beyondbrics

By S.D. Shibulal, CEO of Infosys

A lot has changed since the Bric acronym was coined. Ten years and two economic recessions later, the centre of gravity of global economic activity has shifted, new markets have emerged and the global economy is more integrated than ever before. Advances in technology are redefining the way we connect and interact with our consumers. Sustainable consumption has gained centre-stage. The world as we know it today is quite different from what it was a decade ago.

But formidable challenges remain, notably in closing the gap between rich and poor by promoting inclusive economic growth.

Over the past decade, the Bric economies – Brazil, Russia, India and China – have grown from glimmers on the global economic radar into serious market movers and shakers. In 2010, as many as 67 companies from Bric countries were on Fortune’s Global 500 list. Research by Goldman Sachs shows that these four countries contributed more than a third of the growth in global GDP over the past decade. In purchasing power parity (PPP) terms, the Brics account for a quarter of the global economy. Over the past decade, the Bovespa in Brazil rose by 294 per cent, Russia’s trade index by 884 per cent, India’s BSE by 319 per cent and China H-shares by 610 per cent.

During the financial crisis, Bric countries have shown tremendous resilience. Brazil did not go through a recession while India and China continued to grow, albeit a bit slower. Russia was impacted in the short-term but has recovered well. The Brics have played a crucial role in maintaining the global economic balance.

In 2010, the GDPs of China and India grew by an impressive 10.3 per cent and 9.8 per cent respectively. They are expected to grow by 9 per cent and 8.2 per cent respectively in 2011-2012. Brazil and Russia on the other hand grew by 7.5 per cent and 4 per cent respectively in 2010 and are expected to grow by 4.5 per cent and 5.5 per cent respectively in 2011-2012.

In 2010, led by China, over 50 per cent of global foreign direct investment was received by emerging market countries including Russia. By 2018, the Brics are expected to overtake the US. By 2020, they are expected to account for close to a third of the global economy in PPP terms and contribute a phenomenal 49 per cent of global GDP growth.

In recent years China and India have led the way in becoming the new hubs for growth, innovation and talent. They produce close to 700,000 engineers every year. The availability of such a large pool of talent is the much needed fuel to power the growth of industries across sectors in these countries. This has been complemented by the presence of a large middle-class population (160m in India and 230m in China) with rising disposable incomes. China and India are also challenging Western domination as the global innovation and R&D hub, rubbing shoulders with historic giants in global innovation indices. The road ahead for the Bric countries looks extremely promising.

To realise their full potential, however, the Brics still have to overcome a few key challenges. Consumer price inflation still remains an issue across the four countries. The Chinese growth story has been predominantly export-led and it is struggling with the need to boost its domestic consumption to make growth more sustainable. The political, business and bureaucratic systems in these countries need to be improved to increase their global competitiveness.

However, the biggest challenge that faces the Bric countries is quite unique in that they are countries of contradiction. Countries like India and China in particular, despite leading the Bric growth story, are no different. Take a look at India. It has had average growth of 8 to 8.5 per cent in recent years – but over 300m people still live below the poverty line. It produces over 3m graduates every year from its pool of 480 universities and 22,000 colleges. Despite this, 35 per cent of the world’s illiterate people are in India. Furthermore, over 8m children are still out of school and 240m children are not a part of the schooling system. There are 100m internet users in a country where only 12.5m have broadband. There are also over 600m mobile phone subscribers in India. Despite this level of technology penetration, India ranks 50th in financial inclusion globally.

These contradictions are not limited to India alone. Examination of the finer aspects of growth in the other Bric countries shows similar results. This evident economic disparity and the increasing gap between the haves and the have-not’s clearly indicate that inclusive growth is an area of concern. Therefore, the focus for the Bric countries should not only be on leveraging their growth potential but on making that growth inclusive. This is the only way that the benefits of growth will truly trickle down to the poorest of the poor.

Moreover, the consequences of economic disparity will always catch up with the larger society through economic turmoil and social unrest, as witnessed in several developed countries too, in recent times. Therefore, the need for inclusive growth is not just a moral obligation but also an economic and social imperative – for the Bric countries and others across the world.

Related reading:
The Brics’ ‘hubris of inordinate size’, FT
Chart of the week: Brics at 10, beyondbrics
Jim O’Neill: Russia could surprise us all, beyondbrics
The Growth Map, FT