The continuing economic slowdown in EU, Japan and the US emphasises the role of BRICS (Brazil, Russia, India, China and South Africa) as a new global growth engine, an alternative export market, and a key sourcing hub. The economic might of BRICS can be gauged from the fact that it accounted for 42.3 per cent of global population, 18.2 per cent (25.7 per cent on PPP basis) of global GDP, 17.8 per cent of FDI and 16.3 per cent of global trade in 2010.

However, despite the existence of the huge trade (and investment) potential on account of similar consumer preferences, comparable per capita income, and often complementarities of resource endowment, the intra-regional trade among BRICS nations isn't even 10 per cent of their total trade.

INDIA'S TRADE

When it comes to India's trade (export and import taken together) with the BRICS, it has grown from roughly US$ 9 billion in 2000-01 to US$ 106 billion in 2010-11. As a result, its share in India's merchandise trade has almost doubled (from 9.4 per cent to 17.1 per cent) in this period. This is quite in contrast to the share of India's traditional trading partners — EU-27 and North America — which has declined from 36.5 per cent in 2000-01 to 22.6 per cent in 2010-11. When it comes to India's export, this decline (in the share of EU-27 and North America) is sharper i.e. 29.3 per cent in 2010-11 from 46.3 per cent in 2000-01. This underlines the growing importance of the BRICS region as a key export market vis-à-vis the developed markets.

However, growth in India-BRICS trade isn't homogeneous across all member countries. A deeper analysis of the trade data shows that (i) roughly three-fourth of India's trade with BRICS is accounted for by China & Hong Kong (ii) trade with Russia hasn't kept pace with the growth of either India's overall trade or trade with the BRICS region; India's export to Russia has increased by 78 per cent in contrast to Brazil (1657 per cent), China (762 per cent) or South Africa (1183 per cent) in 2001-11 (iii) In this period, India's exports to China & Hong Kong has increased by 8 times, while import from China & Hong Kong has shot up by 21 times (iv) India has a narrow export basket with respect to China, with iron ore and copper cathode accounting for more than half of its export in terms of value (v) Again, India has a narrow import basket with respect to Brazil, Russia and South Africa, where a few items account for more than half of its imports.

This situation has to change if India-BRICS bilateral trade has to reach US$ 500 billion by 2015 and India has to overcome the adverse impact of financial crisis in its traditional export markets. It would be interesting to know what factors are impeding India-BRICS trade, especially the trade between India and ‘non-China & Hong Kong BRICS' members.

FACTORS AFFECTING TRADE

The most important factor hampering India-BRICS trade is poor infrastructure and trade facilitation regimes which add to the cost of trade transactions. Cumbersome documentation and customs clearance (India & Russia), poor inland transportation and terminal handling (Brazil, Russia & South Africa) reduce net realisation from trade, and often drive out businesses operating on thinner margin from the export markets.

Relatively higher duties on items of trade interest e.g. textiles and clothing, transport vehicles and food products have hampered trade between India and Brazil. Here, the limited nature of India's PTA with the Latin American trade bloc Mercosur, covering a few hundred items with 10-20 per cent duty discounts hasn't been of much help. Logistical disadvantage arising out of dearth of direct shipping lines between India and Brazil also impedes trade between India and its Latin American BRICS counterpart Brazil.

Russia's unpredictable trade policy environment, being a non-WTO member country, and its poor trade facilitation regime have not helped India-Russia trade take off after the break-up of the Soviet Union. Experience shows that trade flows get boosted by flow of investment. Despite the BRICS region being one of the largest recipients of FDI, intra-regional FDI in BRICS region is low, and that is truly reflected in low intra-BRICS trade.

But the most important factors hampering intra-BRICS trade in general, and India-BRICS trade in particular, are prevalence of non-tariff barriers and relatively-low emphasis on trade in services, even though the service sector accounts for 60 per cent or more of GDP in all BRICS countries except China (43 per cent). Increasing cost of compliance with a barge of non-tariff trade barriers, especially TBT and Sanitary and Phyto-Sanitary (SPS) measures adversely affect the cost-competitiveness of traded products and hurt intra-regional trade flows.

Less focus on trade in services has kept the largest segment of the BRICS economies from benefiting from the economic expansion of the region, and exposes individual economies to fluctuations in Europe and North America. Trade in services is more advantageous in the sense that it isn't affected by customs duties, poor infrastructural facilities, and logistical disadvantage. Besides, given the abundant supply of educated workforce in India, it has natural cost advantage in services.

TRADE PROSPECT

What needs to be done? The goodwill generated during the recent BRICS summit in Delhi can be leveraged to address these issues when WTO Doha round talks are stalled, and continuing economic slowdown and growing protectionism have led to the shrinkage of traditional export markets of the EU and US. This calls for renewed emphasis on greater South-South cooperation. The principle measures needed are inclusion of trade in services under intra-BRICS PTAs and development of mutual recognition agreements (MRAs) to reduce the trade-distorting effect of NTBs and SPS regulations. Rationalisation of trade documentation and customs procedures will improve trade facilitation. Liberal FDI regimes to attract intra-regional FDI inflows would be a great boost-up.

Expansion of India-Mercosur PTA into a comprehensive economic pact covering trade in goods, services and investment, as well as India-South Africa Customs Union trade agreement, will help in increasing India's trade with Brazil and South Africa. Russia's entry into the WTO fold will open up the huge markets of Russian customs union for businesses. Extension of credit facilities in local currencies and multilateral letter of credit confirmation will further help intra-BRICS trade.

However, all these steps will not be sufficient to deal with the imbalances of India-China trade. This will require concerted efforts to widen India's export basket. China, on its part, will have to do away with many of its instruments of unfair trade, and make its trade regime WTO-compliant. This is easier said than done.

(The author is an expert in international trade for a top corporate house.)

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