Information Bulletin of the BRICS Trade Union Forum
Issue 31.2019
2019.07.29 — 2019.08.04
International relations
Foreign policy in the context of BRICS
BRICS summit in November to be another step towards consolidation of this format — Lavrov (Саммит БРИКС в ноябре станет очередным шагом к консолидации этого формата - Лавров) / India, July, 2019
Keywords: summit, sergey_lavrov, quotation

The next BRICS (Brazil, Russia, India, China, South Africa) summit due to be held in the Brazilian capital city on November 13-14 will be another step towards strengthening this multilateral format, Russian Foreign Minister Sergey Lavrov said on Friday ahead of a meeting with his Brazilian counterpart Ernesto Araujo.

"We had a very open and sincere discussion that yielded a joint statement reiterating our commitment to the United Nations Charter. We have no doubts that the summit in November will be yet another step towards consolidation of this format," he said.

The Brazilian top diplomat, in turn, pledged that his country would spare no effort to ensure successful presidency in the association.

"We reached progress on many issues at this meeting and found understanding on the majority of topics. We value our relations with Russia. Brazil is now living through a period when we are trying to become a country more open to the world," Araujo said.

Brazil's lack of interest in BRICS a matter of concern (Отсутствие интереса Бразилии к БРИКС вызывает беспокойство) / India, July, 2019
Keywords: political_issues, expert_opinion
Author: Karin Costa Vazquez

The strong stance in support of openness in the global economy sends a clear signal: the BRICS members are willing to work together and defend the current international order threatened by isolationist sentiments in other G20 members.

Until the 2016 BRICS Summit in Goa, a joint approach to terrorism was out of sight despite India's endeavors to have the theme included in the final declaration. (Reuters)

Brazil´s apparent lack of interest in taking a leadership role in global governance has led critics to question the efficacy of the Brazilian pro-tempore presidency of the BRICS and what Brazil, Russia, India, China, and South Africa can concretely achieve together this year. The recently concluded meeting of the BRICS Ministers of Foreign Affairs in the city of Rio de Janeiro confirmed these concerns. With loose commitments and avoidance of politically sensitive issues, the meeting gave a margin for small victories of individual countries in thorny issues like India's strides to prevent and counter-terrorism.

Until the 2016 BRICS Summit in Goa, a joint approach to terrorism was out of sight despite India's endeavors to have the theme included in the final declaration. The contrasting stances taken by India and China was the main factor leading to the stalemate: while India portrayed the matter as a regional problem and lobbied to have Pakistan-based terrorist groups blacklisted for their acts of terror in Jammu and Kashmir; China thwarted India's initiatives to assert Pakistan as a terror-funding state. Despite the 2016 Goa Summit being held just after a terrorist attack against an Indian Army bastion in Uri, the Pakistan-based terrorist groups Jaish-e-Mohammed (JeM) and Lashkar-e-Taiba (LeT) did not feature in the official documents.

At the BRICS Summit in Xiamen the following year, China accepted India's bid to take in a provision condemning JeM, LeT, Tehrik-e-Taliban, and the Haqqani Network in the final declaration. India construed the episode as a notable diplomatic negotiation amid the Doklham standoff with China on the eve of the Summit. The merriment did not last long as Pakistan was in distraught to see China's backing of India's proposal. Foreign Minister of China Wang Yi immediately clarified that China acknowledged Pakistan as a victim of terror, and not as a sponsor. Later in the year, China blocked India's proposal of blacklisting JeM leader Masood Azhar during a special United Nations Security Council session. When India again pushed to blacklist Masood Azhar at the United Nations in 2019, China endorsed the pledge, but no mention was made to JeM's terrorist activities in India in the final document.

The statement of the meeting of the BRICS Ministers of Foreign Affairs deplored recent terrorist attacks in some BRICS countries, in reference to the JeM suicide attack in Jammu and Kashmir's town of Pulwama earlier this year. It also called for specific measures like countering radicalization, blocking sources and channels of terrorist financing, dismantling terrorist bases, and countering misuse of the internet by terrorist entities through information and communication technologies. Despite acknowledging the work of the BRICS Working Group on Counter Terrorism, a comprehensive counter-terrorism approach by the five countries is unlikely unless India and China agree on similar perspectives on terrorism.

A BRICS consensus over the resolution of the Syrian conflict and the Venezuelan crisis is also in the pipeline. The Ministers limited expressing their concerns at conflicts and situations in the Middle East, North Africa, and other regions that have a significant impact at the regional and international levels. Russia's closeness to Assad's regime has been contrary to BRICS proposal for "Syrian-led, Syrian-owned" negotiation process as the only legitimate solution for the war-torn state. India and China's economic interests in the Middle East could lead to a negotiable solution with Russia, but Brazil and South Africa's diplomatic narratives do not favor military action in the war-torn state. Brazil's support to the US-backed Juan Guaidó in Venezuela, in turn, has isolated the country from the other BRICS.

Another controversial issue is how the BRICS will respond to the US-China trade war in view of the relative stagnation of intra-BRICS trade. On the sidelines of the G20 summit in Osaka last month, the five countries committed to "transparent, non-discriminatory, open, free and inclusive international trade," striving to strengthen the role, function and dispute settlement mechanism of the World Trade Organization (WTO) as the central pillar of the multilateral, rules-based trade system. These principles were included in the statement of the meeting of the BRICS Ministers of Foreign Affairs.

The strong stance in support of openness in the global economy sends a clear signal: the BRICS members are willing to work together and defend the current international order threatened by isolationist sentiments in other G20 members. Continuing a trend from previous summits, the BRICS reiterated its emphasis on upholding the key principles of global governance, firmly opposing trends of unilateralism, populism and protectionism.

However, there is still no sign of a multilateral commitment to boost intra-BRICS trade. Proposals include the establishment of new intra-BRICS arrangements and mechanisms like a payment system in local currencies and a BRICS preferential trade agreement. The latter was supported by Jim O'Neil ahead of the 10th BRICS Summit in Johannesburg in 2018 to boost free trade among the five countries and render the US trade policies less relevant to any of them and the rest of the world.

Lastly, the statement of the meeting of the BRICS Ministers of Foreign Affairs included vague commitments to the 2030 Agenda for Sustainable Development, the Sustainable Development Goals and the implementation of the Paris Agreement. Despite emphasizing the centrality of people in BRICS and the need to deepen people-to-people exchanges, track II diplomacy remains underutilized compared to previous years.

The meeting of the BRICS Ministers of Foreign Affairs signaled that the 11th pro-tempore presidency of the BRICS shall be remembered by a lack of consensus on major topics and a feeble protagonism of its host, Brazil.

(Author is Associate Professor, Assistant Dean for Global Engagement, Director, Center for Africa, Latin America and Caribbean Studies School of International Affairs | O.P Jindal University. Views expressed are Personal)

BRICS press-conference in New Delhi (Пресс-конференция БРИКС в Нью-Дели) / Russia, August, 2019
Keywords: mofa, foreign_ministers_meeting

On July 25, Russian Embassy in India hosted a joint press conference of the BRICS minister-counsellors dedicated to the BRICS Foreign Ministers' Meeting on July 26, 2019 in Rio de Janeiro. The event saw the presence of more than 60 representatives of leading Indian print and electronic media.

Opening the briefing, Brazilian DCM Mr Breno Hermann spoke about the priorities of the Brazilian presidency in BRICS this year with a view to preparing for the 11th BRICS summit in Brasilia on November 13-14, 2019.

Russian minister-counsellor Mr Roman Babushkin emphasized Russian approaches to building up strategic partnerships within the BRICS framework in all three key areas: politics and security, economy and finance, culture and humanitarian contacts.

Finishing with a long Q&A session, the press conference has generated great interest in Indian media and initiated a number of publications.
Growing concern: Russia-China partnership throws up formidable challenges for India (Растущая обеспокоенность: партнерство России и Китая ставит перед Индией серьезные проблемы) / India, July, 2019
Keywords: political_issues, expert_opinion
Author: Rajan Kumar

Russia and China have forged a deep and enduring strategic partnership at the regional and global level. Washington's policies to contain the economic spread of China and military influence of Russia have brought them together.

Whenever Russia is shunned and humiliated by the West, it scouts for partners in the East. This time the task is much easier because China, a global power by any reckoning, is encountering identical threats and warnings from Washington. Russia and China have developed a robust partnership in the spheres of military, economy and political cooperation. China supplants the West in every sense barring the cultural space. In cultural terms, Russia always identifies itself as a Western or a Eurasian state, and never an Eastern one.

Russia and China have forged a deep and enduring strategic partnership at the regional and global level. Washington's policies to contain the economic spread of China and military influence of Russia have brought them together. In its recently released White Paper, China accused the US of undermining global and regional stability. In the history of their relationship right since 1949, Russia and China never came as close as they are today. They have reached a level of bonhomie, which even socialist solidarity could not achieve. Andrei Denisov, Russia's ambassador to China, described the relationship as the "best period in the history of their partnership".

President Xi Jinping's visit to Russia in June 2019 underscored the high level of strategic and economic cooperation. The bilateral trade reached a whopping $108 billion, growing more than 25 percent last year. Russia pivoted towards China following a series of economic sanctions imposed by the US since the re-incorporation of Crimea in 2014. Energy is the main item of Russia's export to China, but they have expanded their cooperation in the field of connectivity, space, agriculture, scientific research, and tourism. Russia witnessed high growth in the number of Chinese tourists visiting the country. They have signed agreements to develop the Arctic route for connecting Asia with Europe.

Russia is an active participant in the Belt and Road initiative of China (BRI). They are working towards the integration of the Eurasian Economic Union (EEU) with the BRI. Russia is the leading provider of security in Eurasia, while China has become the prime source of investment. Eurasia is the key to China's land connectivity to Europe. Russia still dominates the political and cultural landscape of Central Asia, but China has broken its monopoly over energy. There is a direct pipeline for unhindered supply of Kazakh oil and Turkmen gas to China. Russia signed the most significant gas contract of $400 billion with China in 2014. The dominance of state enterprises in the energy sector in both countries has made the task easier.

The military cooperation between the two countries is expanding to an unprecedented level. Russia is the main supplier of fighter planes and other sophisticated weapons to China, including commitments for S400 ground-to-air missile defense system and SU-35 jets. They regularly participate in joint military exercises. The first joint air patrol over the Sea of Japan in July 2019 raised alarms in Seoul, Tokyo and Washington. Apparently, Russian Tu 95 bombers and Chinese H-6 warplanes entered the airspace of South Korea. Russia denied such charges.

The West considers this partnership as "opportunistic and unnatural" which is bound to crumble – the way it happened in the post-Stalin period. Western analysts magnify fissures and showcase Russia as a "junior partner," in an attempt to downgrade its status and project it as a subordinate player. What is missing in such analyses, however, is the larger and more nuanced understanding of the implications of this relationship on the emerging global order.

The partnership has, direct or indirect, bearing on geopolitical re-balancing, market capitalism, liberalism, and international crises. It has contributed to the erosion of US influence in West Asia, Eurasia and the Asia-Pacific region. China, without the tacit support of Russia, would be cautious in Asia-Pacific or the South China Sea. Similarly, the political and economic engagement of China is vital to Russia's forays in Ukraine, Syria, and Venezuela.

This partnership sneers at the faltering democracies in the West and elsewhere. It would be unfair to link it with the retreat of democracy worldwide, especially when the Western liberalism has produced leaders such as Donald Trump and Boris Johnson. Nonetheless, a large number of countries in Asia, Africa, and Latin America look up to China as a model for growth and stability. State capitalism embedded in political authoritarianism is the new norm in many parts. China's efforts to nurture a committed elite in these states foreclose the possibility of political competition and liberalisation. In Russia, liberal democracy has become an anathema, partly because of the futile Western attempts of inciting "Colour Revolutions" in the post-Soviet states. It was hardly surprising that Vladimir Putin, the president of Russia, declared the premature "death of liberalism" in his interview with the Financial Times just before the G-20 meeting last month.

None of the global crises can be resolved without engaging Russia or China in some form. China supports Russian stances in Ukraine, Libya, Syria, Venezuela, and Iran. In return, Russia backs up China in North Korea and Asia-Pacific. The US recognized the significance of this relationship and included China and Russia in the Afghan peace talks.

As for India, this partnership offers some challenges as well as opportunities. New Delhi needs to prepare itself for the inevitability of stronger ties between the two countries in the short term. As the rift between China and the US grows further, this partnership will remain relevant. Also, it will take years before Russia is re-admitted to the cultural hemisphere of the West.

Under these circumstances, an intensive engagement with Russia and China is fundamental to India's interests in Eurasia and Asia-Pacific. Sooner or later, India will have to reconsider its strategy on the BRI, especially when it integrates with the Eurasian Economic Union.

One witnesses some anxiety and unease among Indian analysts regarding the role of Russia in the event of a conflict with China; the Russian supply of weapons to China; and finally, their cooperation with Pakistan. These concerns are genuine but can be addressed by improving ties with China. Russia can play a bridging role in reducing tensions with China as it is the only country which commands high goodwill in both the states. It is believed to have demonstrated such skills in de-escalating the Doklam stand-off in 2017.

Ideally, Russia would like India to come closer to this partnership through the RIC (Russia, India, and China), the SCO (Shanghai Cooperation Organization SCO) and the BRICS (Brazil, Russia, India, China and South Africa). It also wants India to join the BRI. But given the dynamics of India's national interests, there are limitations to its engagement with China. In the short run, it would be in the interest of India to maintain the status quo, and not be alarmed by this partnership.

(Author is Associate Professor, School of International Studies, Jawaharlal Nehru University, Delhi. Views expressed are personal)
Investment and Finance
Investment and finance in BRICS
South Africa's trade in cultural goods and services with a focus on cultural trade with BRICS partners (Торговля культурными товарами и услугами в Южной Африке с акцентом на культурный обмен с партнерами по БРИКС) / United Kingdom, July, 2019
Keywords: trade_relations, expert_opinion, research
United Kingdom

As the potential for cultural and creative industries to drive growth and job creation is increasingly recognised, developing countries like South Africa are examining their cultural goods and services trade in a new light. This article investigates the pattern of South Africa's cultural trade, with a focus on the strategically important BRICS trading bloc. Results show that, like many small, open developing countries, South Africa has a significant cultural goods trade imbalance, especially with China and India. While cultural trade policy is still somewhat fragmented, there are indications that where policies have been put in place, such as in the crafts and audio-visual sectors, progress in reducing significant deficits has been made. At the same time, the pattern of CCI trade preferences currently favours SADC, the EU and EFTA over BRICS partners. Finally, South Africa performs well in a number of services sectors for which cultural trade is important.
The Crumbling Mortar of BRICS (Разрушающаяся стена БРИКС) / India, August, 2019
Keywords: expert_opinion, political_issues

Is BRICS merely an overhyped acronym to cover up a fuzzy geoeconomic concept?

The ministerial meeting held in Rio de Janeiro on 28 July 2019 for articulating the agenda of the forthcoming 11th BRICS (Brazil, Russia, India, China and South Africa) Summit in November 2019 began on a note of discordance among the member countries on the issue of resolution of the Venezuelan crisis. This discordancy—a manifestation of the closure of an era of expanding global cooperation—however, has not stifled the prima facie consensus of the members regarding the need for dialogues on various issues of cooperation, including science, technology, innovation, digital economy, and in countering terrorism and money laundering. However, it remains to be seen whether this consensus can revive the plummeting hope of BRICS to evolve into a grown-up force with its own institutions.

Beyond the conceptual (and subsequently rhetorical) usefulness of binding the most prominent emerging economies of the world, the functional efficacy of the association of these countries has always been a matter of uncertainty given their varying fiscal and political realities. What adds to the ambiguity this year is Brazil's shifting foreign policy priorities under the current tenure of President Jair Bolsonaro. The Brazilian foreign policies for almost a decade and a half now have been premised on the generic acceptance of a multipolar world. While Bolsonaro's predecessors had sought multilateralism in the genre of South–South cooperation to mark their country's presence as a "balancing force" in this multipolarity, the new diplomacy has blatantly rejected multilateralism in favour of privileged relations with the Western nations, especially the United States (US). With restricted (or no) global ambitions that are potentially aligned with this diplomatic objective—be it withdrawing from the recently signed global pact on migration, or an abrupt change to contentious diplomatic relations with the decade-old trade partner China, or the self-declared reliance on American political/military intervention for toppling the presidency of Nicolás Maduro in Venezuela—Brazil appears to be a weak link of BRICS.

Since the 2008–09 global financial crisis, there is an emerging view—predominantly from the US—that the concept of BRICS, at least from the economic standpoint, no longer holds water. This view primarily rested on the back of the estimates of dwindling gross domestic product (GDP) growth rates of the member countries, especially China, which evidenced a sharp decline from double-digit growth figures to 7% or less. These estimates contrasted with the projections made by Goldman Sachs—the originator of the BRICS acronym—regarding BRICS being the locomotive of global economic growth in the coming years since the 2000s. In 2015, Goldman Sachs itself folded its BRICS fund into a general emerging market fund on the grounds that this fund lost almost 88% of its assets since a 2010 peak. In a filing with the US Securities and Exchange Commission in September 2015, the investment firm mentioned that it would reorganise its "surviving fund" across "a more diversified universe of foreign and emerging markets." Brushing aside such scepticism, 2014 saw the formation of the New Development Bank (NDB) as a response of the BRICS countries to their under-representation in the traditional global governance structure.

If one argues that it is this common resentment about under-representation—and not any shared ideology, political structure or culture—that animates the purpose of BRICS as a bloc, then one cannot also dismiss the fact that the longevity of this purpose hinges on the duration of the "feeling" of resentment. Viewed through this lens, Brazil's hobnobbing with the US should be potentially as much threatening for the sustainability of BRICS, as is Russia's avowed commitment to strengthen the United Nation's central role in geopolitics. In both the cases, policies can be conceived under hierarchical pressure for appeasement, thereby compromising the autonomy of BRICS and/or its institutions, such as the NDB. Extant literature on such top-down political drivers of policy convergence identifies "policy diffusion" through interdependent problem-solving—and not coercive imposition or harmonisation—as a crucial driver of (economic) policy reforms.

Simultaneously, the implication of economic divergence within BRICS cannot be overlooked while discussing its relevance as a bloc. In fact, the economic disparity within the group leaves ample room for the members to be resentful of each other regarding their individual representation in BRICS institutions. For instance, China with its cash surpluses has pledged to contribute two-fifths of the NDB's proposed Contingency Reserve Arrangement of $100 billion. In so doing it may attempt to dominate the bank in due course, and/or look for opportunities to promote yuan-denominated trade among BRICS and/or the broader developing world.

With such inherent ambivalences in the notion of BRICS as a bloc, can we not say that the concept is trapped in the pitfalls of thinking in acronyms, one that could not transcend the outdated rhetoric of "multilateralism"?

Friction between India and Brazil, following disagreement at WTO (Трения между Индией и Бразилией после разногласий в ВТО) / India, July, 2019
Keywords: economic_challenges, political_issues, expert_opinion

The current rift between the two major emerging countries is based on Brazil's decision to give up developing country special and differential treatment (S&DT) at the WTO.

The change of Brazilian position means a break in relation in its diplomatic tradition, and may affect its ability to coordinate positions among developing countries in the WTO, a role traditionally shared with India, Rojas observes.
With India's stand against Brazil's stand on the fisheries subsidies at the World Trade Organization (WTO) at the ongoing negotiations, the two are heading towards diplomatic friction. This is expected to hit the India-MERCOSUR talks as well as BRICS grouping.

The current rift between the two major emerging countries is based on Brazil's decision to give up developing country special and differential treatment (S&DT) at the WTO. This is something that the Trump administration had again demanded of emerging nations last Friday.

Sharing his views with Financial Express Online, Gustavo Rojas, Researcher of the Center of Analysis and Dissemination of the Paraguayan Economy (CADEP) said "India's recent veto against Brazil over the ongoing negotiation in the WTO on subsidies in the fisheries sector is a first sign of the discomfort growing among emerging countries. Particularly among BRICS member nations, after Brazil officially expressing its intention to open up special and differential treatment in future negotiations in the WTO."

The change of Brazilian position means a break in relation in its diplomatic tradition, and may affect its ability to coordinate positions among developing countries in the WTO, a role traditionally shared with India, Rojas observes.

In his view, Brazil's new position would be a condition set by the US to support its entry into the OECD. Previously too Brazil had protested against the subsidies offered by India for sugar production.

"The accentuation of the divergences between the two countries can promote internal divisions within the BRICS, given greater political weight and frequency of meetings among China, Russia, and India," he opined.

According to Rojas, it reduces expectations of progress in the ongoing negotiations for the extension of the bilateral tariff preference agreement between MERCOSUR and India, registered in the WTO just under the enabling clause, which supports the special and differential treatment for developing countries.

During his visit to Washington DC in March this year, the Brazilian President Jair Bolsonaro had approached the Trump administration with a bargain that included Brazil giving up special WTO treatment in exchange for US support to join the Organization for Economic Cooperation and Development (OECD).

What does S&DT mean?

S&DT means more time for a country to implement trade commitments, lower import tariff cuts, and more subsidies for its producers.

According to experts, for the Bolsonaro government, none of this has helped the country to increase trade with the rest of the world and that there will be no losses without the mechanism.

However, at the WTO there is still a "super polarization" on the subject.

India, China, and South Africa, in particular, insist that S&DT is an inalienable right of developing countries, without differentiating between them. And Brazil maintains that the mechanism is dynamic and has abdicated it for future trade agreements.

At the WTO General Council meeting last week, the US praised Brazil's stance, signaling that the country was taking an advanced position in WTO reform. And in line with the organization, last Thursday's Indian veto against Brazil for the negotiating presidency aimed at banning certain subsidies to the fishing industry, which according to experienced negotiators is linked to Brazil's position on S&DT.

In the WTO, decisions must be by consensus. In May, New Delhi had arranged a meeting with ministers from around 20 countries in an effort to forge a front against various aspects of a WTO reform and keep the S&DT unchanged for developing nations in general.

Top officials confirmed that Brazil at the time did not sign the final statement from the Indian side, which illustrated the opposite views of the two emerging nations.
Loan and Project Agreements for Zhejiang Green Urban Project – Shengzhou Urban and Rural Integrated Water Supply and Sanitation Project (Phase II) Signed in Shengzhou, China (Кредитные и проектные соглашения для проекта «Зеленый город Чжэцзян» - Проект по комплексному водоснабжению и санитарии в городской и сельской местности (Фаза II) подписан в Шэнчжоу, Китай) / China, August, 2019
Keywords: ndb, concluded_agreements, investments

On 31 July 2019, Loan and Project Agreements for Zhejiang Green Urban Project – Shengzhou Urban and Rural Integrated Water Supply and Sanitation Project (Phase II) were signed in Shengzhou city of Zhejiang Province, China.

The Loan Agreement was signed by Mr. Xian Zhu, Vice President and Chief Operations Officer of New Development Bank (NDB) and Mr. Bin Han, Deputy Director General, Department of International Financial and Economic Cooperation, Ministry of Finance of China. The Project Agreement was signed by Mr. Xian Zhu and Mr. Jiaxue Peng, Deputy Governor of the People's Government of Zhejiang Province.

According to the Agreements, The Bank will provide a RMB 825 million (approx. USD 123 million) project loan to the People's Republic of China for Zhejiang Green Urban Project – Shengzhou Urban and Rural Integrated Water Supply and Sanitation Project (Phase II). The project aims at upgrading the urban and rural water supply and sewage facilities and enhancing the economic efficiency of water resources and effectiveness of water management system in Shengzhou city. The project has four components: (i) construction of water supply plants and pipelines; (ii) construction of sewage treatment plants and pipelines; (iii) smart digital center for water management; and (iv) capacity building and project management.

Mr. Xian Zhu said, "we are happy to support this strategically important project that will contribute to the holistic upgrade of water supply and sewage treatment system of Shengzhou. The project is coherent with the Bank's focus on supporting green and sustainable development with innovative technologies in China."

Mr. Bin Han said, "we believe that through efficient and effective implementation, this project will improve people's livelihood by achieving optimal allocation of water resources. We also hope that this project could become a good example of developmental knowledge sharing and capacity building."

Mr. Jiaxue Peng said, "the successful signing of this inaugural NDB project in Zhejiang Province will significantly contribute to the Province's economic and social sustainable development goals. The Province looks forward to exploring more opportunities of cooperation with NDB in the future."

Background Information

The NDB was established by Brazil, Russia, India, China and South Africa to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development. To fulfill its purpose, the NDB will support public or private projects through loans, guarantees, equity participation and other financial instruments. According to the NDB's General Strategy, sustainable infrastructure development is at the core of the Bank's operational strategy for 2017-2021. In August 2018, the Bank received AA+ long-term issuer credit ratings from S&P and Fitch.
Political Events
Political events in the public life of BRICS
Opinion | Proper scenario-planning for the country's future (Мнение | Правильное планирование сценариев будущего страны) / India, July, 2019
Keywords: expert_opinion, narendra_modi, political_issues
Author: Arun Maira

India is a huge, complex system, with many social, political and economic forces swirling within it

As the new millennium dawned, Goldman Sachs' Jim O'Neill projected that BRICS (Brazil, Russia, India, China and South Africa) would drive the global economy. However, BRICS faded soon, a global financial crisis struck in 2008, and the G20 was put in the driver's seat. Now, with trade wars erupting, economists say G2—the US and China—is calling the shots. Arvind Subramanian, former economic adviser to the Indian government, has turned this around. He says "G-minus-2" will shape the future. It is difficult to see through the fog of uncertainty. However, it is clear that economists are confused and their extrapolations have not been reliable.

It is ironic that Subramanian has cast grave doubts about India's own economic numbers. He didn't start the controversy: the government did—by changing methods for computing gross domestic product, which conveniently made its performance look better, and by denying the unemployment numbers produced by sources the public has relied on. The government's economists seem to want citizens to believe in a set of "alternative facts" they provide.

The Indian government has a credibility problem. Trust our numbers, it says, not those that others give you. It even says—albeit with some reason considering the evident limitations of macroeconomics—don't trust foreign-educated economists (like the two governors of the Reserve Bank of India who have resigned and also Subramanian). Nevertheless, it is telling investors around the world as well as Indian citizens the following: Trust us, we will be a $5 trillion economy in a few years; just have faith in the government's projections.

When BRICS caught the world's imagination in 2001, some business leaders had challenged economists at the World Economic Forum (WEF). Because a decade earlier, economists had forecast that the new century would be Japan's (China was not even in the reckoning back then). Now they were saying it will be BRICS. These sceptical businessmen asked the WEF to project more reliable scenarios. They said these scenarios should not be based on econometric calculations. They must consider impacts of social, environmental and political forces on the shape of the future.

Macroeconomists do not have the tools to model complex systems, which include forces that cannot be converted into neat quantities—powerful forces such as public sentiments and trust in institutions. Scenario planning, which is based on whole systems thinking, is a better approach to thinking about the future, especially when diverse forces are combining to make all changes dynamic and unpredictable. Therefore, the WEF used scenario planning in 2006 to project the forces that would shape India over the next 10-15 years. The scenarios said India's growth would accelerate for a few years and then it would decelerate if increasing inequalities were not addressed with good policies, and institutions of governance were not improved. This has actually happened.

The value of a good model lies not only in its ability to make more accurate forecasts, it lies more in its ability to explain how real things really work and, thus, guide policies that will produce the desired outcomes. The United Progressive Alliance-II realized this, but it was too late. Belatedly, it used scenario planning to supplement the preparation of the country's 12th Five Year Plan. The scenarios revealed the weakness of a top-down model of growth and an urgent need to improve the quality of decentralized institutions of government, as well as the quality of business institutions.

Scenario planning systematically applies systems thinking to develop "whole of government" plans. In the first step, it combines many disciplines and many perspectives, each of which captures only a slice of reality to capture "the whole elephant". In the second step, it analyses the structure of the system, to see patterns and relationships—what is connected with what, and what causes what. Then, it locates leverage points within the system, action on which will produce beneficial changes in other parts of the system. It can also reveal "fixes that can backfire"—bold actions that can cause great damage to the whole, if a whole systems approach is not taken. Demonetization is one example. Another example is the big drive to impart skills to millions of youth when the economy was not generating enough employment opportunities. This resulted in more educated and skilled, but more unemployed (and thus frustrated) youth.

Scenarios are not merely numbers. They are credible narratives of how the future will evolve with different policies and different approaches to transformation. They offer choices and they project the likely outcomes of choices that can be made now.

Modi made a bold move by replacing the Planning Commission with a new institution bearing a new charter, the NITI Aayog. It is reported that it is preparing a bold vision for India with strategies to accomplish it. A $5-trillion economy will undoubtedly be part of the vision. Make in India, the government's unrealized strategy from its first term, will remain. So will the doubling of farmers' incomes. India is a huge, complex system, with many social, political and economic forces swirling within it. NITI Aayog must live up to its transformational charter by adopting a new, "whole of government", systems thinking-driven scenarios approach to devise strategies for that vision.

Arun Maira was a member of the erstwhile Planning Commission.
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