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Brics

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The Brics’ role in the global economy
Paulo Roberto de Almeida In: Cebri-Icone-British Embassy in Brasília: Trade and International Negotiations for Journalists (Rio de Janeiro, 2009, p. 146-154; ISBN: 978-85-89534-05-5).


1. Where do they come from and what are the Brics? In demographic terms, BRIC holds the world’s two most populated countries and another two with considerable populations. China alone holds a fifth of the world’s population, and is closely followed by India (17.5%) and, by a larger gap Brazil (2.9%) and Russia (2.2%). Despite their large territories – Russia’s 17 million km2, India’s 3.2 million km2, China’s 9.3 million km2 and Brazil’s 8.5 million km2 –, the Brics differ from each other in terms of natural resources, level of industrialization and impact on the global economy. It is important to point out these differences, as definition as a bloc might lead to wrongful assumptions about the four countries’ individual current and future roles in the global economy. In order to be accurate about each country’s actual weight in the world, we should perhaps change the acronym to CIRB (but without the glamour of the name). Let us begin with China, which is the most continuous civilization in history – not strictly in terms of political linearity but rather in terms of cultural continuity. The country has a tragic contemporary history, marked by economic decadence, political instability, military humiliation and social regression caused by a deep degradation of the social fabric after Mao Zedong’s economic follies created a human hecatomb and a demographic “gap” of tens of millions of people. India is the world’s second oldest “continuous” civilization – the inverted commas are to highlight the country’s cultural and ethnic diversity. India has no cultural unity as such, and its political history only seems to make sense when we look at it as a temporary “unit” created by foreign invasions, specifically by the Mughal Empire, followed by the domination of an English trading company which was then converted into British supremacy over several peoples who were very different to each other. Modern India is an invention of the British Empire. Russia is also ancient, with cultural traditions that have made it into a cultural unit since the Middle Ages, when barbarian migrations led to the creation of a proto-homogenous
Paulo Roberto de Almeida is a PhD in Social Science by the University of Brussels; has a Master Degree in Economic Planning from the University of Antwerp and has been a career diplomat since 1977. He has many published books on Brazilian international relations and diplomatic history (www.pralmeida.org; pralmeida@mac.com).


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Slavic proto-nation. This took place when Peter the Great subjugated feudal authority and consolidated his power over an undefined territory, drawn together under an insipient State based on imperial absolutism. This State expanded between the 18th and the 20th centuries, when it reached the height of its territorial size and power under the rule of the Soviet Czars. The Soviet Empire was a paradox in Russia’s trajectory. Despite achieving the national security it had always aspired to, it also created an irrational economic system that ended up causing the State’s structural crisis and thunderous downfall. Finally there is Brazil, a typical colonial creation, with the slow implementation of a successful economy contrasting with a more precocious State building. Brazil’s unified State came before the consolidation of an integrated economy. The State was the inducer of an industrial economy, which is quite modern compared with other peripheral countries. Brazil is happy with its geographical division and regional relations. This context of regional peace – at least since the end of the Paraguayan War (1865-1870) – and of a lack of real external threats are defining factors behind Brazil’s geopolitical singularity and should be considered as a positive asset for regional and international inclusion. The Brics’ itinerary over the past two centuries has been uneven and at times divergent. Reciprocal relations over the last half-century have been marginal, with the possible exception of the former Soviet Union (USSR) and China during the early implementation of socialism in the latter. Although the path of the Brics’ interaction with the global economy has been erratic, there has been some convergence over the past two decades complemented by incremental reciprocal integration. The Brics’ individual participation in global capital, trade, investment and technology flows retreated over the two centuries between the First Industrial Revolution and the eighth decade of the 20th century. As of the 1980’s, the four countries resumed a more intense interaction with the global economy. This retreat was born both by the Brics’ own decisions – socialist revolutions in Russia and China, the adoption of state planning in India – and was involuntary, as in the case of Brazil where crises prompted nationalizing introversion (the 1929 crisis and the depression of the 1930’s as stimuli for national industrialization). During the construction of a post-Second World War world economic order, both the USSR and China excluded themselves from the global capitalist system’s institutions – the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD) and the General Agreement on Tariffs and Trade (GATT). Brazil and India adhered to these bodies in a reluctant and marginal manner. Although Brazil has been active in these bodies of capitalist interdependence, its participation has been more as a client 2

than as an important party in decision-making processes, which until a short while ago were far beyond its capabilities. More than any other BRIC member, Brazil has kept a market structure and an economic management model in line with capitalism’s formal pattern of economic organization. India, the other BRIC member that remained capitalist during the Cold War, was much more nationalizing, bureaucratic and backward than Brazil. India’s recent modernizing boost has largely come from its economic Diaspora in the US rather than from internal transformations (but there has been liberalization under Manmohan Singh). China was an economic disaster. This is not only due to decadence during the Civil War and the Japanese invasion, but also due to the plans of the Maoist Era (the Great Leap Forward and the Cultural Revolution). Suffice to say that in gross terms, between the end of the 18th century and the 1960’s, China’s GDP fell from nearly one third of the world’s GDP to less than 5%, and only managed to recover in the 2000’s. Regarding Russia, in addition to its reduction after the collapse of the USSR, statistics from the Soviet Era are not reliable enough to establish the development of its performance in the 20th century, when the country underwent huge material and human disasters. The Central Intelligence Agency (CIA) always overestimated the industrial power and technological capacity of this enormous Potemkin village, which lived an institutionalized lie over seven decades. The reincorporation of the Brics’ into the mainstream global economy as of the eighth decade of the 20th century happened differently for each member. Although Brazil was never excluded from the global economy as such, until the mid-80’s almost 95% of domestic supply came from local industry, as a result of strong state protectionism. India took state capitalism even further, which, along with its extensive planning, was responsible for decades of reduced growth and low levels of modernization. It was China, in fact, which sparked the big transformation in the global division of labor by redrawing the global direct investment map via Deng Xiao-Ping’s reforms. Russia reconverted to Mafia-style capitalism in the 1990’s and became more of an energy raw-material supplier than an active player in the global economy. Brazil has become a major supplier of food and mineral commodities; India has consolidated its presence in the information technology sector; and industrial China has become the leading manufacturer of mass consumer products, especially electronic goods. Everyone has benefitted from the Ricardian advantages, with a special emphasis on labor in China’s case, technology in India’s and natural resources in Brazil and Russia’s. And where are the Brics heading over the coming decades? Certainly not to the same destination, even though their trajectories have a common thread of growing and unavoidable adhesion to the global economy. According to a study by Goldman Sachs, this G4 group’s 3

joint GDP will exceed the G7’s current GDP by 2035, and China’s will exceed everyone, individually, by 2040. The factors behind this performance are very diverse: a probable technological “explosion” in China; the continuity of Russia’s extraction activities; and huge competitiveness in Brazilian agriculture and in Indian internet services and information technology – the latter of which is already taking place. Although the Brics’ joint atomic mass might overtake G7, in per capita terms their well-being and productivity indicators will remain below the developed countries’. 2. What is the Brics relationship with the global economy? Economic transformation is the result of a combination of structural and politically based factors. Russia and China sunk in the destructive chaos of their socialist economies through the charismatic force of their original leaders. Despite being efficient when it came to party organization, these leaders – Lenin and Mao – were unable to grasp the way in which a modern market economy works. In Russia’s case, the transition to capitalism has remained erratic, whilst China has seen a combination of political authoritarianism and firm guidance towards a market economy. China is unique in world history in terms of its sustained growth, with structural transformations that have an enormous social impact. In the case of Brazil and India, transformations have been due less to a directed “return to the market” or “revolutions from above” than to the “deep forces” of their semicapitalist regimes, whose creative energy was released by economic opening and trade liberalization. Brazil’s central problem was to break with self-feeding inflation and the pernicious effects of exchange rate pressures. This process was conducted in full, despite the financial turbulence that threatened an adjustment between the second half of the 1990s and the beginning of the 2000s. India, meanwhile, had to lift itself from a Mesozoic state of planned economy and over-zealous protectionism. Although it faced some delays, this process was facilitated by a high-quality economic Diaspora in the main developed economies – a phenomenon that also took place in Chinese history, but with different characteristics. Strictly speaking, China seems to have reproduced – at a higher adaptation pace and with the huge ambition of rapidly recovering from the lost decades of crippling socialism – the Japanese experience of the Meiji Revolution. It has sent its offspring to learn from the scientific and technological leaders of advanced capitalism. Above all, China has focused on the Japanese post WWII miracle, in which the country copied and adapted Western knowhow with extreme care and quality, in order to make the same products with its own designs and brands. China is the only emerging nation among all the Brics that seems destined to 4

convert itself into a dominant economy, as well as a technological and military power. However, the country is still very far from offering its citizens – many of whom are still subjects of an authoritarian regime – the level of individual well-being enjoyed by the populations in advanced capitalist countries. Russia has lost territories with important natural and human resources and therefore does not seem close to recovering the political and strategic relevance enjoyed during the height of its geopolitical expansion at the end of the 1970s. Despite owning a formidable nuclear arsenal and the capacity for some military projection, the country is in no condition to challenge the two global economic giants of the mid-21st century. Russia’s resources are finite and its demography is declining, albeit having a high quality human force. India, for its part, is apt to master, with competence, the electronic services it already offers with expertise. It will, however, have to absorb into the market economy hundreds of millions of rural workers stagnating in an ancestral economy. Brazil has almost a generation ahead of it to benefit from a demographic bonus, namely the best possible relationship between the economically active and dependent strata of people. This opportunity will probably be missed, largely because of the low levels of technical qualification and education among the population, which will reduce productivity gains. These shortcomings should not prevent the Brics from gaining greater relevance, which they will through their heavy demographic weight and growing consumer market, with the possible exception of Russia. But they will be unable to reach the levels of technological excellence of nearly all of the countries of the advanced capitalist world. Once again, the exception should be China, which will reproduce Taiwan and South Korea’s technological performance with surprising rapidity. In the case of liberalizing capital movements and trade policy, Bric approaches tend to vary, although tending towards the adoption of a pattern more propitious to those countries’ international economic integration. This is in contrast to the restrictive policies adopted by all of these countries less than a generation ago. The most important ruptures took place, obviously, with the two socialist giants, as in contrast Brazil and India were on the edges of a capitalism characterized by an overwhelming state presence. These latter two countries were founding members of GATT and were there at the very start of the Bretton Woods institutions, without having to necessarily take on their prescriptions for economic policy. China and Russia joined the IMF and IRBD as soon as they overcame ideological restrictions to these symbols of the capitalist world, but the process was more complicated in the trade sphere. It took 14 years for China to be admitted to GATT, something that took 5

place only just before the Doha Round (2001) began. It still maintained some practices at odds with normal trading relations. Russia, while politically accepted into the G7 and fully recognized as a market economy since the Kananaskis (2002) G7 summit, has been unable to meet the demands required to be accepted into the multilateral trading system. Neither does it appear close to entrance into the Organization for Economic Co-operation and Development (OECD). Its recent resumption of a muscular foreign policy could push it even further from these organizations. Over the decades, Brazil and India have maintained the typical pattern of “developmentalist” policy prescribed by Keynesian economists like Raul Prebisch and Gunnar Myrdal. This meant a lot of monetary profligacy, exchange restrictions, trade protectionism, and discriminatory measures against foreign investments. These policies began to change at the end of the 1980s and the start of the 1990s. The countries still have a defensive trade policy in the industrial area but, thanks to information and communications technologies, India has opened up its service sector, while Brazil has proved more hands-on in combating farm subsidies and protectionism (which should include Brazil’s G20 allies China and India). The monetary, trade and foreign investments policies of the Brics are as varied as their forms of global insertion, but the results are reflected in current accounts. Brazil came out of a quite fragile situation between the second half of the 1990s and the beginning of the 2000s – which prompted it to seek preventive financing through three agreements with the IMF (1998, 2001 and 2002) – into a relatively comfortable international position of foreign reserves higher than foreign debt. With its huge trade surpluses, China is on the way to further record currency reserves, and should remain as a dynamic exporter in the foreseeable future. Russia’s trade surpluses are either growing or comfortable, but its structural position is fragile due to its dependency on oil and gas. India’s deficits, despite rising, are manageable in relation to its also growing economy. All those scenarios should suffer the impact of the international financial crisis started in the U.S., but emerging economies are expected to maintain a higher rate of growth than those of OECD group. 3. What will be Brics’ future impact on the global economy? The justification for the Bric acronym, according to its original proponent, is the extent to which these economies have an impact on the global economy, as well as their capacity to shape the future of other developing nations. Barring Brazil, with very modest 6

growth rates over the last years, the three other Brics have been gaining weight and importance globally and within sectors. In theory, in a few years the Brics will represent a fifth of the global economy and in two decades will overtake the G7. This aggregation of individual volume might make sense in this type of intellectual exercise, in which arithmetic seems to prevail over politics. However, it is unlikely to indicate global economic development trends, as these are caused by technological transformation and capital, scientific and strategic information flows – as shown by the history of capitalism. In fact, given their demographic importance and the growing dissemination of technology and direct investment, we could say that developing countries’ share in global goods and services exports and GDP will certainly rise above current levels. This is an elementary conclusion that adds nothing to the other aspects – especially institutional and political – that interact with the structural forces that shape the global system. Basically, despite the Bric’s decisive economic impact, this feature by itself says nothing about the other factors behind a complex relationship that goes beyond GDP and exports, and into reciprocal interdependency – not between the Brics but between each of them and their various economic partners. From this point of view, the Brics group do not have an economic existence per se and is purely a creation of the “economic spirit”. Despite arguments about the decoupling of the main emerging economies from the G7 and other developed nations’ economic cycles, the truth is that the dominant economies’ impact on Bric is more decisive than normally admitted. It is not only about consumer markets and direct investment sources. The global economy is not just an economic space for the exchange of goods and services, where each nation can have greater or lesser “physical” interaction. It is, essentially, an arena for the exchange of ideas, in which the intellectual domination of the so-called developed Western world looks set to remain throughout the foreseeable future. When we look at the overall picture for the global economy, we reach an inevitable conclusion: the same forces that have transformed the world since the 16th century are still shaping the contemporary world. These forces include not only the flow of goods and services, but forms of economic organization and above all, the production of ideas and concepts to support those physical flows. Therefore, it is inconceivable to consider that developing or emerging nations could be independent from the core of the global economy. The path and economic destination of the Brics and other emerging economies cannot be different from those followed by developed nations. The latter set the basic parameters on 7

which the economy is based. However, this dynamic process is not exclusive to a specific center, but shared by several centers producing and spreading ideas and practical knowledge. The apparently novel concept of Bric is a trouvaille that has occupied journalists’ minds and instigated the imagination of academics in their search for new ideas. This concept seems to induce those concerned with the old hegemony to seek a rupture with and the replacement of an “old system”. It is historically rare to have peaceful attempts to change the balance of world power, as the beneficiaries of the status quo tend to resist the contesters’ demands for a new space in the old order. If these expectations are not met, the new contestants could opt for changing this order by their own initiative – hopefully through peaceful ways, but if necessary, they will try through violence. Once the fascist contesters of the inter-war period were contained, defeated and radically transformed, the geopolitics of world power began, as of 1947, to be dominated by Soviet expansionism without direct confrontations with the US. Conflicts took place often via proxies, with each side advancing and retreating in peripheral arenas where the crucial aspects of the great game were being played. This “Third World War” ended without the conservative hegemon winning a victory; the defeat of the economically weaker side was actually brought about by the implosion of a senile socialism that was incapable of competing in terms of productive efficiency. After the USSR’s spectacular demise and in a moment in which the US emerged as the only superpower, the world seems to be moving towards a transition. This new stage sees the US’ decline and China’s ascendance, the reaffirming of Russia’s strength or the emergence of new players (India, Brazil, the European Union), which could redistribute the cards in new strategic scenarios. Whatever the future of global geopolitics in the 21st century – be it a new Cold War of a “Cold Peace” – it has nothing to do with being a member of a group invented by an economist, even though there might be conflicts generated by some of these members’ candidacy as emerging global powers. The Bric’s situation is accidental and fortuitous, whereas being a global emerging economy is a structural condition that was acquired by a long and slow process of productive and technological qualifications that will naturally convert into military and political power. Bric’s two former socialists have authoritarian characteristics that represent a legacy of centuries of totalitarian states. The other two members have had democratic trajectories with faults in terms of functioning and social justice – and are the market economies closest to capitalist organization patterns. Of all the members, Brazil has the most advanced capitalist structures and the most modern society. It is also the most integrated society in language, 8

cultural, ethnic and possibly religious terms, which in principle enables a more efficient political administration - without institutional ruptures - and more favorable conditions for modernization. Although social democratization can slow growth and adaptation to new environments, it also contributes to greater cohesion around national goals. The main issues dividing the world today are no longer ideological, as they were less than three decades ago, when competing projects were trying to win peoples’ hearts and minds. Neither are they technical, as there seems to be reasonable consensus and collaboration among the world’s researchers and scientists about the challenges of medicine, physics and biology. Today’s main dilemmas are about political priorities and alternative economic measures to be chosen by heads-of-state for solving the age-old problems that afflict mankind: hunger, unemployment, health, education, security and welfare. Experience in the recent past about these choices and attempts to impose them on whole societies in an authoritarian manner, does not reflect well on some of the solutions proposed by radical challengers to the status quo. We do not have to go back to the terrible example of Nazi Germany or militaristic Japan to conclude that emerging powers tend to be hasty competitors ready to use violence if necessary to challenge the power of older hegemons. That History lesson must have been learned, however. Let us hope this time it will be different. [Revised PRA: 29Jan09]

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...economies, Brazil, India, China, Russia, Indonesia, economic growth Future of the BRICs Different options exist for companies to expand their markets globally. For example, companies may choose an exporting strategy, product licensing, or joint ventures. Alternatively, a company’s strategy may involve foreign direct investment (FDI) in another country by building a subsidiary from the ground up in the host country – a greenfield venture – or by acquiring an existing foreign entity. All globalization efforts present some risk. There are risks of encountering trade barriers with an exporting strategy and risk exists for either loss of the investment or lack of control over the foreign enterprises with FDI. For an individual company, there are pros and cons for each of these strategies in a particular country and the strategies have long-term economic, social, and political implications for the nations involved. The resulting interrelationships impact commerce and financial markets worldwide. Some companies and investors focus their global strategies on emerging markets where rapid growth might be anticipated. Convertibility of a selected market’s currency may be a potential problem especially for emerging markets. For example, the Russian ruble was not convertible into U.S. dollars until 2006. In addition, national governments may restrict currency exchanges in order to maintain monetary reserves for debt payments. In emerging markets without convertible......

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The Brics

...they foster the development of powerful self-interests that threaten social liberties and political rights. As social turmoil has made governments vulnerable to antiprivatization protests and forced foreign firms to retreat, it has become obvious that the road to greater economic and political freedom is uncertain. CLOSING CASE: Meet the BRICs [See Fig. 4.5.] Over the next 50 years, changes in the relative performance, scale, and scope of the world’s economies will be dramatic. Most notably, data indicate that the combined economies of Brazil, Russia, India and China—the so-called BRICs—should surpass those of the G7 nations by 2050 [see Fig. 4.5]. In fact, of the original G7 nations, only Japan and the United States will still rank among the world’s largest economies at that time. Thus, managers need to rethink their traditional views of the economic environment as they encounter fundamental shifts in investment and spending, increasing competition for inputs in the world’s commodity markets, and the rapid growth of consumer markets in many transition economies. Other significant impacts loom as the leaders of the BRIC nations seek to collectively develop their economies and political presence through the creation of a multilateral alliance amongst themselves. No matter what the outcome, the fallout will be momentous as the world’s emerging economies come into their own. Questions Debate the relative merits of GNI per capita versus the idea of......

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Bric

...BRIC is an acronym standing for Brazil, Russia, India and China. Although can be categorized by importance of countries, it would be CIRB which is China, India, Russia and Brazil. The BRIC are both the fastest growing and largest emerging markets economies. These four countries encompass more than quarter of the world’s land area and in 2009 accounted for more than 40% of world’s population, 40% of the world’s foreign exchange reserves and 25% of world’s GDP. The states, which were earlier, accepted to consider as developing countries of Third world, promptly become economic giants of the new world. BRIC: Brazil, Russia, India and China – four markets everyone with the unique features, but thus unites them the potential generated by changes in political systems of these countries. As a result of these changes there was a consumer demand, which is formed by 43% of the population of the whole world. In roughly developing countries of BRIC there are five of the ten largest cities of planet where concentrated the huge amount of capital and millions of consumers who are aspiring up on social and economic ladder. The term BRIC was included into a business lexicon in 2003 after the economist of Goldman Sachs investment bank Jim O'Neill described future economic picture of the world. In his opinion, by 2050 the economic capacity of these four countries will allow them to become dominating economies, and to surpass in scales not only economy of the USA, but also economy of all of......

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Bric

...emphasises the role of BRICS (Brazil, Russia, India, China and South Africa) as a new global growth engine, an alternative export market, and a key sourcing hub. The economic might of BRICS can be gauged from the fact that it accounted for 42.3 per cent of global population, 18.2 per cent (25.7 per cent on PPP basis) of global GDP, 17.8 per cent of FDI and 16.3 per cent of global trade in 2010. However, despite the existence of the huge trade (and investment) potential on account of similar consumer preferences, comparable per capita income, and often complementarities of resource endowment, the intra-regional trade among BRICS nations isn't even 10 per cent of their total trade. INDIA'S TRADE When it comes to India's trade (export and import taken together) with the BRICS, it has grown from roughly US$ 9 billion in 2000-01 to US$ 106 billion in 2010-11. As a result, its share in India's merchandise trade has almost doubled (from 9.4 per cent to 17.1 per cent) in this period. This is quite in contrast to the share of India's traditional trading partners — EU-27 and North America — which has declined from 36.5 per cent in 2000-01 to 22.6 per cent in 2010-11. When it comes to India's export, this decline (in the share of EU-27 and North America) is sharper i.e. 29.3 per cent in 2010-11 from 46.3 per cent in 2000-01. This underlines the growing importance of the BRICS region as a key export market vis-à-vis the developed markets. However, growth in India-BRICS trade isn't......

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Bric

...Los BRIC son los nuevos países emergentes (Brasil, Rusia, India y China), según el economista Jim Oneil, presidente de Goldman Sach, uno de los grupos de inversión más grandes del mundo. La teoría de los BRIC expone que los nuevos países emergentes, considerados las cuatro nuevas potencias mundiales, han mostrado durante la última década crecimientos económicos que podrían hacer que en el año 2050 superen a las economías principales como Estados Unidos o Japón, que forman parte del G7. Hay algo que tienen en común estas naciones, y es que las cuatro poseen una gran extensión territorial, que entre ellos conforman el 25% del planeta, tienen abundantes recursos naturales y también una densidad poblacional bastante grande y juntos forman un poco más del 40% de la población mundial. Se ha visto que la población ha mejorado sus ingresos de una forma rápida y dramática en la última década. Son naciones que han cambiado sus sistemas políticos para integrarse al capitalismo global. También son países que consumen una gran parte de su producción, haciendo que estas no dependan tanto de las economías internacionales, específicamente de Estados Unidos. Todas son naciones que hace muchos años le apostaron a la educación de su gente y es esto lo que en una buena parte está haciendo que con el pasar de los años estén teniendo cambios positivos que los ha hecho, desde la década de los noventas, que estén sobresaliendo y sean considerados como nuevas economías emergentes y también hayan...

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Bric

...Institute of Professional Education and Research, Bhopal Business Environment Report on BRIC 2050 India performance and status Submitted To: Submitted By: Prof. (Dr.) Resham Chopra Bharat Naryani Priyank Ajmera BRIC BRIC are the acronym used to refer to the combination of the four biggest emerging-market countries: Brazil, Russia, India and China. According to Wikipedia BRIC (Brazil, Russia, India, and China) is a coalition of regional and superpowers reportedly proposed by Russian President Vladimir Putin. Predictions & Projections: Economists argued that, given sound political decision-making and good luck, the BRIC economies together could become larger than those of the world’s six most developed countries in less than 40 years. i.e BRIC economies of Brazil, Russia, India and China together would be larger than G6 (G7 excluding Canada) in USD in less than 40 years. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050. It is projected that  the Brics to account for close to 40 per cent of global GDP by 2050 and to have become four of the world’s top five economies. It is projected that the Brics’ rise in absolute terms will push them up to the top of the global leaderboard, in per capita GDP their performance will not be quite so impressive. Reasons why India will rise: 1) Manufacturing productivity will drive growth. It’s performance will improve due to globalisation and increased......

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