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Bric

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Submitted By bharatnaryani
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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 competition.
2) India’s economic reforms are the reasons for this astounding predicted growth. India’s “increased openness to trade, investment in information and communication technology, and greater financial deepening.”
Some more important points from the point of view of BRIC:
1) Growth for BRIC countries will slow at the end of this period.
2) Individuals in the BRIC countries will still be poorer on an average than individuals from the G6 countries, with the exception of Russia. China’s per capita is expected to be $30,000, approximately what it is for the developed nations today.
3) Local spending patterns will change and this will impact the demand and pricing of various commodities and products.
4) Companies who do business globally will benefit.
5) BRICs economies in the next 40 years will be larger than the G6 in US dollar terms! Currently they are worth less than 15%.
6) Russia could overtake UK, Germany, France and Italy.
7) China could overtake Japan, Germany and lastly by 2039 – the US.
8) Of the current G6 countries, only two may remain in the G6 – US and Japan.
The BRICs countries will straddle the world in less than 50 years and Europe will be left behind.
BRIC and India’s performance
The group formed by Brazil, Russia, India and China which was created to fasten the growth of respective economies does not appear so great for India. If we to look at some stats, growth up to three months to March was 5.3% which is worse than the anticipated 6%+ growth. Double digit growth mentioned as the target recently by the Finance minister and the Prime minister looks like a distant dream looking at the latest quarterly figures.
This growth rate will bring some major issues for economy for the country. Financial stability will be a big reason to worry with GDP rates along with inflation floating around low teens. It can very well avoid the debt spiral though, with the rates higher than the rate of interest India’s government pays on its debt.
Financial stress will be all-over the market due to balance of payments, which is the main reason for the depreciation of rupee. With large deficits showing, the country needs to attract large foreign investments which in the given circumstances are pretty tough, given many foreign policies being unfavorable for other countries to invest.

Another problem is the social stability in which India is poor when compared to the other BRIC countries. Lots of Indian youth are graduating every year and to suffice their needs, more jobs need to be created. I not done, nothing but unemployment will increase in the country. None can imagine what if thousands of youth get on roads showing their protest!
Economic situation, however, is not so great in China and Brazil too. India, which is known as ‘growing country even when the world is in darkness’ will no longer continue the same impression on the world. Foreign investments are evidently drying up, case in example – no body is coming forward to bail out the flagging aviation sector in the country. Flawed policy making is not helping the issue either. It seems like the growth expectation which is in double digits now will slip to even 6% or lower. Bounce back in this situation is not possible until a miracle occurs!
Recent meeting of BRIC announced financial package to the Euro Zone to improve the world economy. India also gave its share and though it is for the world economy to get back to feet, a question from the normal man is, is it necessary to announce packages to other countries in the name of fight against terrorism, developing mutual relations

India’s growth will continue to rise ..

* India opens up
With the onset of reforms in 1991, India began to release its closed economy by gradually lowering its very high trade barriers and boosting exports.. The impact of opening up has been significant. Exports have risen 14 times as India has rapidly gained trade share. This development has been most evident in the past three years, when trade has grown, on average, 25% a year. * Increased openness has contributed significantly to increasing productivity: * It provided domestic firms with access to superior inputs, ideas and technology. * The increased competition from actual and perceived imports has focused domestic firms on the need to improve efficiency as critical to survival. * It has rewarded the most efficient firms while penalising the most inefficient domestic firms, thereby improving average productivity.

* The Rise of the financial sector
Starting from a low base, the financial sector has grown rapidly in the past decade, and especially in the past four years, and has contributed to the jump in productivity. Credit to the private sector has grown by an average of 32% over the past two years. Increased financial intermediation improves resource allocation by effectively channeling savings into investment and raising productivity.
India’s financial sector is still relatively small compared with the size of its economy, as well as with those of its East Asian neighbors. Assuming that policies to open up the financial sector remain on track, including the entry of foreign banks starting from

* Back-office to the world
The success of the IT industry in India has had a material impact on productivity. Apart from the direct productivity gains of the major IT firms, it has had spillover benefits through two channels: * It has provided powerful incentives for students to invest in IT skills. This has created a pool of technology-skilled labour that firms in other industries can tap into. * It has had a demonstration effect on other domestic firms, leading them to ramp up their own technology spending, thereby boosting productivity.

* The Golden Quadrilateral
The Golden Quadrilateral Highway project is the first part of India’s most ambitious infrastructure project since the building of the railway network by the British in the 19th century. In the last 50 years, the government has built just 334 miles of four-lane roads. The Golden Quadrilateral aims to build 3,625 miles of four- and six-lane highways. The highway will connect the four largest cities.

* The Great Migration
The 21st century is set to become India is urban century with more people living in cities and towns than in the countryside for the first time in its history. India has 10 of the 30 fastest growing cities in the world and is witnessing rapid urbanization. The growth is happening not in large cities, but in small and mid-sized towns. In 1991, India had 23 cities with a million or more people

* The land factor
The imminent shift in land from agriculture to urban use and industry constitutes another source of potential productivity gain. Land is a critical input needed to keep the development process moving, allowing for the shift of people from the rural to the urban sector. Access to land is needed for factories and housing projects, and to create tens of millions of jobs in construction in the short run, as well as longer-term employment.
When land moves from low productivity agriculture to urban use and higher productivity sectors, overall productivity improves. However, India will need investments in agriculture to boost productivity, especially in rural connectivity, storage, etc., to improve the yield of remaining agricultural land.

* Conclusion

Long term projections are always uncertain. So India need to be very careful while framing fiscal and monetary policies. We all have experienced many examples of failure due to bad policy and proper implementation.

However, these projections provide a framework based on clear assumptions that can help investors to assess future developments and to position themselves to take advantage of emerging opportunities.

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