Chapter 4

Macroeconomic Trends in BRICS Countries

4.1 Introduction
Brazil, Russia, India and China together form the grouping acronym
BRIC. Jim O’ Neill of Goldman Sachs in his paper “Building Better
Global Economic BRICs” a paper focusing on the growth aspects of the
four largest emerging economies that are distinct in cultural aspects and
geographical positions, coined the term for the first time in 2011.
According to him in the current global scenario, the cooperative strength
of BRIC has a pivotal role to play in the growth of the global economy.
The BRIC nations witnessed rapid growth changing the life style of the
population and the global economy as compared to the other nations that
stumbled across the deficit budgets, mounting unemployment rates, and
ineffectual growth.
Goldman Sachs’ report on the effective economic growth happening
in Brazil, Russia, India and China (BRIC) nudged the world to realize the
potential and importance of the group at the global level. The report
pointed towards the unnoticed gradual shift occurring in the global
economic power from the developed to the developing countries. The four
countries together accounted for more than 25% of the world's
geographical area, with 40% of the world's population, and their
economies together contributed about 46.8% to the global growth in 2011.
Goldman Sachs noting the rapid growth of BRIC nations, proved in
a paper that by 2050 the combined economies of BRIC could conceal the
pooled economies of the current world opulent countries. These nations
were seeking to form a ‘political club’ or ‘alliance’ which could convert
their growing economic power into a greater ‘geopolitical clout’, so that at
every global scale they would become the largest entity, the biggest and
the fastest growing emerging markets. Jim O'Neill in August 2010, opined

67
that Africa would be the next BRIC nation, and thus, on December 24,
2010, South Africa was officially admitted into the BRIC nations. It was
China and the other BRIC countries who had invited Africa to join the
group. Thus, the cluster of BRIC nations now became plural in literal sense
and was called BRICS.
This study is organized as follows: Section 4.2 Deals with the
monetary policy frameworks in BRICS countries. Section 4.3 discussed
the Global financial crisis and their impact on BRICS countries. Section
4.4 explains the economic structure of BRICS countries. Section 4.5
examines the exchange rate regimes and inflation. Section 4.6 briefly
discuss the growth performance in BRICS countries and why BRICS are
important in the emerging world order and the chapter concludes with
Section 4.7.
4.2 Monetary Policy Framework in BRICS Nations
The monetary policy framework of the economies of BRICS operates
differently as evident from Table 4.1. Nations like South Africa and Brazil
concentrate on inflation- targeting regimes, while China, Russia and India
operate various frameworks. The monetary phenomenon history is
discussed here in brief.

68
 Table 4. 1 Monetary Policy Framework in BRICS

Country Monetary Policy Framework Key Monetary Policy Tools Objectives

Brazil Inflation Targeting Interest rate (Selic rate): Interest rate on Inflation point target 4.5 per cent with
overnight interbank loans collateralized tolerance range of 2% points headline CPI
on federal debt instruments

Russia No single target indicator OMOs and standing facilities; reserve To ensure stability of national currency
-Inflation (CPI) targeting for 3 requirements
years period
-Managed floating exchange
rate regime
India Multiple Indicators Approach Key policy Report/ reverse repo rate and Maintain price stability, financial stability
reserve requirements, CRR and SLR and ensure appropriate flow of credit to
productive sectors

China Multiple Indicators Approach Reserve requirement ratio, central bank Maintain the stability of the value of the
base interest rate, rediscounting, central currency and thereby promote economic
bank relending, open market operation, growth

69
 and other policy instruments specified by
the State Council

South Africa Inflation Targeting Key policy rate: Repurchase rate Inflation target range for headline CPI of 3-6
per cent combined with financial stability
objective

70
4.2.1 The Central Bank of Brazil
It was in June 20, 1996, that the monetary policy committee (COPOM) of the
Central Bank of Brazil (BCB) was created. It was allotted the responsibility of
setting the viewpoints regarding the interim interest rate and a suitable monetary
policy. Enhancing the transparency, providing regularity in monetary policy and
their decision making processes were the major objectives behind the creation
of COPOM.
In June 1999, for making the monetary policy effective a formal inflation-
targeting framework was executed by Brazil. In this process, COPOM set their
main target in monetary policy decisions to achieve the National Monetary
Council’s (CMN) inflation targets. The Governor of the Central Bank writes an
open letter to the Minister of Finance when the inflation breaks the target set by
the CMN. The letter clarifies the reasons for the mishap along with the rectifying
measures taken to bring inflation back to the target, and the required period to
obtain the effect of the changes made.
Over-Selic rate, which is commonly understood as inter-bank interest rate
is the main instrumental policy of the BCB. The target for over-selic rate is set
in the BCB’s monetary policy committee’s (COPOM) regular meetings. Open
Market Operations Department (Demab) is made responsible to meet 22 such
set targets began by the COPOM through market operations.
Since 2006, COPOM has met eight times, with each meeting lasting for
two days. Every minute of the meeting is made available by the Committee on
the website of the Bank exactly eight days after each meeting and the press
officer then passes it onto the press. The Inflation Report of Central Bank is
published quarterly (March, June, September, December) by COPOM detailing
information on nation’s economic conditions and COPOM’s new inflation
projections made in its latest meeting.

4.2.2 Bank of Russia

The Bank of Russia’s monetary policy is intended to preserve the financial
stability of the nation and create new conditions favorable for the economic
growth that can be sustained. It was in the beginning of the 21st century that
Russia started new policies to contain inflation rates and smoothen the
fluctuations of nominal exchange rate. In reducing the rate of inflation, the bank
71
started measures like reducing the interventions made in the domestic foreign
exchange market, increasing the flexibility of exchange rates, and gradually
initiated winding up anti-crisis measures for stimulating the interest rate policy.
The monetary policy committee set their principal objective as reducing
inflation to an annual rate of 5% for the following three years.
Currently, the Bank of Russia uses standing facilities, open market
operations and reserve requirements as the different monetary policy
instruments. The Bank of Russia impacts its interest rates through the open
market operations and standing facilities, where the REPO and lombard loans ─
the fixed rate on overnight refinancing operations become the upper limit of the
interest rate corridor and fixed overnight deposit rate turns out to be the lower
limit.
Intended at justifying the effects of external shocks caused at the
background of managed floating regime on the economy of Russia, the
exchange rate policy was implemented by the Bank of Russia. For Russia, the
ruble value of the bi-currency basket is the functional standard of the exchange
rate policy which presently consists of 0.55 US dollar and 0.45 euro. The
floating operational intra-day band of fluctuations in the value of bi-currency
basket is used by the Bank of Russia.

4.2.3 Reserve Bank of India

Reserve Bank of India (RBI), the nation’s sole monetary authority formulates,
implements, and monitors the country’s monetary policy to confirm adequate
credit flow to the productive sectors and maintain price stability as their major
objective. In India, monetary policy is concerned with rising current capital
account liberalization, changing patterns of credit requirements of the real
sector, liberalization of the financial sector, and rapid changes in the world
economic scenario. Thus, substantial changes are seen in the functional
procedure of monetary policy in terms of targets and instruments.
The two major objectives of India’s monetary policy as mentioned earlier
are maintaining price stability and ensuring availability of adequate credit to
productive sectors of the economy. This will ensure constant growth of nation
even though their relative importance varies depending on the different

72
circumstances. Currently, along with this an inclination has developed for the
interest rate that creates soft and flexible environment within the framework of
macroeconomic stability. Though the use of broad money as an intermediate
target has been de-emphasized, the growth in broad money (M3) is continued to
be used as an important indicator of monetary policy. It was in 1998-99, that a
multiple-indicator approach was adopted to draw policy perspectives where the
interest rates or rates of return in different markets (i.e., money, capital, and
government securities) along with high frequency data on currency, fiscal
position, credit extended by banks and financial institutions, trade, inflation rate,
exchange rate, capital flows, refinancing and transactions in foreign exchange
are juxtaposed with output data.
RBI has also restructured its supply of instruments, slowly substituting
direct instruments with the indirect ones along with the increasing market
orientation of the financial structure and deregulation of the operations of
commercial banks. In recent years, the thrust of monetary policy has mainly
been to develop a group of instruments that could transmit liquidity and interest
rate signals in a more flexible and bidirectional manner in a short period. It was
in June 2000, that Liquidity Adjustment Facility (LAF) was initiated to
modulate short-term liquidity and signal, with short-term interest rates. The LAF
usually functions using repo and reverse repo auctions, thus establishing a vent
for the short-term interest rate to be consistent with other policy objectives. The
RBI has thus been able to modulate the large market borrowing program by
combining strategic devolvement/private placement of government securities
with active open market operations.

4.2.4 People’s Bank of China

It is The People’s Bank of China (PBC) that determines the objectives of
monetary policy in China. Their main objective is to sustain the stability of the
currency value which ultimately promotes economic growth. The central bank
base interest rate, reserve requirement ratio, central bank lending, rediscounting,
open market operations, and other policy instruments specified by the State
Council are the major monetary policy methodologies initiated by the PBC.

73
 In the formulation and adjustment of monetary policy and in
macroeconomic management, China’s Monetary Policy Committee plays an
important role. It is the State Council that prescribes the composition,
responsibilities, and working procedures of the committee and the committee
made the consultative body responsible for the formulation of monetary policy
by the PBC. The major responsibilities of this body are to advise on the
formulation and adjustment of monetary policy, the targets needed for a certain
period, application of monetary policy instruments and major monetary policy
measures, and coordination between monetary policy and other macroeconomic
policies. The committee also plays a consultative role based on the inclusive
study made on macroeconomic situations and the macro targets set by the
government. The committee usually functions through regular quarterly
meetings. An ad hoc meeting could be held in urgent case, if proposed by the
chairman or recommended by more than one-third members of the monetary
policy committee.

4.2.5 South African Reserve Bank

In the Constitution of the Republic of South Africa, the South African Reserve
Bank’s (SARB) mandate is defined as “the protection of the value of the
currency in the interest of balanced and sustainable economic growth in the
Republic.” It is from this constitutional mandate, that the bank derives its
primary goal of the South African economic system. Their main objective is
‘achievement and maintenance of price stability’. In February 2000, the
monetary policy adopted inflation targeting as a framework. The main objective
was to achieve and sustain headline with CPI inflation within the range of 3-6%
on a continuous basis.
The government also helps in setting the inflation target in consultation
with the Reserve Bank. The monetary policy committee of SARB meets at least
six times a year. Decisions made are publicized immediately after the meeting
at a press conference that is transmitted on television and later the monetary
policy committee statement is published on SARB’s website. The minutes of
the meetings are not publicized on the website, but the bi-annual Monetary
Policy Review, which is published later discusses the factors influencing
inflation and the risks to the output. SARB also conducts Monetary Policy
74
Forums that connect directly with the public twice a year held in major centres
of the country. In addition to this, the Governor of SARB appears at least thrice
a year before the Parliament’s Portfolio Committee on Finance.
The SARB thus, implements inflation targeting in a flexible and forward-
looking manner acquiring knowledge of external shocks to the economy, along
with other factors like the changes in the output gap and domestic imbalances.
Financial stability is yet another important objective of SARB.
SARB also focuses on maintaining and improving its domestic market
operations. It carefully monitors the liquidity in the domestic and international
interbank markets. It was not necessary to provide any special or additional
liquidity to domestic banks beyond the normal daily operations during the global
financial crisis and the subsequent recession, even when the contingency plans
were put in place and communicated to the banking counterparties,.
Further, the monetary policy committee grasps new movements in the
exchange rate and their potential impact on inflation in determining policy rates.
Still, the rand is a free-floating exchange rate and SARB never tried to influence
the level of the currency. Interventions, if any, were aimed at easing the
excessive currency volatility through open-market operations in the short term.
Through the last few years, reserve accumulation became very necessary to
reduce South Africa’s external vulnerability in confronting a rising current
account deficit.

4.3 Global Financial Crisis and Its Impact on BRICS Nations

Developed countries had witnessed a global financial crisis in 2008 which had
impacted the world economy severely and their economic recovery prospects.
The BRICS countries or the newly emerging economies, namely, Brazil, Russia,
India, China and South Africa had to confront bigger challenges during this
crisis. Thus, it becomes important for each of these nations to alter their
development strategies so that sustainable economic development could be
achieved fast.
The BRICS nations are all developing countries. They ensure healthy
economic development and a speedy growth. Today, though they have become
prominent names on the world economic stage, they have to face several
challenges like unstable economic development models, the pressure of
75
economic transformation and upgrading, the negative impact of unfamiliar
challenges, and external strategic pressure/internal political uncertainty.
The economic development models of developed countries like the United
States, Europe and Japan are totally different from that of the BRICS nations.
Abundant mineral resources, low-cost labour and few technological innovations
form the basis of economic growth in the five BRICS countries. For instance,
China depends mostly on investments vis-a-vis consumption which does not
have any contributing value for the growth of its economy.

4.4 The Economic Structures of BRICS Nations

In reality, the economic structures of BRICS nations are not sufficient. Russia
mainly depends on energy, military and heavy industries for its economy, while
Russian services and financial sector are underdeveloped. China stands at the
farther end of the industry-chain structure, while South Africa, Brazil and India
cannot claim to have a comprehensive industrial system and their external
dependence is evident.
Considering the inflation prospective, both the external and internal
environmental changes had caused these large emerging economies to devote
their time to the transformation, the urgent and the most difficult task. At the
global level, it is noted that for the BRICS countries there was a general rise in
the inflation rate. In the last few years, the overall inflation rate of BRICS
countries have increased year after year. In 2012, the exchange rate of the
Russian ruble to the US dollar had appreciated by 5% and renminbi (currency
of the People’s Republic of China) had appreciated by 5%. On the other hand,
the Indian rupee, Brazilian real and South African rand together confronted
serious devaluations as these countries experienced a drop in the growth of
capital flight and foreign investment.
China and India in regarding the case of labour force mainly relied on
profuse and at the same time low-cost labour force. Thus, these countries are
engaged in the outsourcing of services and in processing and exporting of low
value-added labour-concentrated products. This will easily influence the
international market, which substantially decline the demand in developed
markets and market protection policies. Russia, Brazil and South Africa

76
primarily develop mineral products for the purpose of export. It is the export
revenue that is vulnerable to international demand and price fluctuations.
External challenges like the South China’s Sea dispute, the East China’s
Sea Diaoyu Island’s issue, and the China/India territorial issue add to the
domestic pressures of each nation. Similarly, Russia had a strained relationship
with western countries due to Crimea and the recent Malaysian plane tragedy in
Ukraine. These issues will surely decline the economic growth of the nation. At
the same time internal challenges also matter. In BRICS countries political
transparency is not so good. Corruption, polarization and terrorism are other
issues which affect economic development, political stability and market
confidence.
These challenges give the impression that the relation among the BRICS
nations is not very smooth. BRICS is a group of nations where each country has
its own circumstances. But these evident cracks between the BRICS countries
imply that the economic ties between the countries are not very strong. The
volume of trade is insufficient; their industries do not complement each other
satisfactorily and information exchange needs to be strengthened. To resolve
these issues, the rift is relatively compared to that of developed economies and
are studied as the temporary fluctuations that happen during the process of
economic cyclical changes. If handled properly, these cracks will not change the
overall trend of the economic development of the BRICS countries.
The huge population that provides resource advantages and some
industrial advantages important in the international division of labour is the
advantage of BRIC nations. Only such inclusive reforms can promote rapid
economic development. In the BRICS countries, economic development is not
aided by technology. The support of technology can do more wonders when
merged with labour resources. BRICS nations must also increase innovative
ability along with the advancement of continuous independent and integrated
innovation. They should also create a social atmosphere for creative innovative
ideas in order to improve economic innovation which is possible only by
introducing and training the talented mass. The talents should be used to build
an innovative environment and the rights of intellectual property should be
protected with the strictest legal measures.

77
 The spatial disparity among BRICS countries has resulted in increasing
the cost relatively more than economic cooperation. During this period of
globalization, it is proper for the BRICS countries to have a more practical
approach, where more effective measures and longer-term plans are necessary
to further promote economic cooperation.
To meet these challenges, few developments were recently introduced by
the New Development Bank (NDB), commonly known as the BRICS
Development Bank, whose sole purpose is to establish greater financial and
development cooperation among the five emerging markets. It is expected that
through these relations between these countries will be strengthened, creating
more opportunities for sustained economic growth and development.

4.5 Exchange Rate Regimes and Inflation

Researches in the context of both developed and developing countries have been
conducted on choice of exchange rate regimes in countries. Distinctly, in the
BRICS countries, literature on the exchange rate regimes and its inflation and
economic growth effects are very few. Although, the available literature
explains the association of the different exchange rate regimes with the
indicators of macroeconomic performance, like trade flows, growth and
inflation, but is limited. More than empirical investigation, most of these studies
focus on theoretical and conceptual discussions on the link between exchange
rate regimes and macroeconomic performance. The main reason behind this is
the complexity of the issue that gives rise to problems in relation with the
exchange rate regime classification systems. Moving on, there is no consensus
in the existing literature about the link between exchange rate regimes and
macroeconomic performance. As it has been identified that the macroeconomic
performance under different exchange rate regimes differ according to the
structural characteristics and the development stages of a country, the
succeeding analysis focuses mainly on literature on developing countries. For
example, the result for an advanced economy may be different from that of a
developing economy, when we differentiate macroeconomic performance under
a certain exchange rate regime. There is an inevitable difference in countries
which are more linked with world capital markets as compared to those that are
not among the developing countries.
78
4.5.1. Inflation:
Theoretical literature establishes a healthy relationship between inflation and
fixed exchange rate regime. The government by maintaining an acceptable
nominal anchor can reduce inflation to maintain fixed exchange rate regime.
Empirical research on this topic shows inconclusive and extensive results.
Husain et al. (2005) using the data from 158 advanced, emerging and developing
countries for the period 1970-1990 studied and classified exchange rate regimes
on the basis of the Reinhart and Rogoff’s (2004) ‘natural classification’. The
performance of exchange rate regimes in terms of inflation, growth and crisis
vulnerability was explored under natural classification and the results were
separately evaluated based on the country’s development stage. Following are
the main results of the evaluation with regard to inflation for developing
countries:
a) The exchange rate regime and lower inflation are directly proportional to
each other. The former being more rigid, controls the later better, without
giving-up in terms of economic growth.
b) Higher inflation is seen in developing countries with flexible exchange
rates, while effects of positive economic growth are deficient.
c) Developing countries with fixed exchange regimes that have limited
access to international financial markets, have minimum inflation and
maximum regime durability.
The study also found that an inflexible exchange rate regime is related to
minimum inflation, though the difference in inflation between those with
inflexible and flexible regimes is lesser for developing countries as compared to
emerging market economies that are more integrated with financial markets. On
the contrary, a relation between the flexible exchange rate regime and higher
inflation was not found for the advanced countries.
Further, Ghosh et al. (1997) used a sample of 140 countries with data
spanning from 1960-1990 and found a very similar result. In the results of both
the studies, pegged exchange rate regimes were found to be associated with
lower inflation because of minimum monetary growth and lower residual
velocity growth that controls interest rate effects and income. These results were
held even after controlling for endogeneity of regime choice. The same results
were not obtained for countries that have De Jure pegs, but De Facto floats. In
79
spite of this, Ghosh et al. (1997) like Hussain et al. (2005) did not compare the
different groups of countries. Grabbing a different methodology from these
studies, Bleaney and Francisco (2007b) alienated soft pegs from hard pegs in
their study on developing countries. Subsequently, instead of distinctly
categorizing crawling bands and crawling pegs they were all grouped as soft
pegs. They also encompassed other variables like past inflation and employed
fixed country effects to make the relationship among the inflation and exchange
rate regime healthy. Conclusively, they discovered that though hard pegs
achieve minimum inflation in developing countries, soft pegs do not have any
counter-inflationary benefits in the case of further flexible exchange rate
regimes.

4.6. Growth Performance in BRICS Countries/Why BRICS are Important

in the Emerging World Order
It is broadly observed that in the past few decades the growth caused by the
biggest developing countries, predominantly the BRICS, became a much more
substantial force in the world economy besides playing an inevitable role in
decision making.
India and Brazil are found to be comparatively more domestic demand-
driven economies in BRICS. They achieved faster economic recovery from the
financial crisis of 2008 than other advanced and emerging market economies.
Though their external linkages are very strong, they have however, undertaken
trivial rebalancing of their economies with regard to their domestic sectors
during the post-crisis period. On the basis of an assessment by Goldman Sachs,
among BRICS, four countries are estimated to be accountable for 47% of global
GDP by 2050 that would noticeably alter the list of the 10 largest economies in
the world. Over the medium- to long-term a vital variation that we may expect
is that there may be difference between the top 10 countries in terms of per
capita GDP and the top 10 countries in terms of GDP. The inborn potency of the
BRICS originates from solid domestic demand-based economies in the case of
Brazil and India, important external relationships in the case of Russia and
China, while the huge resource base and vast unexploited growth potential of
the African continent are the benefits of South Africa.

80
 In the present decade, amid BRICS, the economies which have been
growing rapidly are China, followed by India. The Chinese economy grew at an
average annual rate of 9.9% during the period 1978 -2009 that is much higher
than the world average growth rate. After the financial crises of the 1990s, the
growth performance of Brazil and Russia have also enhanced expressively.
Table 4.2 shows that the persisting economic reforms and enriched
macroeconomic fundamentals accompanied by a buoyant macroeconomic
environment have led to improved growth performance of the BRICS in the last
decade (Table 4.2).

Table 4.2: Growth Rate of Gross Domestic Product of BRICS Countries

Names 1991-2002 2002 2005 2006 2007 2008 2009 2010

Brazil 2.6 2.7 3.2 4.0 6.1 5.2 -0.6 7.5P

Russia 6.3 4.7 6.4 8.2 8.5 5.2 -7.8 4.0P
India 5.7 4.6 9.2 9.8 9.4 7.3 5.7 10.4
China 10.3 9.1 10.4 11.6 13.0 9.6 8.7 10.3
South Africa 2.1 3.7 5.3 5.6 5.8 3.7 -1.7 2.8
Advanced 2.8 1.7 2.7 3 2.8 0.5 -3.2 3.0
Economies
Euro Area 2.1 0.9 1.7 3 2.8 0.6 -4.1 1.7
USA 3.5 1.8 3.1 2.7 2.1 0.4 -2.4 2.8
World 3.2 2.9 4.5 5.1 5.2 3.0 -0.6 5.0
Note: P implies projected value.

Source: World Economic Outlook, IMF (2011).

As replicated in the high savings and investment rates, the strong

macroeconomic fundamentals are the basic reason for the strong growth
performance of the BRICS, though South Africa and Brazil still have chances
to further increase their growth rates. Over the past decade, as government and
public corporations have moved into infrastructure investment, the investment
ratio of South Africa has increased intensely, but due to low savings there is
suppression on their overall investment. China top the list, followed by India
with regard to investment and savings among BRICS nations. In the case of
China and India, the contribution of net exports to GDP reduced because of high

81
 savings. Consequently, domestic savings largely sponsored the investment-led
growth. Table 4.3 presents the savings-investment profile of BRICS nations.

Table 4.3. Gross Domestic Investment and Savings of BRICS Countries

Country 1990 1995 2000 2006 2007 2008 2009 2010

1 2 3 4 5 6 7 8 9
Brazil Investment 20.2 18 18.3 16.8 18.3 20.7 16.5 19.3
Saving 21.4 16.5 16.5 19.7 18.8 18.4 16.1 17.0
Russia Investment NA 25.4 18.7 21.4 24.1 26.2 22.7 19.8
Saving NA 28.8 38.7 34.1 33.2 34.9 33 24.7
India Investment 24.2 26.6 24.2 36 37.6 35.6 34.5 37.9
Saving 22.7 25.4 23.2 32.9 33.5 30.2 29.8 34.7
China Investment 36.1 41.9 35.1 43.6 41.7 42.5 44.8 48.8
Saving 39.6 44.1 37.5 51.3 50.5 50.2 54.2 54.0
South Investment NA 18.2 15.9 19.7 21.3 22.0 19.4 21.7
Africa Saving 19.1 16.5 15.8 14.4 14.1 14.9 15.4 20.0
Note: Not available

Source: World Bank Database

Huge topographical dimensions and population size are the prominent

features of the BRICS economies. It is generally observed that for initiating the
most stabilizing forces, all the BRICS economies have a wealthy middle class,
which is considered to be their great potential. By offering a strong foundation
for the growth and expansion of the economies, this middle-income group in
each country is emerging at wavering rates although the upcoming path is clear,
which is the broadening and deepening of the middle class.

4.6.1. Market Share in Global GDP

Over the last two decades, the BRICS economies have developed as a global
force due to their increasing share in the world GDP. BRICS accounted for 10%
of the world GDP in 1990, which is currently more than 25%. Table 4.4 shows
that BRICS’ share in the world GDP increased by 150% during the past 20 years,
which compared to their economic size is considered insignificant.

82
 Table 4.4: Overview of BRICS, 1990 and 2010
Share in
Per Capita
Rank in GDP (PPP GDP ($ bn) World GDP
Country GDP ($)
World bn) (%)
1990 2010 1990 2010 1990 2010
Brazil 8 2,172 508 2,090 3.3 2.9 3,464 10,816
Russia 6 2,223 – 1,465 – 3 – 10,437
India 4 4,060 326 1,538 3.1 5.4 378 1,265
China 2 10,086 390 5,878 3.9 13.6 341 4,382
South
26 524 112 357 0.9 0.7 5,456 7,158
Africa
Source: International Monetary Fund database adapted from the BRICS Report, 2012

4.6.2. Share in the Trade

There has been an invariable improvement from 3.6% to 15% in the share of
trade of BRICS in world GDP during the last two decades. China accounted for
the majority of it; its share rose from 2% to more than 9% over the period. Shares
of other countries have also increased. Brazil’s share rose from 0.8% to 1.2%,
while Russia’s share increased from 1.5% to 2.3% and in case of India the share
increased from 0.5% to 1.8%. However, South Africa’s share has remained
persistent in the world trade during the past two decades. Figure 4.1 presents the
trends of BRICS nation’s trade share over the last two decades.

Figure 4.1: Trend of Share of BRICS’ Trade in Global Trade, 1990-2010

(in %)

Source: UNCTAD, adapted from the BRICS Report 2012.

83
 From the point of trade, their shares play an important role in enhancing
the economic development of these countries. Evidences show that trade
liberalisation played a major role in encouraging economic growth and
simplifying development in all the BRICS countries. The main economic
parameters like extent of trade openness, present account balance and forex
assets amid others show the plainness and maintenance of a healthy relation
among BRICS countries.
When we consider the issue of inflation performance of the BRICS
countries, it is observed that inflation has radically diminished from a binary
numeral to solitary numeral. During the period 1996-2000, the highest rate of
inflation was in Russia (47.7%) and huge reduction was observed from 2000.
From 2000, the rapidity of the rate reduced and it came down to the solitary
number at 5.06% in the year 2012. From the beginning of 1992, Russia
experienced a negative economic growth and high inflation which was persistent
till 1998. However, after 1998 Russia succeeded in maintaining good economic
development. Figure 4.2 presents the inflation rates of BRICS nations over the
last two decades

Figure 4.2: Inflation in BRICS Countries

π
100
90
80
70
60
50
40
30
20
10
0
-10 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Brazil Russia India China South Africa

Source: Author’s own calculations based on the data obtained from WDI

84
 Before 1996, other countries like Brazil faced a similar situation. It is
observed from Figure 4.2 that Brazil’s inflation rate improved from 15.7% in
1996 to 5.4% in 2012. During the early 1990s, although Brazil faced a period of
hyperinflation, it redeemed its stability by accepting the ‘Real Plan’. In 2004,
Brazil’s growth rate was 5% approximately.
In case of China, the inflation decreased from 8.3% in 1996 to 2.6% in
2012. Since 1990s, China has been showing a great stability in its growth and
minimum inflation rate. In case of India, the inflation rate was 8.9% in 1996,
which rose to 9.3% in 2012, which is considered as a stable rise. Finally, South
Africa experienced an inflation rate of 7.3% in 1996 which came down to 5.4%
in 2012. Overall, BRICS countries succeeded in maintaining a minimum
inflation rate as compared to the other emerging countries.
Around 10% of present global exports involve exports from the BRICS
nations. In global export, the percentage share of BRICS nations increased from
4.2% in 1992 to 10.1% in 2004, when global trade amid the developed countries
reduced from 52.6% to 42.1%. Among the BRICS countries, a great gap is found
between China and the other four nations. China’s exports have risen to 6.4% of
global exports as a volume to imports, in comparison to those of Brazil of 1.3%,
Russia of 1.8%, India of 0.8%, and South Africa of 0.4%.

The following figures 4.3 and 4.4 and 4.5 shows the Rate of Growth of
Money Supply in BRICS Countries, Terms of Trade in BRICS Countries and
Trade Openness in BRICS Countries respectively.

85
 Figure 4.3: Rate of Growth of Money Supply in BRICS Countries

% ∆MS
9
8
7
6
5
4
3
2
1
0
19931994199519961997199819992000200120022003200420052006200720082009201020112012

Brazil Russia India China South Africa

Source: Author’s own calculations based on the data obtained from WDI

Figure 4.4: Terms of Trade in BRICS Countries

TI
3.50E+13
3.00E+13
2.50E+13
2.00E+13
1.50E+13
1.00E+13
5.00E+12
0.00E+00

Brazil Russia India China South Africa

Source: Author’s own Calculations based on the data obtained from WDI

86
 Figure 4.5: Trade Openness in BRICS Countries

TOP
80
70
60
50
40
30
20
10
0
19931994199519961997199819992000200120022003200420052006200720082009201020112012

Brazil Russia India China South Africa

Source: Author’s own Calculations based on the data obtained from WDI

With regard to population, India and Russia’s population began to

diminish, on contrary to the enduring healthy growth in that of China’s, while
South Africa and Brazil managed to maintain a gentle growth in population. On
the other hand, Africa’s population that has been rising rapidly may double by
2050. The consequences of population growth on per capita GDP growth is
direct and universally negative. When relations are involved in the statistical
model it will become stronger. Presently, in developing countries population
growth can be influenced by their respective governments. A clear example is
obtained from China, where the government unexpectedly presented a group of
highly coercive approaches to decrease the total fertility rate from 5.8 to 2.2
births per women during 1970 and 1980. Figure 4.6 presents the population
statistics of BRICS nations over the last two decades.

87
 Figure 4.6: Population in BRICS Countries

POP
25

20

15

10

Brazil Russia India China South africa

Source: Author’s own Calculations based on the data obtained from WDI

Since 1990s, with regard to investment/GDP ratio, China has topped the
list of BRICS nations (with above 40% trepidations regarding ‘excess
investment’) vis-a-vis the unproductivity in Russia and Brazil. China
maintained a constant investment-GDP ratio from 1990 till 2012. China was
followed by India in terms of investment/GDP ratio, while South Africa was at
the fourth position. Figure 4.7 presents the investment-GDP ratios of BRICS
nations over the last two decades.

88
 Figure 4.7: Investment-GDP Ratio in BRICS Countries

INVTGDP
60

50

40

30

20

10

0
19931994199519961997199819992000200120022003200420052006200720082009201020112012

Brazil Russia India China South Africa

Source: Author’s own calculations based on the data obtained from WDI

Figure 4.8 Government Consumption in BRICS Countries

GC
90
80
70
60
50
40
30
20
10
0
19931994199519961997199819992000200120022003200420052006200720082009201020112012

Brazil Russia India China South africa

Source: Author’s own calculations based on the data obtained from WDI

4.7 Conclusion
This chapter presents a concise picture of the BRICS nations’ developments and
their challenges in the present world portraying the economic structures of the

89
BRICS nations. Their financial policies, exchange rate regimes and exchange
rate management systems are sketched. The chapter further discusses the effects
of global currency crisis on BRICS nations. The aftermath of the crisis on
BRICS nations are also discussed. The chapter briefly presents the BRICS
nations’ macroeconomic trend configuration, their share in the world GDP and
trade as well as their investment and growth rates.

*****

90