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Damodaram Sanjivayya National Law University
Political Science Project BRICS Brazil,Russia,India,Cina,Sout !"rica #u$da %omar Sec & B '(1')*
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IInd Semester
!c+nowled$ement I would like to thank our Political Science teacher Dr.T.Y. Nirmala Devi for giving me such a wonderful opportunity to make a project on the !I"S.The whole topic of project making helped me in enhancing my knowledge on the topic.
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"ontents
Introduction############# $ rief %istory############# %istory############# $ &irst !I" Summit##########. Summit##########. $'( )ntry of South *frica########## ( Developments############# ( !I"S Summit############... Summit############... + asic Information Information on !I"S "ountries###. +', Salient &eatures of !I"S )conomies#### )conomies#### , Impact of &inancial "risis on !I"S####... ,-/ 0onetary 0easures Taken Taken to 0anage "risis## -1 est Practices##############. Practices##############. 1-$ "hallenges to !I"S as as a 2roup####### 2roup####### (-+ 0utual "ooperation############ "ooperation### ######### +-3 "onclusion###############.. 4 i5liography############### 6/
Introduction BRICS7
originally 8!I"8 5efore the inclusion of South *frica in 6//7 is the title of an
asso associ ciat atio ion n
of emer emergi ging ng
nati nation onal al
econ econom omie ies9 s9 Bra:il7 R ussia7 ussia7India7China
and South
*frica. ;ith the possi5le e
newly newly industri industrialis alised ed countri countries7 es7 5ut they are distingu distinguishe ished d 5y their their large7 large7 fast-gr fast-growi owing ng economies and significant influence on regional and glo5al affairs. *s of 6/17 the five !I" !I"S S countr countrie iess repres represent ent almost almost 1 5illi 5illion on peopl people7 e7 with with a com5 com5ine ined d nom nomina inall 2DP 2DP of =S>$.4 trillion7and an estimated =S>$ trillion in com5ined foreign reserves.Presently7 India holds the chair of the !I"S group.
In 6/67 %u ?intao7 the President of "hina7 descri5ed the !I"S countries as defenders and promoters of developing d eveloping countries and a force for f or world peace.%owever7 some analysts have highlighted potential divisions and weaknesses in the grouping7 such as India and "hina@s disagreements over territorial issues7the failure of the !I"S to esta5lish a ;orld ankanalogue analogue developm development ent agency agency77 slowing slowing growth growth rates7an rates7and d dispute disputess 5etween 5etween the mem5ers mem5ers over =N Security "ouncil reform.
rief %istory The foreign ministers of the initial four !I" states Ara:il7 !ussia7 India7 and "hinaB met in New York "ity in Septem5er 6//+7 5eginning a series of high-level meetings. * full-scale diplomatic meeting was held in Yekaterin5urg7!ussia7 on 0ay +7 6//3. 6//3.6
&irst !I" Summit The !I" grouping@s first formal summit commenced in Yekaterin5urg on ?une +7 6//47 with with Cui: Cui: Incio Incio Cula Cula da Silva7 Silva7 Dmitry Dmitry 0edvede 0edvedev7 v70anm 0anmohan ohan Singh7 Singh7 and %u ?intao7 ?intao7 the respective leaders of ra:il7 !ussia7 India and "hina7 all attending.The summit@s focus was on means of improving the glo5al economic situation and reforming financial institutions7 and 1 www.wikipedia.org ' www.wikipedia.org
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discussed how the four countries could 5etter co-operate in the future.There was further discussion of ways that developing countries7 such as the !I" mem5ers7 could 5ecome more involved in glo5al affairs.
In the aftermath of the Yekaterin5urg summit7 the !I" nations announced the need for a new new glo5 glo5al al rese reserv rvee
curr curren ency cy77 whic which h
woul would d
have have to 5e @div @diver ersi sifi fied ed77
sta5 sta5le le and and
predicta5le@.*lthough predicta5le@.*lthoug h the statement that was released did not directly criticise the perceived @dominance@ of the =S dollar ' something that !ussia had criticised in the past ' it did spark a fall in the value of the dollar against other major currencies. currencies.1
)ntry of South *frica In 6//7 South *frica 5egan efforts to join the !I" grouping7 grouping7 and the process for its formal admission 5egan in *ugust of that year.South *frica officially 5ecame a mem5er nation on Decem5er 6$7 6//7 after 5eing formally invited 5y the !I" countries to join the group.The group was renamed !I"S ' with the 8S8 standing for South *frica ' to reflect the group@s e
Developments The !I"S !I"S &orum7 &orum7 an independ independent ent interna internatio tional nal organis organisati ation on encoura encouraging ging commerci commercial7 al7 political and cultural cooperation 5etween the !I"S nations7 was formed in 6/.In ?une
* www.wikipedia.org www.wikipedia.org www.wikipedia.org
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6/67 the !I"S nations pledged >,( 5illion to 5oost the International 0onetary &und@s lending power. %owever7 this loan is conditional on I0& voting reforms.(
!I"S Summit The grouping has held annual summits since 6//47 with mem5er countries taking turns to host. Prior to South *frica@s admission7 two !I" summits were held7 in 6//4 and 6//. The first five-mem5er !I"S summit was held in 6/. The last summit took place in New Delhi7 India7 on 0arch 647 6/6.The !I"S summit is scheduled to take place in Dur5an7 South *frica7 in 0arch 6/1.+
asic Information on !I"S "ountries In the past few decades7 some large economies such as ra:il7 !ussia7 India7 "hina7 and South *frica A!I"SB have acFuired a vital role in the world economy as producers of goods and services7 receivers of capital7 and as potential consumer markets. The !I"S economies have 5een identified as some of the fastest growing countries and the engines of the glo5al recovery process7 which underscores the changed role of these economies. )ven in the 2-6/ countriesG forum7!I"S are playing a formida5le role in shaping macroeconomic policy after the recent financial crisis. *t present7 present7 these five countries encompass encompass over $/ per cent of the worldGs population and account for nearly 6( per cent of total glo5al 2DP in terms of PPP. If one compares the 2DP in PPP terms7 four economies figure among the top ten7 with "hina7 India7 !ussia7 ra:il7 and South *frica in 6nd7 $th7 +th7 3th7 and 6+th places7 respectively.In term termss of contr contri5u i5uti tion on to growt growth h of PPPPPP-ad adjus juste ted d glo5al glo5al 2DP 2DP of the world7 world7 these these five five economies economies accounted for (( per cent during6///'37 and their contri5ution is e
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The !I"S comprise a huge land share of the world ATa5le .6B and7 as a result7 own vast natural resources. "hina7 which has a land area of a5out 4.+ million sF. km7 is the thirdlargest country in land si:e7 after only !ussia and "anada. !ussia accounts for around 6/ per cent of the worldGs oil and gas g as reserves7 reserves 7 while "hina has a5out a5ou t 6 per p er cent of the worldGs mineral resources. In terms of agricultural land7 !ussia has 6.( million hectares of ara5le land. ra:il covers $, per cent of South *merica and is the fi fth-largest country in the world A3.( million sF kmB7 surpassed only 5y !ussia7 "anada7 "hina7 and the =nited States of *merica.
)ach of the !I"S countries has multiple and different attri5utes and thus each has a huge potential to develop. ra:il is e
1(, 5illion. It is a medium-si:ed country with a total land area of slightly more than .6 million sF. km and around 6 per cent ara5le land area. It is the worldGs largest producer of platinum and chromium and holds the worldGs largest known reserve of manganese7 platinum group metals7 chromium7 vanadium7 and alumino-silicates. South *frica generates $( per cent of *fricaGs electricity and the South *frican power supplier provides the $th cheapest electricity in the world.,
Salient &eatures of !I"S )conomies The salient features of the !I"S economies are their large geographical dimensions and si:e of population. It is widely perceived that all the !I"S markets have great potential for esta5lishing the most sta5ilising of forces7 that is7 a prosperous middle class. This middle0 The !I"S !eport ' * Study of ra:il7!ussia7India7"hina and South *frica with special focus on synergies and complementarities - 0inistry of &inance72overnment of India India ' H
income group in each country is growing at varying rates 5ut the future direction is clear7 that is7 the middle class will 5oth 5roaden and deepen7 providing a solid 5ase for the growth and development of the economies.3
Impact of &inancial "risis on !I"S The recent glo5al financial crisis that engulfed almost all economies marked a painful adjustment adjustment at the macro level coupled with micro level distortions and incentives created 5y past policy actions. This included e
The intensification of the financial crisis in Septem5er 6//3 caused an a5rupt increase in uncertainty and led to a downward reassessment of wealth and income prospects. These developments7 in turn7 prompted households to postpone spending on most dura5les7 even though falling commodity prices helped 5oost real disposa5le income.This drop in demand and dearth of credit set off an unprecedented collapse of real economic activity7 sending a feed5ack loop to the stressed financial sector. *s a result7 average growth in 6//3 slowed 5y almost similar magnitudes in advanced and emerging economies7 with some diff erentiation 5ecause of country-specific circumstances.
The crisis spread to the !I"S through all four channelsJtrade7 finance7 commodity7 and confi confiden dence ce chann channels els.T .The he slum slump p in e
The !I"S !eport ' * Study of ra:il7!ussia7India7"hina and South *frica with special focus on synergies and complementarities - 0inistry of &inance72overnment of India India ' H
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During the initial phase of the crisis7 the financial shock was transmitted to the real economy7 primarily through the eFuity price channel and7 in a more differentiated fashion7 through the credit channel. The shock to international confidence had an immediate and sharp eff ect on capital flows to emerging markets7 as investors reassessed risks and glo5al capital fl ows collapsed. collapsed. In addition to poor confidence and wealth effects7 the fall in eFuity prices led to a rise in the cost of capital and dampened investment confi dence. In terms of real linkages7 the collapse in demand from advanced economies was transmitted through the integrated supply chain to developing economies7 with dramatic eff ects on trade in these countries.
*mong the !I"S7 the glo5al fi nancial crisis erupted after the collapse of the =S-5ased investment 5ank Cehman rothers in Septem5er 6//3. Th e 5anking sectors of the !I"S economies performed relatively well. In ra:il7 the local currency and stock market saw huge fluctuations as foreign investment dwindled7 demand for commodity e +/.+ 5illion in 6//,7 a5out .3 per cent of 2DP and .3 per cent of world e 63 5illion in its flow7 a reduction of 6$.1 per cent relative to 6//3 when =S> 1, 5illion was traded. This drop was the direct result of the glo5al financial crisis7 which led to a reduction in the international prices of mineral and agricultural commodities and in the overall e
In the midst of the crisis7 the financial markets in !ussia fro:e due to a rise in risk aversion and significant correction of eFuity markets since 6//,. Sovereign credit default swap A"DSB spreads also jumped 5y several hundred 5asis points. The sudden change in e
In the initial initial phase of the crisis7 crisis7 the Indian Indian economy economy remaine remainedrel drelati atively vely insulated7 insulated7 5ut witnessed a slowdown in 2DP annuali:ed growth from around ,.( per cent in the fi rst half to
1(
+./ per cent in the second half of 6//37 amplifi ed 5y a sharp contraction in the performance of the manufacturing manufacturing sector. The significant e
The impact of the financial crisis on "hina took the form of a sharp drop in e
In South *frica7 portfolio inflows7 which had accounted for the 5ulk of the fi nancing of South *fricaGs large current account deficits in the years leading up to the crisis7 Fuickly
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turned to large net outflows7 although overall net private fl ows remained positive as South *frican 5anks ran down foreign assets. oth e
0onetary 0easures Taken Taken to 0anage "risis ra:il ra:il has featured high levels of reserve reFuirements7 allowing the central 5ank to lower reserve reFuirements reFuirements for macro-prudential macro-prudential purposes following the Cehman rothers episode. In particular7 to confront liFuidity pro5lems in the inter-5ank market7 the central 5ank reduced reserve reFuirements to support lending from large liFuid 5anks to small illiFuid 5anks. y introducing introducing this liFuidity provision provision mechanism during the crisis7 the central 5ank was a5le to avoid financial sta5ility pro5lems in the system.
!ussia The authoritiesG efforts to sta5ili:e the 5anking system during the fourth Fuarter of 6//3 aimed to provide significant liFuidity while keeping the e
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nancing transactions and e
India The policy repo rate under the liFuidity adjustment facility AC*&B was reduced 5y $// 5asis points7 from 4 per p er cent to ( per cent. The policy polic y reverse repo rate under the C*& was reduced 5y 6(/ 5asis points7 from + per cent to 1.( per cent. The cash reserve ratio A"!!B was reduced 5y $// 5asis points from 4 per cent of net demand and time lia5ilities ANDTCB of 5anks to ( per cent. The statutory liFuidity ratio ASC!B was reduced from 6( per cent of NDTC to 6$ percent. The e
"hina "hina made efforts to guide financial institutions to make remarka5le remarka5le credit planning. Since Septem5er 6//37 the P" has lowered the 5enchmark deposit and lending rates five times7 from $.$ per cent to 6.6( per cent and from ,.$, per cent to (.1 per cent7 respectively. To amplify liFuidity in the 5anking system7 the P" cut the !0 reserve reFuirement ratio of fi nancial institutions four times in the latter half of the year 6//3. Specifically7 the reserve reFuirement reFuirement ratio of large financial financial institutions was cut 5y 6 percentage points cumulatively cumulatively77 whereas that of small financial institutions was cut 5y $ percentage points cumulatively. Th e
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-year central 5ank liFuidity lending rate was cut from $.+3 per cent to1.11 per cent. Th e rediscount rate was cut from $.16 per cent to .3 per cent. *t the same time7 the P" eliminated Fuantitative ceilings for financial institutionsG credit lending and promoted greater support for S0) lending to increase their credit supply and optimi:e the credit structure.
South *frica South *frica *frica In response to the fi nancial crisis during Decem5er 6//37 the 0onetary Policy "ommittee "ommittee of S*! reduced its policy rate 5y (/ 5asis points. &urther cuts worth +// 5asis points reduced the repo rate to an all-time low of (.( per cent 5y Novem5er 6//. Interest rate reductions were facilitated 5y an improved inflation outlook against the 5ackdrop of slowing economic growth Aincreasing output gapB and declining commodity prices./
est Practices est practices refers to the practices which that have made significant differences to these economies and contri5uted to their high growth rates.
0ajor showcase areas for ra:il include agricultural research7 which has transformed the country into a major e
!ussiaGs major achievements include reforms during 444'6//4 that promoted economic growth7 lowered lowered inflation7 and led to a dramatic fall in the num5er of people living 5elow the poverty line. Specific achievements include setting up of the th e Hil Sta5ilisation Sta5ilis ation &und that was successful during the crisis7 5udgetary reforms through the devolution of decision-making 1( The !I"S !eport ' * Study of ra:il7!ussia7India7"hina and South *frica with special focus on synergies and complementarities - 0inistry of &inance72overnment of India India ' H
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powers7 and the introduction of a fl at personal income ta< rate of 1 per cent that ensured improvement in compliance.
Thee main Th main show showcas casee insti institut tutio ion n for for India India is privat privatee entre entrepre preneu neursh rship ip which which has 5een 5een instrumental instrumental in achieving 3'4 per cent annual growth of the economy in recent years. Private initiative has 5een responsi5le for the e
The 5est practices and institutions of "hina are those that have helped ensure progress in terms of economic growth7 enhancing its national strength and improving the living standards of its people as well as the success in making the historic transition transition from a highly centrali:ed centrali:ed planned economy to a ro5ust socialist market economy and from a closed and semi-closed country to a country that is open to the outside world. Specific areas are &DI attraction and utili:ation7 utili:ation7 and infrastructure infrastructure financing7 among others.Th e "hinese glo5ali:ation glo5ali:ation model has also 5een diff erent7 in that foreign direct investment was encouraged. The su5-national governm governments ents AcitiesM AcitiesMprov provinc incesB esB have 5een 5een successf successful ul in attract attracting ing foreign foreign investme investment nt 5y providing improved infrastructure and a favoura5le regulatory environment. "hina also has e
South *frica has a long record of responsi5le macroeconomic management7 which has helped to promo promote te the devel developm opment ent of a deep deep and liFui liFuid d 5on 5ond d marke markett and and reduc reduced ed e
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development and reali:ation of the continentGs potential as a growth pole in the glo5al economy. Hutwardly oriented South *frican companies are among the largest sources of &DI in *frica and the countryGs countryGs development financing institutions institutions are playing an increasing increasing role in the funding of regional infrastructure investment.
"hallenges to !I"S as a 2roup In the years to come7 it is e
In recent years7 the !I"S have 5een taking advantage of their a5undant population and resources and7 on the whole7 achieving steady economic growth. %owever7 the trends in 2DP indicate that the individual countries have different paces and levels of economic growth. "hina has 5een maintaining its long-term high economic growth trajectory7 while India and !ussia have 5een moving towards sustained high growth. In contrast7 ra:il and South *frica have shown sustaina5le 5ut lower economic growth rates since the early 6///s7 5ut have 5een making rapid strides along the path from crisis to sta5ility and growth. &or South *frica7 *frica7 the major challenges are the development of the socio-economic infrastructure and furthering the reforms process.
Despite the resilience to the recent glo5al crisis7 there is a source of potential downward pressure on growth in the !I"S 5ecause of o f weak growth and the spill over effects of policy polic y responses in advanced economies. ;hile the infrastructure reFuirements of the !I"S economies are huge7 pu5lic'private participation can ca n help rela< this constraint7 provided that the institutional mechanism is sound so und 11 The !I"S !eport ' * Study of ra:il7!ussia7India7"hina and South *frica with special focus on synergies and complementarities - 0inistry of &inance72overnment of India India ' H
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enough for their optimal com5ination. In this conte
* comm common on chal challe leng ngee that that the the !I" !I"S S econ econom omie iess face face is the the need need for for inst instit itut utio iona nall development development without which sustaina5le growth cannot 5e ensured. Institutional development is still a long way off in most of these countries. *t present7 international investors may 5e 5ullish a5out the future potential of the !I"S economies as reflected in *T KearneyGs &DI "onfidence Inde< and 2lo5al !etail Development Inde<7 the remaining challenges should not 5e overlooked. Similarly7 the credi5ility of the policy of reforms is crucial for the !I"S !I"S economi economies es to make make their their growth growth processe processess more more dura5le dura5le and developm developmententoriented.6
0utual "ooperation *ll the !I" countries cooperate closely in several areas7 which have7 or in the future will have a glo5al character and influence7 and thus they will strengthen their position in the world. It is7 for e
In the recent past the threat came from the =S*7 since in 6//4 the &ederal !eserve System authori:ed an increase in money supply of +// 5ill. =SD. These however7 were not secured 5y assets7 so there was a rapid influ< of dollars into developing countries Athrough investmentsB and the domestic currencies 5ecame more e
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countries.Nowadays7 even the !I" countries operate glo5ally7 strengthening their position in the world even more. *n e
The 0)!"H 0)!"HS=! S=! countrie countriess Ara:il Ara:il77 *rgen *rgentina tina77 =ruguay =ruguay77 Paragua Paraguay y and ene:uelaB ne:uelaB are gradually cleansing their markets of the dollar in favor of national currencies. The rou5le7 actually7 has already o5tained the status of the regional e
Information sharing a5out possi5le speculative attacks on the hard-currency7 fund and rawmaterials markets is another important tool for the !I". %owever7 the !I" countries do not want to7 and even cannot7 e
Nowadays7 the !I" countries are creating crea ting a common information data5ase d ata5ase to analy:e the condition of their food security7 since the issue of production7 consumption7 and supplies of food has 5ecome glo5al. They are also negotiating a5out e
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The !I" cooperate actively with the =N ' they 5ecame co-authors of the =N 2eneral *ssem5ly resolutions on the prevention of any types of weapons deployment in outer space. *t the last !I" summit A*pril 6/B on the island of %ainan the mem5ers passed a joint declaration on mutual dialogue and cooperation in the area of politics7 5usiness and economic relations and mutual cooperation in the sphere of science7 healthcare and ecology. The !I" face the same tasks connected with economic development7 technological moderni:ation and the social system development. These priorities open further space for cooperation where5y these countries can reach their o5jectives faster. *nother e
"onclusion The economic potential of the !I" countries remains a5ove-average and their market situation in the mid-term and o5viously7 in the long-term is e
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5ut as for their standard of living these countries still lag 5ehind the developed economies. Smaller areas of prosperity sharply contrast with areas of poverty. It will pro5a5ly take decades 5efore these countries solve their most critical and pressing social and economic pro5lems7 such as poverty7 pove rty7 criminality or unemployment. unemplo yment.
* decade of rapid growth A6///-6//B is not sufficient for the !I" countries to pick up the 5aton from the present presen t glo5al economic leaders ' the =S* and the ;estern ;estern )urope. The !I" countries may surprise the world with their development within ten years provided there will 5e a Fuality improvement and further economic growth. 0oreover7 there are other countries in the world with fast growing economies. They are referred to as the 0IKT countries - 0e
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i5liography . The !I"S !I"S !eport !eport ' * Study Study of ra:il7!u ra:il7!ussia ssia7Ind 7India7 ia7"hin "hinaa and South South *frica *frica with special focus on synergies and complementariti complementarities es - 0inistry of &inance72overnment &inance72overnment of India ' H
