where there is a room for improvement, India scores relatively high in terms of rule of law, external debt and inflation, but "quite poorly" in terms of levels of secondary education, technology adoption, fiscal position and openness.

This should shake the current complacency if India is serious about joining the league of the developed world by 2020, leave aside overtaking a super economic performer like Japan by 2033.

Even as the GES suggests that BRICs as a whole are doing a reasonable job in keeping favourable growth conditions in place, the report underscores the fact that more work needs to be done.

"For India and Brazil, in particular, more progress is needed if they are to continue to deliver the best possible outcomes over a longer period of time."

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