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- Herausgeber: BookRix
- Kategorie: Fachliteratur
- Sprache: Englisch
A book on 'International Economics' that discuss important concepts such as Growth and Composition of Trade, Gains from Trade, Instability, Competitiveness and Comparative Advantage, Potentialities of trade and many more, in the form of case study of BRICS Economies. All you want to know about BRICS (Brazil, Russia, India, China and South Africa) is covered in this single resource. 'Competitiveness and Complementarities in BRICS Trade' is a well researched book on Trade among BRICS nations. Recognizing the fact that this bloc is not a natural fit, how BRICS nations have managed and will manage their trade relations, is one of the main discussion area in this book. This unique resource, available in paperback and eBook format, covers almost everything about BRICS Trade like Growth and Composition of their imports and exports, Gains from Trade, Instability, Competitiveness and Comparative Advantage of their Exports, potentialities of trade and much more to discover as you read it. Go ahead and Grab One! Worth Reading and worth spending!
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Veröffentlichungsjahr: 2020
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Competitiveness and Complementarities in BRICS Trade
BookRix GmbH & Co. KG80331 MunichPreface
I am grateful to Almighty for showering his Blessings and giving me opportunity, strength and patience to do this work.
This study on competitiveness and complementarities in BRICS trade has been done to analyse the present status and prospects of trade in BRICS bloc. It was carried out to analyse the effect of trade factors like growth, composition, gains, instability, comparative advantage, competitiveness and potentiality of BRICs nations.
BRICS member nations - Brazil, Russia, India, China and South Africa - occupy a very dominant place in the global economy in terms of growth and international trade. But these nations have very diverse economic and political structures and are at different levels of economic growth, which makes it imperative to analyse performance of these economies since origination of the bloc in the light of various projections made byeconomists around the world.
Also considering various new schemes implemented by the Indian government like Make in Indiaand Goods and Services Tax (GST), the opportunities and potentialities that exist within the bloc from Indian perspective can act as a catalyst to boost India’s trade ties with the other BRICS nations and can also provide strength to the bloc. The growing importance of BRICS and various highlighted facts, makes it important to study trade relations among Brazil, Russia, India and China at BRICs level which has been the subject matter of this study.
I would also like to take this opportunity to thank all those who have helped me in this work. The words at my command are inadequate in form and spirit to express mygratitude to scholarly academicians Dr. Parneet Kaur of School of Management Studies, Punjabi University, Patiala and Dr. Kawaljeet Kaur Gill of Department of Distance Education, Punjabi University, Patiala who have always been an immense source of inspiration and encouragement. Special thanks are also due to my family for their consistent help and motivation. They not only encouraged and inspired me but
have always been there as my strength.
Kiranjot Kaur
Contents
CONTENTS
Page No.
1.
Introduction
1-11
2.
BRICS and The World
12-24
3.
BRIC Nations: Dimensions of Economic Reforms
25-49
4.
Growth and Composition of Trade in BRICS
50-115
5.
Gains from Trade to India and Other BRIC Nations
116-137
6.
Instability, Competitiveness and Comparative Advantage of India’s Exports
138-187
7.
Potentialities of Trade
188-227
8.
Summary, Conclusion and Policy Recommendations
228-237
—
Bibliography
238-242
Chapter 1: Introduction
1.1 Background
Economic cooperation between nations for mutual benefits help to strengthen peace and understanding between them as the governments in the region cooperate on market liberalization, trade and investment facilitation as well as other functional programs. They work together to reduce barriers to trade and investments, ease the exchange of goods, services, resources and technical know-how. Thus, it can be said that two main essence of economic cooperation are: International Trade and Foreign Investment. International trade helps a nation with the access over multiple goods and services produced in the world and thus directly benefit citizens of a nation. Foreign investment, on the other hand, helps in the development of a nation as the finance gathered can be used in infrastructural and other developmental projects. One can observe that economic cooperation among nations has significantly increased since 1945 or post World War II period which has increased world output and thus world growth.
1.2 Growth of World Trade
Post war economic growth has been trade-led growth. Over the years, world trade has grown at a very high rate directly affecting the structure and composition of trade including geographical as well as commodity composition of world trade. Over the period between 1950 and 1990, world trade in volume has grown by 5.8 per cent per annum, representing the fastest recorded growth of world trade in history (Kitson, 1995). The leading role in expansion of world trade has been played by manufactures as their trade has grown faster than world merchandise trade as a whole (Grimwade, 2003). The increasing growth of manufactures clearly reflects a process of increasing specialization among nations. Various factors which can be seen as reasons of such a growth of world trade since World War II are:
A major factor was the gradual reduction in level of trade barriers at global as well as regional In achieving this, major role has been played by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). It introduced a set of rules and regulations to govern world trade that gave stability and certainty of access to world markets and created a framework through which countries could negotiate freer trade.A higher level of trade liberalization was achieved at regional level through the formation of regional free trade areas and customs Such an initiative resulted into elimination of tariffs on trade or free trade of goods and services between the member states. In Western Europe, creation of the European Communities (EC) in 1958 and the European Free Trade Area (EFTA) in 1960; In North America, formation of North America Free Trade Area (NAFTA) in 1994; In South America, creation of MERCOSUR and In South East Asia, creation of Asian Free Trade Area (AFTA) are some of the examples of such regional agreements.The period since Second World War has seen a gradual relaxation of exchange controls and restrictions on capital flows. Immediately post war, strict control on purchase of foreign currency and capital inflows was exercised by certain nations which was gradually withdrawn leading to capital liberalization. Capital liberalization ease the movement of short-term and long-term capital between nations, rise of multinational and transnational organizations (MNC or TNC) which further resulted into growth of globalized production and increase in intermediate goodsTrade has also been stimulated by technological change, particularly in Transportation and Information Faster and cheaper air travel and improvements in different forms of inland transport have increased the international mobility of people as well as of goods and Information Revolution has made international communication easy.The major consequence of faster growth has been that the economies have become more open which has further led to increased interdependence. It means that external shocks are more quickly transmitted from one country to another, thus, making it difficult for countries to ignore events that occur in other parts of the world. This demands that governments should cooperate more closely to ensure consistency of policy.
1.3 Effects of International Trade
International trade plays a paramount role in the economic development of a country. It can lead to full utilization of underemployed domestic resources i.e., through trade, a developing nation can move from an inefficient production point with unutilized resources to a point where the production can be made efficient by utilizing all the resources properly. It enhances economic development in yet another way. One of the important factors that hinder economic growth of underdeveloped countries is the small size of their domestic markets which leads to low inducement to invest, low per capita income, low saving and low investment. Thus, these countries are caught in a vicious circle of poverty. Foreign trade can help break the circle by widening the market, stimulating the inducement to invest and thereby raising the volume of saving and investment through more rational and efficient allocation of resources. Not only this, the expansion of market results in various types of internal and external economies, which lower the cost of production and widen the market still further. This makes the process of economic development cumulative in character.
The volume of foreign trade depends, among the other things, on the volume of foreign capital. The larger the volume of foreign trade, the greater is the repaying capacity of foreign capital and hence greater the inflow of foreign capital. Foreign capital not only increases the level of income output and employment but also helps to tide over the balance of payment difficulties and inflationary pressures. It also brings with it entrepreneurship, managerial talents, technical know- how, skills and ideas which play a vital role in economic development.
Trade can also be used as an anti-monopoly weapon because it stimulates greater efficiency among domestic producers to meet foreign competition. This is particularly important to keep low the cost and price of intermediate and semi-finished products used as inputs in the domestic production of other commodities. Foreign trade strengthens the relationship with other trading countries and provides an opportunity to enter into custom unions which bring forth trade creating and trade diverting benefits. The formation of custom union increases welfare of its members as well as the rest of the world as positive trade creation effects more than it off sets the negative trade diversion effect. The analysis also reveals that larger the size and greater the number of nations in the union, greater the gains will be because there is a greater possibility that the worlds low cost producers will be the members of custom union.
Apart from afore mentioned benefits accruing to the individual countries, the world also benefits from international trade. The world production of every commodity is maximized through international allocation of resources. There is greater international equality in real incomes, factor prices, consumption levels and consequently in welfare level across countries of the world. Over and above foreign trade plays a multilateral role in economic growth and thus there is an urgent need for the country to boost the trade and integrate the same with rest of the world. Moreover, trade openness promotes economic growth and raising economic growth in a sustained manner, also reduces poverty in the economy. Thus, International trade on one hand, provide nations with an access over multiple goods and services manufactured in the world and on the other hand, it stimulates economies between the nations engaged in trade and ultimately enhancing peace and prosperity in the world.
1.4 About BRICs
The contemporary world order is witnessing an increase in the number of economic congregations and inter-governmental organizations. Countries are forming trade blocs where regional barriers to trade (tariffs and non-tariff barriers) are reduced or eliminated among the participating states. In general terms, regional trade blocs are associations of nations at a governmental level to promote trade within the bloc and defend its members against global competition. Since trade is not an isolated activity, member states within regional blocs also cooperate in economic, political, security, climatic and other issues affecting the region.
In terms of size and trade value, there are a larger number of blocs of regional importance as ASEAN, EU, NAFTA, G7, SAARC, BRICS etc. Most of these blocs either belong to the same geographical region or are similar in some aspect. But among these blocs, BRICS bloc is not a natural fit because this bloc came into being based on certain predictions made by renowned economist Jim O’Neill.
The BRIC thesis developed by Jim O’Neill (Neill J. O., 2001), revealed that Brazil, Russia, India and China are the most influential emerging markets in the world and thus he coined the collective term BRICs for these four economies. They have successfully changed their political systems to embrace global capitalism. Based on growth being experienced by these economies, it was predicted that by the 2050, combined economies of the BRICs could become among the four most dominant economies of the world. Also, they together combine 40 per cent of global population and 25 per cent of the land mass (Orsi, 2010). They are thought as the engines of today’s world economy and some businesspeople think that this prediction of BRICs becoming the major economic force has been moved closer to 2025.
BRICs are the fastest growing and largest emerging countries of the world and they are the future. First China and then a decade later India will begin to dominate world economy (Orsi, 2010). Also, the BRICs nations have contributed to the globalizing markets as their GDP has increased from 16 per cent to 25 per cent in the last decade and their combined trade is also increasing at a fast pace. So, it is evident that world has now started moving from west to south. And, it was widely supported by reforms in BRICs nations as their potential has only been realized after reforms have been stabilized i.e. after 2000 according to Jim O’Neill.
The share of BRIC nations in the world trade has significantly increased over years. It is worth noting that China and India are expected to become the dominant suppliers of manufactured goods and services. Brazil is dominant in the supply of soy and iron ore, whereas Russia has enormous supplies of oil and natural gas. So, Brazil and Russia are expected to become dominant as suppliers of raw materials. In 2011, the original BRIC bloc extended to BRICS with inclusion of South Africa.
1.5 Historical Setting of BRIC Economies
1.5.1 Brazilian Economy
Brazil is South America’s most influential country covering 47% of land mass. Despite being one of the world’s biggest democracies, one of the rising economic powers and extremely rich in resources such as coffee, soybeans, sugarcane, iron ore and crude oil, the Brazil territory has history full of difficulties. After obtaining independence in 1822, Brazil experienced industrialization in the twentieth century. Brazil’s early years after independence were extremely difficult because in these years Brazil’s export declined, as a result its domestic economy depressed, and it has to depend mostly on self-consumption activities. But during the second half of the century, Brazil grew with the production of coffee which became one of its major components in exports.
During the first three decades of twentieth century, Brazilian economy went through periods of growth and difficulties caused by World War-I, the great depression and an increasing trend towards coffee overproduction. World War-II also adversely affected its industrial sector. The post-war period to 1962 can be seen as a phase of import substitution (implemented as a strategy to reduce reliance on coffee as main exports) in the history of Brazilian Economy. Rapid industrial expansion and modernization were the features of period from 1968 through 1973. The 1974 to 1985 phase was highlighted by import substitution of basic inputs and capital goods and by the expansion of manufactured goods export, which helped Brazil in transforming from an agriculture economy to the manufacturing one. The end of 1980s can be marked as a time of high inflation and a stagnant economy after which the Brazilian economy declined. Unfortunately, high inflation led to initially economic stagnation and later economic contraction which led to a huge external debt, very high inflation, a total of 40 per cent of their population above the poverty line, low commodity prices and high interest rates. A ripe scenario, thus, existed for initiating reforms process to get international aid from IMF and World Bank.
In 1994, the stabilization and reform process “Plano Real” was introduced. This plan brought stability and enabled Brazil to sustain economic growth (Sariava A. O., 2010). The three pillars of the Brazilian economic program were (i) a floating exchange rate; (ii) an inflation-targeting regime and (iii) tight fiscal policy. These necessitated a series of economic reform programs (Kumar N, 2006). Consequently, inflation rate declined from 66 per cent (in 1995) to 7 per cent (in 2000) and hovers around 5-6 per cent over the years (Table 1.1, row K). To increase trade and improve current account balance situation, after 2000, the Brazilian currency was depreciated sharply. During 2008-10 world financial crisis also, the Brazilian economy outperformed with GDP of 8 per cent and per capita GDP of 7 per cent in 2009-10 (Table 1.1, A and B rows). Even after such successful reforms, Brazil attracted only 3 per cent of GDP equivalent global FDI (Table 1.1, row D). A falling tendency in the value of GINI (Inequality) coefficient is a positive indicator about the distributional aspect of the development scenario of Brazil (Table 1.1, row I).
Table 1.1
Brazil- Selected Macro Economic Indicators (1994-2014)
Indicators
1994-95
1999-00
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
A.
Growth of GDP
(annual %)
4
4
4
6
5
0
8
4
2
3
0
B.
Growth of per
capita GDP (annual %)
3
3
3
5
4
-1
6
3
1
2
-1
C.
Sectoral
Composition (% of GDP):
Agriculture
6
6
5
5
5
5
5
5
5
5
5
ii.
Manufacturing
19
15
17
17
17
15
15
14
13
12
12
iii. Services
67
68
67
68
67
69
68
68
69
70
71
D.
Foreign Direct Investment as
% of GDP
1
5
2
3
3
2
2
3
3
3
4
E.
Gross Domestic
Savings as % of GDP
19
19
18
20
22
19
22
22
21
22
21
F.
Gross Fixed capital formation
as % of GDP
17
17
21
21
21
18
21
21
20
19
18
G.
Current Account Balance as % of
GDP
-2
-4
1
0
-2
-1
-2
-2
-2
-3
-4
H.
Rate of Growth
of:
Exports
(annual %)
-2
13
5
6
0
-9
12
5
0
2
-1
Imports
(annual %)
31
11
18
20
17
-8
34
9
1
7
-1
iii. Exports as
% of GDP
7
10
14
13
14
11
11
11
12
12
11
Imports as
% of GDP
9
12
12
12
14
11
12
12
13
14
14
Total Trade
as % of GDP
17
23
26
25
27
22
23
24
25
26
25
I.
Gini Index
60
NA
56
55
54
54
NA
53
53
53
NA
J.
Net Barter Terms
of Trade Index (2000=100)
110
100
107
107
128
116
131
148
140
135
130
K.
Inflation, consumer prices
(annual %)
66
7
4
4
6
5
5
7
5
6
6
Source: World Development Indicators, World Bank.
1.5.2 Russian Economy
Russian Federation, commonly known as Russia located in Europe Continent came into being after the disintegration of Soviet Union in 1991. The economy of Russia is sixth largest in the world by GDP (PPP). It is known for its reserves of oil, natural gas and minerals. It accounts for around 20% of world’s oil and gas reserves. Since its formation in 1991, Russian economy witnessed major policy change – a shift from central planning to market economy based on twin goals of macroeconomic stabilization and economic restructuring. In other words, Russian leaders dismantled the centrally planned economy and distributed ownership of state enterprises to managers and other citizens (Bird R. C., Summer 2007)
Despite two serious crises witnessed by Russian Economy (during 1997-98 and during world financial crisis in 2008-09), the implementation of economic reforms and stabilization efforts has been relatively successful. In 2011, Russia became the world’s leading oil producer, surpassing Saudi Arabia. It is the second largest producer of natural gas and holds the world’s largest natural gas reserves, the second-largest coal reserves, and the eighth-largest crude oil reserves.
Table 1.2
Russia-Selected Macroeconomic Indicators (1991-2014)
Indicators
1991-92
1994-95
1999-00
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
A.
Growth of GDP
(annual %)
-15
-4
10
8
9
5
-8
5
4
3
1
1
B.
Growth of per capita GDP
(annual %)
-15
-4
10
9
9
5
-8
4
4
3
1
-1
C.
Sectoral
Composition (% of GDP):
Agriculture
7
7
6
5
4
4
5
4
4
4
4
4
Manufacturing
NA
NA
NA
18
18
18
15
15
16
15
15
16
iii. Services
50
56
56
58
59
59
62
61
58
59
60
60
D.
Foreign Direct
Investment as % of GDP
0
1
1
4
4
5
3
3
3
3
3
1
E.
Gross Domestic Savings as % of
GDP
35
25
19
21
24
26
19
23
25
25
23
20
F.
Gross Fixed
capital formation as % of GDP
49
29
39
34
33
35
26
31
34
32
29
27
G.
Current Account Balance as % of
GDP
NA
2
17
9
6
6
4
4
5
4
2
3
H.
Rate of Growth
of:
Exports
(annual %)
-29
12
9
7
6
1
-5
7
0
1
5
0
Imports
(annual %)
-33
21
32
21
26
15
-30
26
20
9
4
-8
iii. Exports as
% of GDP
62
29
44
34
30
31
28
29
30
30
29
30
Imports as
% of GDP
48
26
24
21
22
22
20
21
22
22
23
23
Total Trade as
% of GDP
111
55
68
55
52
53
48
50
52
52
51
53
I.
Gini Index
NA
NA
37
42
42
41
40
41
41
42
NA
NA
J.
Net Barter Terms of Trade Index
(2000=100)
NA
NA
100
157
165
198
132
160
195
203
190
182
K.
Inflation,
consumer prices (annual %)
NA
197
21
10
9
14
12
7
8
5
7
8
Source: World Development Indicators, World Bank.
However, the economy suffered severe inflationary tendencies which reached 197% in 1995 (Table 1.2, row K) and caused a serious financial crisis in 1998. Russia’s GDP was stable between the time periods 2000 to 2007. In 2008 during world financial crises, GDP declined sharply but then stabilized at the level where it was before crisis but is continuously declining after that (Table 1.2, row A). Same is the status of Russia’s per capita GDP (Table 1.2, row B). Post reforms, Russia’s trade contribution to GDP hovers around 55 per cent with major contribution from exports than imports (Table 1.2, row H (v)). GINI index as revealed by World Bank shows Russian economy as near to equality till 2008 and is expected to improve with time. The sectorial composition data in Table 1.2 reveals that the contribution of service sector in Russia’s GDP has been considerably high in comparison to other sectors such as agriculture and manufacturing. Foreign Direct Investment inflows have been 1-5 per cent in Russia’s GDP over years.
1.5.3 Indian Economy
India is one of the fastest growing economies in the world. It is the tenth largest in the world by nominal GDP; third largest by purchasing power parity (PPP) and seventh largest economy in the world by services trade. The nation is also recognized as service hub with an increased share of service sector in GDP in the past decade. The rise of Indian economy is a result of the reforms undertaken in 1991.
Since its independence in 1947, India’s macroeconomic policies were considered conservative and inward oriented with much reliance on the public sector. In eighties, when Indian economy was suffering huge external debt, high inflation, low commodity prices and high interest rates, the process of economic reforms was initiated with an aim of accelerating the pace of economic growth and eradication of poverty. It was only in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance on market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of Government, in the wake of a balance of payments crisis that was certainly severe. The major issues addressed in 1991 reforms were: macroeconomic and balance of payments crisis through fiscal consolidation and limited tax reforms, removal of controls on industrial investment, reduction of import tariffs and creation of a more favorable environment for attracting foreign capital (Srinivasan, 2004). Since the reforms period, India has been an economic dynamo, sustaining an average growth rate of more than 6% over last 25 years (F, 2007).
The reforms have helped India in freedom of its domestic economy from the control regime. An important feature of India’s reform program is that it has emphasized gradualism and evolutionary transition rather than rapid restructuring or “shock therapy” (Ahluwalia, 2002). The economic reforms initiated in 1991 introduced far-reaching measures, which changed the working of economy. The reforms have unlocked India’s enormous growth potential and unleashed powerful entrepreneurial forces. Since 1991, successive governments have successfully carried forward the country’s economic reform agenda. India’s economy clearly is on the move and most certainly has the potential to emerge as a global economic power within next twenty to twenty-five years.
India’s GDP has improved overtime, but current account balance situation has emerged as a big challenge. Due to economic growth, it was not affected much by world financial crisis as its GDP remained stable and reached the highest immediately after world financial crisis (Table 1.3, row A). Table 1.3 also reveals that how the share of agriculture sector decreased with an increase in service sector contribution to GDP. Services have become the major engine of economic growth, accounting for half of India’s output and employing less than one-quarter of its labor force, at the same time, about 60% of India’s labor force is in agriculture sector, governments cannot ignore policies that improve the lives of the rural people (Cheng et al, 2007). India’s current account balance situation has improved but never turned positive till today. One of the important objectives of reform was to improve trade status of India and it seems (refer to Table 1.3) that India has been successful in achieving this objective. Its terms of trade have also been favorable post reforms. India is also near equality as revealed by GINI index but is experiencing fluctuating inflation post- 1991 with lowest in 1999-2000 and highest in 2009-10.
Table 1.3
India-Selected Macroeconomic Indicators (1991-2014)
Indicators
1991-92
1994-95
1999-00
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
A.
Growth of GDP
(annual %)
5
8
4
9
10
4
8
10
6
5
7
7
B.
Growth of per
capita GDP (annual %)
3
6
2
8
8
2
7
9
5
4
6
6
C.
Sectoral
Composition (% of GDP):
Agriculture
29
26
23
18
18
18
18
18
18
18
18
17
Manufacturing
15
17
15
16
16
16
15
15
18
18
17
17
iii. Services
46
46
51
53
53
53
54
55
48
50
51
53
D.
Foreign Direct
Investment as % of GDP
0.09
0.58
0.75
2
2
2
3
2
2
1
1
2
E.
Gross Domestic Savings as % of
GDP
23
25
23
33
33
34
31
32
32
30
30
29
F.
Gross Fixed capital
formation as % of GDP
23
24
23
31
31
33
32
31
34
31
30
28
G.
Current Account Balance as % of
GDP
NA
NA
NA
-1
-1
-1
-2
-3
-3
-5
-3
-1
H.
Rate of Growth of:
Exports
(annual %)
5
31
18
20
20
6
-5
20
16
7
7
0.9
Imports
(annual %)
21
28
5
21
21
20
-2
16
21
6
-8
-0.4
iii. Exports as
% of GDP
9
11
13
21
21
10
20
22
24
24
25
24
Imports as
% of GDP
9
12
14
24
24
24
25
26
31
31
28
26
Total Trade
as % of GDP
18
22
26
45
45
45
45
48
55
55
53
50
I.
Gini Index
NA
NA
NA
33
NA
NA
33
NA
33
NA
NA
NA
J.
Net Barter Terms
of Trade Index (2000=100)
98
108
100
111
111
114
132
132
128
128
131
NA
K.
Inflation, consumer
prices (annual %)
12
10
4
6
6
6
11
12
9
9
11
6
Source: World Development Indicators, World Bank.
1.5.4 Chinese Economy
The People’s Republic of China is the fourth largest country by area, with 3.7 million square miles, and the world’s most populous nation, with over 1.3 billion people. China had always been one of the world’s largest and most advanced economies. In 1978, Chinese government started reforming its economy from a centrally planned one to more market oriented. Economic reforms introducing market principles began in 1978 and were carried out in two stages. The First stage was in late 1970s and early 1980s, to open the economy to foreign investment and enhancement of entrepreneurship; and the second stage was in late 1980s and early 1990s to promote privatization and reduce state control on various sectors. This period is normally described as China’s ‘Second Revolution’ with the first one being their political liberalization in 1949. However, the situation in 1949 was quite stark, when China emerging from decades of war and civil strife with a shattered economy and a low level of development (Singla, 2011).
Table 1.4
China-Selected Macroeconomic Indicators (1979-2014)
Indicators
1979-80
1984-85
1990-91
1994-95
2000-01
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
A.
Growth of GDP
(annual %)
8
13
9
11
8
13
14
10
9
11
9
8
8
7
B.
Growth of per
capita GDP (annual %)
6
12
8
10
8
12
14
9
9
10
9
7
7
7
C.
Sectoral
Composition (% of GDP):
Agriculture
30
28
24
20
15
11
11
10
10
10
9
9
9
9
Manufacturing
40
35
32
33
32
33
33
33
32
32
31
31
30
NA
iii. Services
22
29
34
34
40
42
42
43
44
44
44
45
47
48
D.
Foreign Direct
Investment as % of GDP
NA
0.5
1
5
3
5
5
5
3
4
4
3
3
3
E.
Gross Domestic
Savings as % of GDP
34
33
38
44
37
49
49
49
51
50
49
50
48
46
F.
Gross Fixed
capital formation as % of GDP
29
30
28
34
34
40
40
39
45
45
45
45
50
50
G.
Current Account Balance as % of
GDP
NA
NA
NA
NA
NA
8
8
10
5
4
2
2
2
2
H.
Rate of Growth
of:
Exports
(annual %)
NA
12
25
11
23
35
35
22
-10
28
10
7
9
4
Imports
(annual %)
NA
66
24
5
26
23
36
35
5
20
12
8
11
4
iii. Exports
as % of GDP
6
9
17
20
21
36
23
16
24
26
25
24
23
23
Imports
as % of GDP
7
14
15
18
19
29
29
27
20
23
23
21
21
19
Total Trade as
% of GDP
12
23
33
38
39
65
65
62
44
49
49
46
44
42
I.
Gini Index
NA
NA
32
NA
NA
NA
NA
NA
NA
42
37
NA
NA
NA
J.
Net Barter Terms
of Trade Index (2000=100)
117
92
101
102
100
83
83
81
82
74
70
72
82
84
K.
Inflation, consumer prices
(annual %)
NA
NA
3
17
0.2
1
1
5
-0.7
3
5
3
3
2
Source: World Development Indicators, World Bank.
China has been successful in implementation of economic reforms process. As an effect, China is the world’s second largest economy by nominal GDP and by PPP. It is also the largest exporter and the second largest importer of goods in the world. From 1978 until 2013, unprecedented growth occurred in economy increasing by 9.5% a year. Pre-reforms, the contribution of agriculture in China’s GDP was considerable. By the late 1970s, food supplies and production become deficient. Consequently, China’s government decided to adopt the strategy to de collectivize agriculture and emphasize household responsibility system, as a result contribution of agriculture reduced from 30% in 1979-80 to only 9% in 2013-14 (Table 1.4, row C (i)). Privatization accelerated in China only after 1991 and the share of private sector increased in its GDP. Service sector’s contribution in China’s GDP is undeniable (Table 1.4, row C (iii)). China being a developed economy was able to maintain positive current account balance and has been able to fetch global FDI. Inflation is also under control in China.
1.6 Objectives
The present study makes an attempt to evaluate the prospects of strengthening trade and investment ties between India and the other three-member nations (Brazil, Russia and China) in BRICs bloc. Specifically, the study attempts to:
Study various dimensions of economic reforms in BRIC nations.Analyze growth and composition of mutual trade between BRICStudy mutual gains from trade to India and other BRICEstimate instability, competitiveness and comparative advantage of India’s exports to BRICStudy potentialities of trade between India and other BRIC1.7 Data Sources
BRIC nations – Brazil, Russia, India and China - are the emerging superpowers of the world. The development in each of these nations for three decades is worth noting. The liberalization and globalization measures introduced in these nations, during 1990s, had significant bearing on growth and structure of these economies. One of the important preconditions for any serious analysis, of the concerned subject, is existence of database which is dependable as well as accessible. Further, where many nations are involved in the study, reliable data produces reliable results. Thus, notice should be taken while selecting the database as this will form the most important input to the research.
Present study uses secondary data for the analysis. Special care has been taken for selection of database and thus, the sources with international recognition were selected for required data. Only those sources were selected which provide data for all the four nations in similar units. The analysis has been done for post reforms period i.e. from 1992 to 2014. Different data sources available at national and international levels, on trade and related variables, used for the present study are examined in this section. The databases used in the study are:
United Nation’s Trade Data (UN Trade Data): An important source that gives data on international trade is the UN trade Two volumes are available for data search in the database. Volume 1 titled as ‘Trade by Country’ and Volume 2 titled as ‘Trade by Commodity’. The quantity and value of various import and export commodities by countries are easily available and accessible. The data for most of the nations is available since the year 1962.United Nation’s Commodity Trade Data (UNCOMTRADE): UNCOMTRADE is published by UN trade statistics division which collects data from individual countries. Data is available since the year 1960s and at various classifications such as Harmonized system (HS) and SITCWorld Bank Data Bank: World Bank Data Bank is an analysis and visualization tool that contains collections of time series data on a variety of topics. The data is available for various indicators by countries. Under the head World Development Indicators, 1410 indicators’ data can be searched after the year 1960 for 264 Thus, huge data can be extracted easily for multiple countries under study.In the study, International Trade has been the center of concern. Intra-trade of Brazil, Russia, India and China has been analyzed at commodity group and commodity level. The analysis of traded commodities at 2-digit HS Code level has been referred as ‘Commodity Group’ and analysis of traded commodities at 6-digit HS Code level has been referred as ‘Commodity Level’ in the study. Thus, the classification of trade data has been done as:
Table 1.5
Classification of Trade Data in the study
Level
UN
Classification
Indian Classification
Structure
Commodity Group
Harmonized
System (HS)
Indian Trade
Classification (ITC-HS)
2-digit Chapters (97)
Commodity Level
Harmonized
System (HS)
Indian Trade
Classification (ITC-HS)
6-digit Chapters (5063)
The classification consists of 97 chapters represented by 2-digit codes and 5063 HS subheadings represented by 6-digit codes. These chapters are nothing but the commodities only. At 2-digit level, commodities of similar nature are combined under single head and at 6-digit level, each commodity is represented individually. In the chapter where growth and composition has been analyzed, study at both the levels was undertaken. Further, the selected commodities at 6-digit HS code level in Chapter-4 formed the base for analysis of competitiveness and potentiality of India’s exports in the concerned chapters.
1.8 Chapter Scheme
Following the thematic sequence, the study has been organized into eight chapters.
Having presented the background in which study has been conceived in the current introductory chapter which is Chapter-I of our study, Chapter-II presents the importance of BRICS bloc in the world. Chapter-III presents an overview of performance of various dimensions of BRICs economies since economic reforms. Chapter-IV analyses growth and composition of mutual trade among BRIC nations. It reviews growth of trade among BRIC nations for a period of 1991 to 2014 and Composition of trade has been analyzed at two levels 2-digit level and 6-digit level.
In Chapter-V, gains from trade to each of the BRIC nation has been analyzed using the method of Terms of Trade. Chapter-VI assesses instability, comparative advantage and competitiveness in India’s exports to BRIC nations and attempts to analyze the similarity and dissimilarity in India’s exports at global level and at BRICs level. Chapter-VII examines the potentiality of trade among India and other BRIC nations by comparing India’s exports with other nation’s imports at global level and BRICs level both.
Finally, Chapter-VIII brings together the major findings and insights that the study has provided enough concentration on the international trade issues among BRICs and suggests a few policy recommendations towards further strengthening them.
Chapter 2: BRICS and the World
2.1 Developments in World Trade
Post-World War II era is known for rapid economic growth which ultimately increases world output. A major cause of the growth in output has been the rapid growth of world trade thus resulting into a major increase in degree of international specialization between nations (Grimwade, 2003). One of the interesting post war developments was formation of regional trade blocs/ agreements. The literature for regional trade blocs dates to early fifties when Viner called economists’ attention to the distinction between trade creation and trade diversion effects of regional trade agreements (Viner, 1950). The integration of countries can be achieved in three different approachable ways: through the world trade organization, bilateral integration and regional integration (Sullivan, 2009). World trade organization promotes trade among its member nations by setting certain set of rules and regulations and thus reducing the issues in trade. In Bilateral integration, two countries economically cooperate with each other and in Regional integration, countries within the same geographical region join to form blocs.
Whalley argued that different countries have different objectives, when they enter into trade agreements, such as traditional trade gains, strengthening domestic policy reform, increasing multilateral bargaining power and strategic linkage, multilateral and regional interplay. Some countries such as small/developing nations consider entering into trade agreements as maintaining more security for their access to larger country markets and some countries look at it as providing underpinnings to strategic alliances. Thus, all the regional trade agreements around the world are different having different objectives but if a regional bloc wants to be successful, its member nations must have similar levels of per capita GNP, similar pace of economic development, similar or compatible trading regimes and political commitment to regional organizations (Whalley, 1998).
BRICS, a bloc of five nations: Brazil, Russia, India, China and South Africa, is not a natural fit. Based on forecast made by Jim O’Neil, these nations come together to form a bloc with single common feature of all being emerging economies of the world. The acronym “BRIC” reflects the focus on new areas of the world that are re-ordering the existing patterns of economic and political activity (SAMI, 2006). In this chapter, an attempt has been made to review the literature concerning origination of BRICs and their impact on world order.
2.2 Origination of BRICs Bloc
EU (European Union), NAFTA (North America free trade agreement) and ASEAN (Association of South East Asian Nations) are the world’s largest regional integration blocs. These trading blocs are the biggest and the most successful blocs in the world. But the member nations of these blocs are either developed economies or the nations whose maximum share of trade depends upon the developed ones. Historically, when these groups came into existence, developed nations or we can say the global north was dominating the whole world in trade. Distinction of countries was either made in developed or underdeveloped nations. No emphasis was given to the developing or emerging economies. But this focus shifted when Jim O’Neill, a global economist at the Goldman Sachs sketched out countries Brazil, Russia, India and China as rising economic powers of the world (Neill J. O., 2001). The findings of paper were strong enough to act as eye opener for policy makers at global level. He observed that these four biggest emerging economies being economically, socially and politically very different are growing at a fast pace and will overtake the largest developed economies very soon. And, BRICs taken together can result into a successful economic bloc, providing a good solution to the domination of global north in the world. In fact, the idea of BRIC conceived in 2001, reflected a shift in economic power from the global north to the global south (Mohapatra, 2013).
Taking forward the findings of BRIC thesis in a subsequent paper, “Dreaming with BRICs: The Path to 2050”, Goldman Sachs argued that BRIC countries could become four of the seven largest economies in the world by 2050. It was predicted that over the next 50 years, the BRIC economies could become a major force in the world economy (Wilson, D., 2003). The authors, by analyzing changes in world economy, have made certain projections about the performance of BRICs over the decades ahead. Various projections made, with a key assumption that BRICs nations maintain policies and develop institutions that are supportive of growth, were:
If the assumption goes right, in less than 40 years, the BRICs economies together could be larger than By 2025, they could account for over half the size of G6.Growth of BRICs is likely to slow down toward the end of period i.e. after 2030, with only India experiencing growth rates above 3 per cent byBy 2025, annual increase in US dollar spending from the BRICs could be twice than that of G6 and four times higher byHigher growth in these economies could offset the impact of greying populations and slower growth in advancedHigher growth may lead to higher returns and increased demand forThe advanced economies being invested in the right emerging economies may become an increasingly important strategicThe list of worlds’ ten largest economies may look different in 2050 with largest economies being no longer the richestBased on these projections about world economy, Wilson and Purushothaman argued that BRICs could become a very important source of new global spending. The study also revealed that Indian economy could be larger than G6 by 2039. If these economies fulfil their potential for growth, they could become a dominant force in generating spending growth over the next few decades. Another paper in 2005, “How Solid are the BRICs?”, then made the case that BRIC economies can achieve the projections more quickly than initially thought (Neill e. a., 2005). The BRIC thesis, developed by Jim O’Neill, also recognized that Brazil, Russia, India and China have changed their political systems to embrace global capitalism. The forecast caught the attention of policy makers and the foreign ministers of Brazil, Russia, India and China. The research finally resulted into formal grouping of BRICs, at the meeting of foreign ministers of Brazil, Russia, India and China, on the side-lines of United Nations General Assembly in New York, and they agreed to form a powerful economic group to collectively explore emerging economic opportunities and to fight common challenges faced by them in the rapidly globalizing world. The idea of economic rubric BRIC first conceived by Goldman Sachs in 2001 further extended to BRICS with inclusion of South Africa in 2011.
Over the years, BRICs nations have also contributed to the globalizing markets as their collective GDP has increased from 16 per cent to 25 per cent in the last decade and their combined trade is also increasing at a fast pace. Based on their performance, various other forecasts have also been made. Wilson reviewed the performance of BRICs in the last decade and made forecasts about their performance in the present decade. The study forecast that many of the trends that were going on in BRICs would continue and become even more pronounced. The major strengths of BRICs in the present decade will be their rising middle class, performance of equity markets and their contribution in global economy in terms of GDP (PPP) (Wilson, 2010). Cheng also stated that the combined economies of Brazil, Russia, India and China (BRICs) are likely to become the largest global economic group by the middle of the century (Cheng, 2007).
BRICS performance in the global financial crises also brought the bloc in limelight for all the investors and other global affairs. The projections about this group proved true when the recent financial crisis of 2007-08 occurred, triggered by the collapse of 160-year-old investment bank Lehman Brothers, leaving Brazil, Russia, India and China not much affected (Singh, 2015). Hult also revealed by his study that BRICs are the least impacted countries by the economic downturn. The BRIC nations are realizing their unique potential and collective standing in the global marketplace and are changing the way world order is organized (Hult, 2009).
Hanson examined the changes in international trade associated with the integration of low and middle-income nations into the global economy focusing on the effect of global financial crisis on the economic performance of high income and emerging market nations. The author argued that the United States, the countries of European Union and Japan suffered most out of this crisis but many emerging economies like China, India and the next fifteen middle income countries including Brazil at first place and Russia at fourth place hardly paused during global financial crises. The robust growth of these economies fueled the recovery of global economy. The share of low and middle-income countries in global trade has been increasing. The overall global trade into South- South commerce (trade between developing countries) and North-South Commerce (trade between developed and developing countries) was also analyzed and it was concluded that the dramatic growth of China, India and other middle-income nations is transforming the global economy. It has changed who trades with whom, how production is organized across borders, and how the global gains from trade are distributed (Hanson, 2012).
To have a say in world’s financial decisions, BRICS nations have together formed a bank, representing Asian continent on the terms of World Bank and International Monetary Fund, in 2013 to help the global south in easy access of capital. Christopher (2013) commented on the formation of BRICs development bank and discussed how BRICS development bank came into origin. There were three major issues that were to be answered regarding from where the banks money will come, the areas where the money will be spent and what will be the currency of the bank. For funding and decision making, three models were discussed among which it was concluded that the one in which all the five countries will offer equal contribution as seed funding and raise more substantial amounts in capital markets makes best balance. The paper concludes that whatever be the structure of the bank, it will form the spine of a stronger BRICS grouping. After the formation of Bank, all the concerned issues represented by above study were disclosed.
But after 8 years of the crisis, these economies, which were considered as the world’s growing economic powers, individually are perceived as getting weaker day by day. In 2015, Brazil has been downgraded to Junk; Russia has been the worst affected by commodities slump; China is experiencing a growth slowdown. India, on the other hand, is performing best among all the other BRICs nations and is expected to emerge as the world’s fastest growing economy (Bureau, 2015). China is the biggest economy in the bloc. Thus, its present downturn is at large affecting overall performance of BRICs. According to China’s economic and financial outlook issued by Bank of China, the root cause for China’s economic deceleration in recent years lies in the changes in its external environment and internal conditions. Internally, China sees economic and financial risks due to rising costs of production factors, heavier pressure on resources and environments, diminishing comparative advantages, huge industrial overcapacity, elevated leverage ratio and weakening profit ability of enterprises. The current deceleration and “gear shift” of the Chinese economy are due to weakening demand and policy adjustments, and due to the combined effect of structural and long-term factors.
2.3 BRICS Economies
BRICS nations taken together have acquired larger share in the world economy as producers of goods and services, receivers of capital and as potential consumer markets. BRICS, which has a transcontinental outreach, occupies quarter of the world’s land mass and as a result, own vast natural resources. These countries also cover 40 per cent of world’s population and are increasingly running as global market economies. Their performance post 2000 has been remarkable as far as their economic development is concerned.
Naude and co-authors analyzed the nature of economic development in Brazil, Russia, India, China and South Africa (BRICS) between 1980 and 2010 with the focus on the manufacturing sector. Three specific issues were discussed: First, the role manufacturing plays in structural change and economic development in the BRICS; second, how the experiences of the BRICS can be compared based on technology up gradation and third and last with, how foreign and domestic investment have contributed to structural change? It was concluded that three of the BRICS are experiencing de-industrialization (Brazil, Russia and South Africa). China is the only country where an expanding manufacturing sector accounts for a significant part of aggregate growth. It was the only country where FDI favored the manufacturing sector and manufactured exports, and where domestic investment started becoming increasingly important compared to FDI from 1995 onward (Naude, 2013).
The development in each of the BRIC economies is widely supported by reforms in these nations as their potential has only been realized after reforms have been stabilized i.e. after 2000 according to Jim O’Neill. By the end of cold war, governments of BRICs had initiated economic and political reforms. Main reason to initiate the reforms and thus opening the economies was to enter global trade and fetch foreign capital. Education, foreign investment, domestic consumption, entrepreneurship are the sectors which were simultaneously stressed. This section handles the reviews on development of each of the member nation in BRICs and their mutual relationship, with special emphasis on India.
Among BRICs, Brazil is the last one to experience reforms i.e. in 1994 reforms initiated in Brazil. Beginning of the process of economic liberalization took place with neoliberal measures in the early 1990s, placing Brazil into the globalization and its challenges (Sariava A. O., 2010). Polaski and co-authors did a study with the purpose of contributing to the knowledge based upon which the Brazilian Government, public as well as other interested parties evaluate the policy choices Brazil is facing in the realm of trade. This study showed that the impact of increased trade on the Brazilian economy would be very small, even from global agreement at the world trade organization or from ambitious free trade pact with the largest developing countries. After the careful analysis of the benefits and costs of trade liberalization and specific trade policy choices, it was concluded that increased global economic engagement might be beneficial for the Brazilian economy (Polaski, 2009). Disintegration of Soviet Union in 1991 resulted into the formation of Russian Federation, commonly known as Russia. After 1991, country shifted its focus from central planning to a market economy, based on two goals of macroeconomic stabilization and economic restructuring, and as a result distributed ownership of state enterprises to managers and other citizens (Bird R C,
Summer 2007).
India initiated its economic reforms in 1991 introducing far-reaching measures that changed the working of economy. Ahluwalia reviewed policy changes after economic reforms in five major areas covered by reform program i.e. Fiscal deficit Reduction, Industrial and Trade policy, Agricultural policy, Infrastructure development and Social sector development. An important feature of India’s reform program was that it had emphasized gradualism and evolutionary transition rather than rapid restructuring or “shock therapy”. Based on the review and cumulative outcome of ten years of gradualism, the author assessed whether the reforms have created an environment to support government’s GDP targets. It has been argued that India’s economic performance in the first five years of post-reform period was impressive, but it slowed down in next five years not because of the reforms but the reason was failure of effective implementation of reforms. Thus, the impact of ten years (till 2000) of gradualist economic reforms in India on the policy environment presents a mixed picture. The choice of gradualism as a strategy, did not worked in all areas of reform program. The policies need to be reframed in all the five major areas. It was referred to take credible corrective steps so that, cumulative policy changes combined with the continuous progress, make it possible for India to accelerate and achieve government’s GDP targets (Ahluwalia, 2002).
Kumar also reviewed the reforms that took place in India in 1990s while analyzing performance of Indian economy in terms of certain macroeconomic indicators and provided recommendations for second generation reforms. The author argued that there has been considerable debate on Indian reforms resulting into two schools of thought. One focused on the achievements of reforms and looked for faster implementation of remaining issues whereas the other school provided critical views about reforms and focused on their adverse effect on the society. The various macroeconomic indicators considered for study were growth and its sustainability; fiscal adjustment and stabilization; and external sector. After analyzing performance of Indian economy based on these indicators, recommendations for second generation reforms were given including social and physical infrastructure, social safety nets and social security schemes, regional disparities, privatization, FDI policy, competition policy and enterprise level R&D (Kumar, 2000).
Wadhva discussed the economic reforms in India, causes of the economic crisis, major economic reforms that took place in 1991 i.e. major macroeconomic management reforms; structural and sector-specific economic reforms and the performance of Indian economy in international arena. The focus of discussion, in the study, was on Second generation reforms which concluded that Indian economy has reaped several welcome rewards from its reforms. The two paradigm shifts in the reforms i.e. reform’s long-term vision of transforming India into a global economic power in the next twenty to twenty-five years and raising the productivity of Indian labor by improving the work culture and providing significant rewards to the people of India, will help garner support of Indian people (Wadhva, 2004).
Where post-reforms there was drastic change in economic structure of India, its political structure also went through change. Baldev explained the origination of economic reforms in India during 1990’s and at the same time also explained the status of political structure in India before, during and after economic reforms and it was concluded that the changing balance of political and social forces is very significant which depends on the impact of social and political groups on the extent of liberalization and globalization (Nayar, 1998). Sunil tried to find out an empirical evidence for whether India is becoming more innovative since 1991. The trends in innovation in Indian industry were analyzed by employing conventional indicators of innovative performance and major disquieting features were also discussed. The results of the study show that instances of innovation are restricted to a few areas only that too contributed by foreign firms operating in the country (Mani, 2009).
A paper that supports above finding is Poddar’s. He explained why productivity has surged in India and why it is perceived that this is likely to continue over the next decade. It was argued that there has been a structural increase in India’s potential growth rate since 2003 on the back of high productivity growth. In the light of key underlying assumption that the government will implement growth-supportive policies, it was concluded that the ‘FORCE’ factors are critical to sustaining growth. These factors are: Financial deepening, Openness to trade, Rural-to-urban migration, Capital deepening, Education and Environment. In absolute terms India will remain a low-income country for several decades, with per capita incomes well below its BRIC peers. But if it can fulfil its growth potential, it can become a motor for the world economy and a key contributor to generating spending growth (T. Poddar, 2007).
