Why BRICS may not stack up

That the ideal of a non-discriminatory economic multilateral world order under the aegis of WTO is fast becoming a mirage is as much evident from the successive failure of the interminable Doha rounds as from the regional blocks gaining from strength to strength and the emerging market economies viz. Brazil, Russia, India, China and South Africa (BRICS) increasingly seeking to assert themselves.

It is an elementary principle of masonry that bricks not only have to be tightly laid but also be cemented seamlessly to last. But BRICS nations, except India and China, are strewn across continents, with the disintegration of the USSR widening the chasm between India and Russia more than ever before.

Another glue that binds a trade block is the advantage flowing out of oligopoly. OPEC, the oil cartel, though substantially also bound by geography is more about squeezing the optimum out of a natural resource for which is no substitute is visible on the horizon.

BRICS nations, on the contrary, have neither a contiguous geography nor a common scarce resource to hold them together and tame the world. The tag ‘emerging economies' may be edifying to their egos, but cannot be the glue that can keep the disparate nations together through thick and thin. China is a manufacturing power house whose mantra is export-led growth.

Brazil is blessed with cornucopia of natural resources and so is South Africa to some extent, though it is fast becoming a spent force as far as gold is concerned. India prides itself as a service economy, with information technology being its forte. Of course its ability to manufacture generic medicines economically is something that cannot be scoffed at.

The point is each one of them has a separate and conflicting agenda to pursue apart from being separated physically as well to be able to influence and shape the economic discourse of the world.

Dollar monopoly

Goldman Sachs never promoted the idea of BRIC as an adversarial and alternative regime to the dollar. It coined the expression more as a colourful way of describing the four emerging economies of the world so that the Western world could woo and charm them. South Africa got added to this club later.

China has always been chafing at having to kowtow to the dollar with which it enjoys a mixed and uneasy relationship. It has piled up close to $3 trillion, bulk of which is parked in the US financial markets. China's interest in egging on the four other members of the BRICS club to strive for use of local currencies for inter se credit as a prelude to a full-fledged trade settlement mechanism is self-serving to put it mildly because the move is most likely to benefit China with which almost every other country runs a balance of payment deficit.

Rupee-rouble trade

The post Stalinist era saw Indo-Soviet trade flourish, with the Soviet Union being India's largest trading partner. What the Soviet Union did was to cleverly inveigle the Indian government into importing its defence hardware — sub-standard in retrospect — by agreeing to take payments in Indian rupees, and that too at an exchange rate skewed in India's favour.

The break-up of the Soviet Union as well as the burgeoning rupee debt to Russia made the Indian government press the panic button. The debt was repaid mainly through exports.

The problem is something similar is likely to happen with China if we plump for rupee-Yuan trade in addition to reviving the rupee-rouble trade. India would have to export to China on much larger scale if only to pay for the borrowing obligations.

Nothing wrong in that of course except that there is no fair and transparent market for discovering the rupee-Yuan exchange rate just like there is no transparent market for discovering the rupee-rouble exchange rate. None of the three currencies are floating currencies.

No alternative yet

There is no wishing away the dollar in the immediate run. It may belong to an effete and rundown economy which has run up a huge trade deficit as well as budgetary deficit, yet a workable alternative has not emerged on the horizon. Euro, a cohesive economic union on paper, has not been able to challenge the dollar hegemony in a meaningful measure. It stands to reason then whether an admittedly non-cohesive unit such a BRICS can possibly do so.

(The author is a Delhi-based chartered accountant.)

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