Last month marked a new beginning for this column, as a commentary primarily focused on India’s progress in an increasingly chaotic international order (“At home abroad”, March 13). I argued there that, despite its pressing short-term domestic preoccupations, India’s long-run prospects depend crucially on the global economic order evolving in a benign direction, something that can no longer be taken for granted.
While there is a strong tradition of elite public discourse on issues of conventional security, this is less true of India’s role and interests in economic diplomacy. To reflect this new focus, these columns henceforth will carry the title of last month’s column as the label for the series. I am aware that by choosing to fish in these waters I am inviting unflattering comparison with such other contributors to these pages, like Deepak Lal, Arvind Subramanian and Devesh Kapur, each of whom is an eminent scholar and researcher in the field. I am sure each of us is grateful to the editors for allowing us to devote space to an unfashionable but increasingly important area.
In last month’s column I had also noted the comparative lack of domestic attention being shown toward the summit of leaders of the BRICS countries (Brazil, Russia, India, China and South Africa) due to occur later in the month. That summit duly took place on March 29 and yielded, as these things do, something called the Delhi Declaration and Action Plan. The international business press was somewhat dismissive of the whole affair. The proposal to study the setting up of a new BRICS development bank did receive attention, as did the slightly unexpected endorsement of the idea by the outgoing president of the World Bank, Robert Zoellick. The general tenor of the comments was reminiscent of Winston Churchill’s proverbial pudding without a theme, noting in particular the continuing security tensions between India and China, and the conflicting interests between the resource-rich members of the group — Russia, Brazil and South Africa — and the resource-deprived members, India and China. The apparent inability of the five countries to back a common candidate for the presidency of the World Bank was also widely cited as evidence of the absence of common cause.
Given this somewhat jaundiced external perspective, and without being excessively nationalistic, it surely behooves commentators from the concerned countries to provide an independent assessment. It is striking that a quick Google search (in English) does not easily turn up much reaction from the press in the other participating countries. Indeed the best current resource on the BRICS remains a site based at the University of Toronto.
There are two frames of reference once could conveniently use for evaluation. The first is the coherence of the world-view and agenda embedded in the declaration. The second is the interaction between the BRICS and the G20, to which all five countries belong. On coherence, I was looking for two things: first, a sophisticated diagnosis of the situation facing the global economy and the resulting agenda for short-term action, particularly for the BRICS themselves. Second, I was hoping to hear more about areas where the BRICS could seize the initiative by themselves, forcing the rich countries to follow or to be cut out of the game. Judged by these standards I would grade the declaration as no more than adequate.
Even accepting that communiqués at this level are political and not analytic documents, given the prostrate state of Europe and the fragile state of recovery in the US and Japan there is little purpose served by sermons about excessive fiscal and monetary looseness at this moment for the global economy. This was no doubt put in to accommodate the Brazilians and Chinese, but, as Dr Draghi, president of the European Central Bank, recently and wisely noted, it is too early to be talking of an exit strategy for the ECB. Chairman Bernanke has been signaling much the same message from the Fed. These are appropriate and necessary actions given the powerful reduction in debt taking place in the financial and household sectors in those economies, and they should be welcomed rather than criticised. The right policy response in the BRICS is some combination of fiscal tightening and currency appreciation, with capital controls, now unfortunately blessed by the IMF, as a second-best resort. By the same token, it is equally vacuous to bewail volatility in commodity prices, disruptive though these undoubtedly are, without concrete, market-compatible proposals in this area.
Where the BRICS ought instead to have been directing the bulk of their attention is to the complex of issues needed to reactivate private sector investment around the world, by both large and small and medium enterprises. Here, sharing of best practice not just across the BRICS but between the BRICS and the rich countries would be valuable, either through the G20 or outside it. I spoke earlier of the BRICS seizing the initiative. The proposed BRICS development bank is an early example of such proactive behaviour. It would not have been my own first priority: trade liberalisation is far more important. There is far more to be gained by radical reform of the existing multilateral development banks, particularly for India the World Bank and the Asian Development Bank. In my view less effort has been expended on this, particularly by India, than in the case of reform of the Fund, which is of much greater interest to China at this point than it is to India.
Let me finally turn to the links, both actual and prospective, between the BRICS and the G20. As we have seen with the European crisis, and even with the nominations to the heads of the IMF and the World Bank, the habits of cooperation developed over 50 years in the G5 (later the G7) count for a great deal when the chips are down, even if on specific issues at the G20 a more variable geometry prevails. In my view this should be the model for the BRICS. It is harmful for the G20 to be Balkanised into blocs and caucuses with rigid positions. Yet it is equally asymmetric for the rich countries to have deep and rich mechanisms of consultation, among themselves and with the staff and management of the international organisations. The BRICS grouping provides a way to begin to correct this asymmetry.
The writer is Chief Economist at the Shell Group. These views are personal
