BRICS now a major system, to correct global financial structure

The political brouhaha subdued the economic gains of Goa BRICS summit. Economic talks in BRICS, as also in its sidelines, have played a significant role, including India pitching for mechanism against black money.

The deals with Russia and India would total around $ 23 billion. It includes 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 BRICS agreement was on setting up of an international credit rating agency. Of late, India, Russia and other developing nations expressed unhappiness over the functioning of rating agencies. Finance Minister Arun Jaitley has repeatedly expressed concern over the bias and methodologies of some of the western agencies.

The BRICS declaration stresses on shared vision of transforming the global financial structure on fairness and equity. Prime Minister Narendra Modi at the conclusion of the meet said, “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”.

The New Development Bank (NDB), formed by BRICS, president KV Kamath also expressed concern over big three rating agencies –S&P, Fitch and Moodys, all based in the US. International rating agencies still have their reservation about BRICS and are propagating that the group has “limited success or tottering”.

The NDB now plans to more than double its commitment to support infrastructure projects to the tune of $ 2.5 billion by 2017. The bank has made commitments of $ 911 million this year. The NDB would raise $ 1.5 billion from multiple sources next year.

Russia, China and South Africa have paid two years of their commitment in advance. This indicates the seriousness of members to make the NDB a success. The BRICS business council has also been told to work in close coordination with NDB.

In late September, Jaitley had called upon strengthening capitalization of the IMF-World Bank so that countries like India could benefit from the soft funding.

A stronger NDB, which is finally aimed at having $ 100 billion capital, would give a greater boost to developing economies. The NDB is keen to reduce the cost of borrowing for the member countries by doing local currency borrowings. These do not require hedging.

India having committed $ 250 billion will be among the first countries to raise money in local currency. The NDB plans to float a rupee-bond early 2017.

The NDB also plans to raise 10 billion yuan in China in the medium term. It is making similar strategy in other markets as well.

The Shanghai headquartered bank intends to increase its staff to 300 from the present 60. It is also 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 had been discussed in detail G-20 and has also led to its implementation. Some large IT companies were told to pay huge taxes by the UK soon after the G-20 move.

The BRICS leaders agreed that the taxes should be levied at the point where activity takes place, not where their registered office is. There are MNCs and other large groups, which have presence across borders, end up paying no tax anywhere and they shift their profits.

The BRICS is also confabulating on norms to bring to book white collar criminals, who cross international borders to avoid action.

The BRICS meet also discussed repatriation of black money as per UN Convention against Corruption and other relevant international legal instruments.

Apart from tightening the international system and taking forward the basic economic agenda of the 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. Three routes are being discussed. The shortest is through Himalayas into northern India. It poses 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.
An MoU was signed on banking supervision between the Reserve Bank of India and the Central Bank of Myanmar while another MoU was inked for designing an academic and professional building programme for the insurance industry of Myanmar.

There are also agreements pertaining to construction of 69 bridges on the Tamu-Kalewa section of the trilateral highway connecting India, Myanmar and Thailand.
India is also keen on cooperation in the field of renewable energy and traditional medicines. 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 the parallel governments on both sides of the border.

It is just not that India alone had deals with other countries. China also has taken the opportunity to create its market in the neighbourhood. Chinese president Xi Jinping visited Bangladesh just before the summit and promised $ 20 billion aid against Indian promise of $ 2 billion. Jinping 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.

Is BRICS becoming a platform for mutual competition? To some extent, it seems so. Russia and China also give preference to their mutual concerns more than the common interest of BRICS. So anti-Assad groups of Syria were forced to be named in the declaration but groups operating in Pakistan were not mentioned.

Despite the problems, BRICS is coming up as important group and more so with the inclusion 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. The BRICS proposals are creating ripples in the world economic scenario. It is expected to create significant changes. For India, it is a unique forum through which it is trying to change the regional geo-politics as well.

Politics apart, as economic grouping, BRICS is likely to be a keen competitor to the western system.