Scope for further increasing bilateral trade between India and new BRICS member countries: SBI’s Eco Research Dept

India could have significant trade opportunities in several commodities (57 per cent share in export basket) with a better Revealed Comparative Advantage (RCA) post expansion of the BRICS bloc, according to State Bank of India’s economic research department (ERD).

The main objectives of BRICS (Brazil, Russia, India, China and South Africa) is rooted in long-term common interest of members which includes — reforming global financial architecture, strengthening international law, inclusive growth, supporting complementarities in BRICS countries, regional trade and South-South Cooperation.

Post expansion, the BRICS bloc now includes six more countries (BRICS + 6) — Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and UAE.

Revealed Comparative Advantage (RCA) indicates that there is scope for further increasing the bilateral trade between India and the 6 new countries, ERD said in its report “Ecowrap”.

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“The bilateral total trade between India and the 6 new countries has increased in case of Egypt, Saudi Arabia and the UAE in the last 10 years. While India’s export increased to Argentina, Egypt and Saudi Arabia, its imports rose in case of Ethiopia, Saudi Arabia and the UAE,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.

The total trade between India and these six countries has increased 1.07 times the 2013 level to $151.528 billion. India imports more than 30 per cent of its crude requirements from the new countries, according to SBI report.

“India can increase its imports of animals from Argentina; wood, food products and plastic/rubber from Egypt and hides & skins from Ethiopia.

“Meanwhile, other countries can increase import of animals, hides and skins, metals, chemicals and consumer goods from India in which India shows revealed comparative advantage,” per the report.

Payments and settlements  

ERD underscored that multilateral currency order gets a huge force multiplier with the BRICS + 6 bloc.

“The three dominant currencies’ (US Dollar, Euro, and Pound Sterling) share has considerably come down in the last two years, led by fall of Euro.

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“Given the say of member nations in the bilateral trade, we estimate payments and settlements should gain huge traction among the member nations as de-dollarisation is a writing on the wall,” Ghosh said.

With RBI taking multiple measures to promote internationalisation of Rupee, the extended block augurs quite well for enhanced rupee payment and settlement amid jurisdictions of the block, he added.

New Development Bank

The ERD suggested that the New Development Bank (NDB), which is a multilateral development bank established by BRICS countries in 2014 to mobilise resources for infrastructure and sustainable development projects, can make local currency funding available to all member nations.

NDB needs to support projects that help reduce inequalities and that contribute to improving the living standards of the large communities of poor and excluded people that still exist in the countries of the Global South, per the report.

The report noted that RBI recently permitted 20 banks operating in the country to open 92 Special Rupee Vostro Accounts (SRVAs) of partner banks from 22 countries as part of efforts to promote bilateral trade in local currencies.

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“There are plethora of benefits of trade in rupee with the prominent ones are lowering of transaction costs, a greater degree of price transparency, quick settlement time, promoting international trade, reduction in hedging expenses, reduced cost of holding foreign reserve by the RBI and, most importantly, price discovery and internationalisation of the rupee,” the ERD said.

ERD’s analysis shows that trade in rupee would be more favourable with trade partners such as Russia, Saudi Arabia, Egypt and the UAE, where India is a large importer and potential exists for Indian exports as well.

Way forward

BRICS countries need greater connectivity and more inter-grouping trade to get ahead even as member countries must focus on resolving their trade issues, the report said. 

The ERD opined that strong partnership among BRICS nations on innovation and digital economy can spur growth, promote transparency and support the sustainable development goals.

There is a need for India and China to increase cooperation on issues like river water (Brahmaputra) data sharing, entry of Indian pharmaceutical companies in China, etc, it added.

“India must continue to work with other BRICS countries to reach an understanding with China on the issue of cross-border terrorism.  

“Climate governance is an area where BRICS members have a lot of potential to contribute,” the ERD suggested.

The Department underscored that the establishment of NDB is good for developing countries in need of financing.

It noted that the World Bank and the IMF, particularly the latter, tend to attach conditions to the funding they provide.

“The IMF does not ask for collateral when it lends money to troubled countries; instead it prescribes economic policies that the country must follow.”

“The question about whether the NDB will also want to have a say in a country’s policies in exchange for funding is still open and very topical, given that the clients of the bank will be poor countries, where the risk of being unable to repay the loan is inherent,” the report said.

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