BRICS bond together

Adversity sometimes can provide an opportunity to solve long-standing disputes between nations. India and China may be the world's two fastest-growing countries but their accumulated grievances have queered the pitch for an amicable economic relationship. Happily for both, macro-economic troubles that are beginning to ail both countries may just inspire a more lasting bond that would augur well for the world economy at large.

At the on-going BRICS meet in China, Dr Manmohan Singh and his Chinese counterpart, President Hu Jintao, expressed a keen interest in strategic and economic ties. At first glance, this might appear the usual hot air that blows between two leaders thrown together at a summit; but this time around, the meeting was different; India expressed a desire to correct its trade imbalance and China seemed agreeable. Both need each other, if only to form a common front against the rising protectionism evident in the Western world despite all the rhetoric denouncing it. China needs friends to fend off the pressure to revalue its yuan and India needs Chinese markets to bridge the trade deficit. Given the Chinese strength in manufacturing, the only way that India can equalise its trade is through its IT and pharmaceutical industries — in other words, its knowledge-based industries. But for the BRICS members a more muscular front against trade protectionism is critical as the Doha Round edges uneasily towards collapse after ten years of protracted and futile negotiations; that possibility makes protectionism's ugly face all the more visible at a time when emerging markets need multilateral trading to maintain their stride. At the same time, America's quantitative easing has unintentionally led to currency tensions with emerging markets. More than inflation or lack of fiscal consolidation in the BRICS countries that IMF has recently warned against, it is the contagion-type debt crisis of the peripheral EU countries and the lack of consensus among members on the best way to deal with it that threaten to rock attempts to normalise the world's financial system.

Among all the regional groupings, the BRICS can be the most potent in finding the equilibrium in trade and currency markets because of its current and growing economic clout. The fact that its members are located across the globe, barring North America, lends it a unique geo-strategic potency. While India and China cosy up, the BRICS group at large must find ways to use its hidden advantages to foster a better world economy.

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