Economic Highlights
New Delhi, 24 October 2016
BRICS Economics
CHANGING FINANCIAL MAKEUP
By Shivaji Sarkar
Political brouhaha subdued the economic gains made at the
Goa BRICS summit. Business talk at the meet, as also on the sidelines, has
largely played a significant role. This would include India pitching for a mechanism against black
money; deals signed with Russia
and India
would total around $23 billion and include the sophisticated S-400 missiles and
Rosneft purchase of 98 percent of Essar oil and its refinery. Besides, another
$25 billion Russia-India oil pipeline is being worked out.
A significant agreement at the meet was the setting up of an
international credit rating agency. This is so because of late, India, Russia and other developing nations
have voiced their unhappiness over the way rating agencies function. In fact,
Finance Minister Arun Jaitley has repeatedly expressed concern over the bias
and methodologies of some of the western agencies.
The BRICS declaration stresses on a shared vision of
transforming the global financial structure on fairness and equity. At the
conclusion of the Summit,
Prime Minister Narendra Modi stated: “In order to further bridge the gap in the
global financial structure, we agreed to fast track the setting up of a BRICS
Rating Agency”.
President KV Kamath of the New Development Bank (NDB),
formed by BRICS, also expressed concern over big three rating agencies
–S&P, Fitch and Moodys, all based in the US. On the other hand,
international rating agencies still have their reservation about BRICS and are
propagating that the group has “limited success or is tottering”.
The NDB, however, now plans to more than double its
commitment to support infrastructure projects to the tune of $2.5 billion by
2017. It has assured $911 million this year and shall next year raise $1.5
billion from multiple sources. Importantly, Russia,
China and South Africa
have shown their seriousness to make NDB a success by paying two years of their
commitment in advance. The BRICS business council too has been told to work in
close coordination with NDB.
In late September, Jaitley had called upon strengthening
capitalisation of the IMF-World Bank so that countries like India could
benefit from soft funding. A stronger NDB, finally aimed at having $100 billion
capital, would give a greater boost to developing economies. The bank is keen
to reduce the cost of borrowing for member countries by doing local currency
borrowings as these do not require hedging.
India having committed $250 billion will
be among the first countries to raise the money in local currency. The NDB
plans to float a rupee-bond early 2017. At the same time, it proposes to raise
10 billion yuan in China
in the medium term. Further, it is making similar strategies in other markets.
Headquartered in Shanghai, the bank intends to
increase its staff to 300 from the present 60 and is likely to open a centre in
South Africa
shortly.
More significant was the move to ensure that multi-nationals
do not dodge taxes, along with norms to curb black money and bring those
accused of corruption and tax evasion to justice. The issue has not only been
discussed in detail by the G-20 but has led to its implementation. Some large
IT companies were told to pay huge taxes by the UK soon after the G-20 move.
Taxes, BRICS leaders agreed should be levied at the point
where activity takes place and not where their registered office is. This is because there are MNCs and other
large groups, which have presence across borders, end up paying no tax anywhere
and even shift their profits. BRICS is also confabulating on norms to bring to
book white collar criminals, who cross international borders to avoid action.
BRICS meet also discussed repatriation of black money as per
UN Convention against Corruption and other relevant international legal
instruments. Apart from tightening the global
system and taking forward the basic economic agenda of BRICS, India also had success in getting support of Brazil, Russia
and Bay of Bengal group, BIMSTEC, members, including Thailand
and Myanmar, on India’s bid for
Nuclear Suppliers Group (NSG) membership.
The $25 billion Russia-India pipeline from Siberia
is being studied in detail, with three routes being discussed. The shortest is
through the Himalayas into northern India, and does pose several
technical challenges. The other is through Central Asian nations, including Iran, to western India. The third would be longest
through China and Myanmar into north-east India.
India has also signed agreements with Myanmar in
power, banking and insurance.
A MoU was signed on banking supervision between
the Reserve Bank of India
and the Central Bank of Myanmar
while another was inked for designing an academic and professional building
programme for the insurance industry of Myanmar.
There were agreements pertaining to
construction of 69 bridges on the Tamu-Kalewa section of the trilateral highway
connecting India, Myanmar and Thailand. New Delhi is also keen on cooperation in the
field of renewable energy and traditional medicines. This apart, the agreements
with Myanmar would make
borders with India
secure and curb insurgent activities in both the countries. It will bring the two nations closer
and may put an end to parallel governments in place on both sides of the
border.
However, India
is not the only one to have deals with other countries. China too has
used the opportunity to create its market in the neighbourhood. President Xi
Jinping visited Bangladesh
just before the summit and promised $20 billion aid against India’s promise
of $2 billion. Apparently, China
is trying to create a large manufacturing base and make Dhaka
more dependent on it. It is also wooing Nepal
for closer ties, including extension of the railway track from Tibet.
The question that arises is whether BRICS is becoming a
platform for mutual competition? To some extent, yes. However, both Russia and China are seen giving preference to
their interests-- more than the common interest of BRICS. Thus, anti-Assad
groups of Syria were forced
to be named in the declaration but not those operating in Pakistan.
Despite such and other problems, BRICS is emerging as
important group and moreso with the inclusion of BIMSTEC. It is becoming a
larger forum that includes almost two-fifth of the world population. Its
development bank is poised to be a competitor with World Bank. BRICS proposals
are undeniably creating ripples in the world economic scenario and it is
expected to bring about significant changes. For India, it is a unique forum through
which it is trying to change the regional geo-politics. It can be safely said
that the economic grouping of BRICS is likely to become a competitor to the
western world. ---INFA
(Copyright,
India News and Feature Alliance)
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