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BRICS: The 2012 New Delhi Summit

BRICS on the global frontier: creating space for growth

By Yoginder K Alagh, chair, Institute of Rural Management Anand;
former minister of power, planning, science and technology, India

From "BRICS: The 2012 New Delhi Summit, edited by John Kirton and Marina Larionova with Yoginder K. Alagh,
Published by Newsdesk Media, 2012
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Countries follow their own enlightened interests. As India grew faster, it integrated with the world. China has a head start, and the other BRICS members are also pushing. in the late 1980s, Rajiv Gandhi had intended to develop the concept that India would grow fast in a globalising world, following a policy of concentric circles of influence. in keeping with this, the BRICS agenda is not only to increase cooperation with each other, but also to push for a world with space for them and others to flourish. This is as important as the objectives of conventional diplomacy.

For key emerging industries and sectors, China's current 12th Five-Year Plan has targets and details of policies on taxation, tariffs and domestic procurement, but also global perspectives. The sectoral perspectives are of a strategic nature. India also intends to pursue ideas from global economic debates. The approach paper on its own 12th Five-Year Plan suggests global aspects cannot be neglected. Given the global slowdown, Chinese and Indian growth at nine per cent is not to be dismissed – but can they do better?

Unfortunately, 'experts' and business people in BRICS are sometimes pushed by their own agendas. One lesson from the 2008 meltdown is that transparent, arm's-length relationships among corporate, financial and consultancy agencies often do not exist. The media tend to downplay the comments of serious, independent scholars and economists.

Reform cannot mean an activist state, as with early days of manufacturing expansion in east Asia. Policy has to be compatible with World Trade Organization (WTO) regulations. A nuanced approach is necessary in today's fast-changing world. Successful countries adjust their policy to these requirements. Technology policies, monetary and credit policies, foreign direct investment, trade and tariff policies, and policies for small and medium-sized enterprises and for strategic and security sectors are all possible at the core of the policy that a country can follow.

Open and informed debate

But more articulate, assertive policy debates are required. The BRICS countries know that it is not that their voices will not be heard, but that the global bazaar of ideas is full of noise generated by special interest groups, often thinly disguised but effective in using communication channels for their own purposes. A more open, effective and informed policy debate will help both BRICS and the world. Observers have watched this influence grow from the days of a decade ago. In Reforming from the Top: A Leaders' 20 Summit, edited by John English, Ramesh Thakur and Andrew F Cooper, in 2005 I called for India and China to be a part of the G8. I argued that they would work together for a more sustainable future. My view remains relevant. As Juha Jokela has written, "India as well as South Africa saw restructuring as needed, but both emphasised that restructuring of the G8 must enhance cooperation among developing countries and take into account their potential."

What can be learned? First, there must be domestic recognition of the points long made by BRICS, as well as by the G20 at its 2010 Seoul Summit: the space that emerging economies need to grow is possible only if the global economy proceeds on a reasonably stable trajectory. The four per cent rule for current-account deficits and the G20's Mutual Assessment Process are no longer luxuries. Brazil and South Africa are well placed to pursue this agenda. India is too, because of its macro performance and policy experience. Second, there is a need for transparency in financial assessments. BRICS central bankers have played a critical role in the G20, from the days of former Central Bank of India governor Y Venugopal Reddy. That role needs to be counted upon in the future.

Three objectives are worth noting. The first is to create stability for the medium-term reform process. Reforms to increase growth by establishing rules and institutions for creating communication, marketing and systems for stable financial incentives cannot proceed in volatile economies. The second is to improve the international and national architecture to deepen financial markets for inclusive growth. The third is to link the first two objectives with trade and foreign-exchange policies. India has not taken a mercantilist stance in its exchange policies. deepening reform has been a goal. These were my objectives as planning minister in the late 1990s: reform was to be protected from the fluctuations in global financial markets evident after the 1997-99 Asian meltdown. The central bank governor stated, at the 2002 G20 meeting of finance ministers and central bankers in delhi, that for the first time the international community through the G20 had endorsed voluntary principles for preventing and resolving sovereign crises, which I had suggested when the sovereign debt restructuring mechanism appeared to be failing. India chaired the process for enhancing transparency in global financial flows.

The BRICS countries display a refreshing youthful emphasis on technology. The new organisations and social institutions that support that technology are the flip side of the challenges of low growth, poverty and insufficient renewable resources. This is a break with the past in operationalising decentralising paradigms of growth. The BRICS countries, which are growing fast, reinforce the world view at home. The world did not believe this. At the beginning of this century, India was considered a basket case. whether in education or in the consequences of a demographic dividend, the future is not automatic. It is for the BRICS countries to build. Projection models derive demographic dividends from the 'inevitable' consequences of fertility and ageing patterns, labour force and savings. Global imbalances result. which results are robust and why? Some consequences may turn out correct, but for the wrong reasons. nothing is inevitable, even though issues of human resource development remain central.

China engages within the BRICS, but is sceptical. it simultaneously follows its national interests and champions the developing world. India is also sometimes considered sceptical, with the prime minister remarking that the structure does not provide for solving problems. Brazil has not yet unleashed its full force in opening up world markets. South Africa and its revolutionary concepts of egalitarian change do not get a hearing.

despite these limitations, BRICS proves that in global debates the language of the other must be understood. These countries are ideally placed to explain and advocate this language. The pursuit of national interests abroad must be part of a larger campaign of global change – at present, sadly lacking. Thus an alternative response to 'supping at the high table' is needed.

Framework to integrate development

Can the BRICS countries continue to grow fast, along with other Asian economies? Such rebalancing calls for a macro financial-trade policy framework to coordinate efforts to address development issues with more comprehensive policies. Financial trade policy literature generally works within an implicit comparative static framework. development issues tend to be underplayed in this context, even if they gain urgency in crises. indeed, the literature, with some recent exceptions, concentrates on exchange-rate developments and the consequent implications. Given the volatility of these trends, there is considerable zigzag in such debates.

The Food and Agriculture Organization and UNESCO publish an agro-climatic classification of the world's agricultural resources, based on soil, water and climate. The BRICS countries are rich in agro-climatic diversity. half a century ago, diversity was considered a curse. now, sustainability means building on what you have. Time-honoured practices on the hill slope, the flood plain, the desert and the river valley can be integrated with modern technology and management practices for sustainable agriculture.

This, in fact, becomes a powerful argument for trade. each region should look for what it can do best. Agriculture and rural development would then specialise. Food and fibre deficits and surpluses would be cleared with trade. Agricultural growth based on agro-climatic resource endowments is sustainable because it conserves water, energy and land. however, it cannot occur in an unstable macro environment unfriendly to agricultural trade. early warning systems must expose threats to the change process. whether it is agriculture, small industry or technology, rebalancing requires cooperation among countries based on mutual interest in broad-based development. There must be attention to detail rather than posturing. There are no short cuts in a global economy.

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