he global economy is fragile. Very few new full time jobs are being created in OECD economies and GDP growth ofmost developing economies still does not measure up to pre-financial crisis levels. Perhaps most worrying of all, income inequality is growing across the developed and developing economies alike. The leaders of Brazil, Russia, India, China and South Africa, countries that constitute the‘BRICS’ grouping, will be meeting in Ufa in July amidst these sobering global trends.
In preparation for the Ufa Summit, experts from BRICS met at a Track II meeting in Moscow this week. As India’s representative on economic issues, my interventions were premised on the fact that there are at least five sectors within which enhanced intra-BRICS collaboration can yield relatively quick results.
The first isagriculture. The sector’s share of GDP, employment generation and exports shows its continued importance for all BRICS economies. The sector employs 56 per cent and 40 per cent of people in India and China respectively, is responsible for about 34 per cent and 10 per cent of Brazil and South Africa’s total value of merchandise exports respectively and perhaps surprisingly accounts for around 10 per cent employment share in the fossil fuel rich Russian economy.
So far, BRICS cooperation in the agriculture sector has been uninspiring. An information exchange system has been set up which is counterintuitively limited only to government bodies. It must be both broadened and deepened.
In addition, aside from China, each of the BRICS has significant distance to traverse in terms of agricultural productivity. China’s rice productivity is 4.67 tonnes per hectare, compared to 2.4 tonnes per hectare in India. The key difference lies in the volume of investments in the sector. Aside from creating an enabling environment for investments in agriculture within BRICS, emphasis must be placed on developing farm extension services. The System of Rice Intensification is an example of an easy to disseminate, proven productivity enhancing cropping practice prevalent in some Indian states that must be mapped and shared.
The second is the digital economy. The impressive mobile phone penetration rates in BRICS range from around 0.7 phones per person in India to around 1.8 phones per person in Russia. At the same time, only around 63 per cent of the rural population on average within BRICS have bank accounts. Mobile phone penetration can be leveraged to bank the unbanked and enhance basic service delivery.
An illustration of this is India’s ambitious ‘Jan Dhan Yojana – Aadhar-Mobile’ trinity. BRICS would do well to create enabling domestic ecosystems for cross border investments into telecommunication networks and differentiated banking systems such as mobile payments. In addition, the relatively low rates of internet penetration, averaging around 40 per cent across the five countries, present a commensurate opportunity for scaling up connectivity and digital inclusion.
The third is theservice sectorwhich accounts for nearly 60 per cent of value added in the BRICS’ GDP. Services accounted for as much as 42 per cent of exports in value added terms from G20 countries and more than 50 per cent in China and India. The growth in the value of services trade of BRICS with the world between 2010 and 2014 was around 30 per cent even, remarkable even though not calculated in value added terms.
Trade numbers also highlight the imperative for standards cooperation in services with a view to creating regional value chains of services trade integrated with merchandise trade supply chains. Aside from the comparative advantage of the sector, the emergent rules based agreements on the anvil such as the Trade in Services Agreement of which none of the BRICS are a part, should be enough justification to merit serious multi-stakeholder conversations on standard setting in services.
The fourth sector is mining and power. Even in the post financial crisis world, energy demand continues to be driven by the BRICS economies. They also happen to account for 35 per cent share in the global primary production of energy. Coal production in China today provides more energy to the global economy than the combined oil production in the Middle East.
On April 22 2015, BRICS Environment Ministers mooted a platform for exchanging clean technology know-how. The rapid development of‘clean coal ’technology in China offers a ready template for private sector innovation and technological dispersion across BRICS. In addition, Brazilian and South African mining companies could partner with Indian companies looking to take advantage of domestic policy emphasis on commercialised mining and technology intensive exploration.
And finally, since urban centres are the drivers of growth within each of the BRICS economies, urban development must become a priority area for cooperation. India estimates that it requires around $625 billion over the next twenty years in urban development spending alone. The‘Smart Cities’ initiative of the new government is tailor made for exploring Public Private Partnerships (between ICT firms and local governments in particular) and city to city cooperation on key areas such as market based financing.
It is also useful to note that Indian urban local bodies (ULBs) will have a large role to play in fulfilling objectives of ‘smart’ infrastructure creation and service delivery. There is significant scope for sharing experiences with local governments across BRICS countries. In addition, collaborative capacity development on areas such as audit and taxation can go a long way in ensuring the financial viability and institutional credibility of local governments.
The author, Vivan Sharan, is a Partner at Koan Advisory Group (www.koanadvisory.com)
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