BRICS, Columns/Op-Eds, Uncategorized

Generosity within BRICS offers China passport to power

The original article is available here


George Orwell once remarked “Whoever is winning at the moment will always seem to be invincible.” China’s long-running growth juggernaut has resulted in a steady conversion of China skeptics into believers, so much so that a Pew Global Attitudes report released in July 2011 indicated a widespread perception that China has either replaced or will replace the US as the world’s sole superpower, with the Americans themselves just about equally divided on the subject.

For the Chinese establishment, even as being the preeminent global power remains their ultimate aspiration, China’s own outlook has been far more pragmatic.

There is a realization that the critical vectors that fuelled China’s impressive growth have either played out or are near to playing out their potential.

Exports are slowing, and the near double-digit growth in domestic consumption leaves little room for additional growth without triggering unbridled inflation.

Compounding this is fast depleting surplus labor in China’s rural backyard and steady increase in wage costs, which have grown at an annual rate of 15 percent over the past years.

This and stagnating Western demand for goods are impacting China’s growth algorithm built around the premise of inexpensive labor and competitive exports.

China’s redemption as the preeminent global power is hinged as much on its capacity to sustain its economic momentum as in its ability to influence the principles, values and rules that define global institutional mechanisms and frameworks.

However, China’s stellar economic engagement with the world has not resulted in commensurate political weight or perceptional dividends within global institutions.

To realize its aspirations, China urgently needs to find a way around this predicament, and BRICS offers it a plausible option and opportunity.

BRICS is today the most promising entente of high growth economies. BRICS’ national economic and political transformation agendas are fuelling huge domestic demand for newer types of products and services. China is uniquely positioned to gain enormously from this dispensation.

Standard Bank estimates China is party in over 85 percent of intra-BRICS trade flows, which have grown by about 1,000 percent over the last decade to over $300 billion, and are estimated to reach $500 billion by 2015.

While intra-BRICS trade accounted for close to 20 percent of BRICS’ total trade in 2012, it remains disproportionately weighed in China’s favor. Hence in any BRICS growth story, China will be the biggest net gainer.

While the BRICS nations have formed a close bond between themselves, they haven’t consummated any traditional model of interstate alliance.

The model affords sufficient space to accommodate intra-group differences and independent strains of national discourse.

It is still bilateral relationships rather than allegiance to group ethos that predominantly inform the intra-BRICS economic and political dynamic.

Group identity and collective consciousness will result from co-creating and co-managing institutions and instruments. A BRICS development bank, a stock exchange alliance and a BRICS fund are all vital next steps.

For China to unleash and benefit from the full potential of the group, it needs to work on such initiatives. These will offer it a new economic landscape and will also help take the edge out of bilateral relationships.

However, for China to command the moral weight to realize its power ambitions through BRICS, it needs to morph from a trading partner seeking profits to a strategic ally helping shape a common world.

As the partner that stands to benefit the most from any expanded BRICS play, China needs to be singularly more magnanimous and mindful in accommodating the legitimate interests and aspirations of other member states.

A disproportionate generosity, whether it is in resolving bilateral disputes or legacy issues, or, sharing of power at BRICS institutions, independent of economic contribution and effort, will reap very rich political and economic dividends, while also permanently insulating China from the politics of power imbalance within the group.

Samir Saran is vice president at Observer Research Foundation and Jaibal Naduvath is a communications professional in the Indian private sector.


Books / Papers, Water / Climate

“Mitigating Carbon Emissions in India: The Case for Green Financial Instruments”

New Delhi, 18th of February 2013
Please find here the link to download the report.

Executive Summary
With the sun gradually setting on the Kyoto Protocol (Phase One), it has become quite apparent that the global response to resource scarcity and climate change is going to be variable and disaggregated. Increasingly, countries and businesses across the globe are adopting various financial mechanisms and policies in order to manage such challenges. However, many such responses are restricted to advanced, developed countries, whereas the effects of climate change and the increasing cost of resources such as fossil fuels are likely to be more severe for developing countries. This dichotomy in response measures needs to be urgently addressed, and this report is an attempt to highlight the benefits of an inclusive growth oriented financial response mechanism with particular focus on India.

In its first chapter the report briefly outlines the relevance of GHG emissions mitigation through in- clusive market based mechanisms in India. With shifting patterns of economic growth and increased global demand volatility companies and investors in emerging economies, such as India, need to rec- ognise the value created through the supply chain of business deliverables by mitigating emissions. Mechanisms which exclude companies that do not meet global benchmarks, whether by way of share- holder advocacy and investment exclusion, or regulatory policies, will have a significant impact on the way that these companies choose to grow.

Low carbon strategies can only be implemented if the emissions landscape and its effects on sustainable growth are clearly defined and understood. The second chapter outlines emissions trends in India in order to map the carbon landscape and set the context for the rest of the discourse. Chapter 3 examines the trends of energy consumption and emissions at a sector specific and firm specific level (within the assessed sector). It is found that firms in the assessed sector (cement) are operating in sub optimal con- ditions, along with a lack of policy frameworks and market based emissions reduction incentives – there are no indigenous market based mechanisms to incentivise and stimulate change.
A firm level case study of one of the bigger private players in the Indian cement sector has revealed that the firm’s financial performance could have been better. At the same time, capacity additions and increased output have caused the total emissions of the company to increase, which is not sufficiently offset by the revenue gains. As a result, the firm’s emissions intensity has been rising consistently for clinker production. However, enhanced use of additives has kept the overall GHG intensity of cement based revenue lower. The average emissions intensity of the company was higher for three years than the sector average for the same period. The high correlation between the firm’s environmental perfor- mance and its financial performance has been highlighted.
The results of chapter 3 are aligned with the philosophy that environmental performance must not be excluded from the range of parameters that are used by investors while choosing a stock, especially a long term investment. This is true since the two concepts are inherently interlinked under the overall aegis of sustainable growth. It highlights the need for developing market based mechanisms to signal investment opportunities based upon carbon efficiency and financial performance, as both tend to complement each other in the medium to long term.

Chapter four concludes that; companies preparing for risk are not risk averse, but rather are risk prepared. The difference is subtle but important. Market based mechanisms which incentivise good performance by channelling investments to firms that respond to risk better than their competitors in a given environment, help investors realise this distinction clearly. For “green” market mechanisms and investment vehicles to be viable and effective, they must efficiently ensure that the transmission mecha- nism works and only performance based, credible signals are relayed to the open markets. This becomes even more important in the context of a developing country due to the nascent capital markets, and urgent need for scaling up sustainability initiatives – both at the firm and policy levels.

Capital generation should not be looked at as the problem. Rather, redirecting existing and planned capital flows from traditional high-carbon to low-emission; resilient investment is the key challenge of financing transition to a low-emission economy. In order to facilitate such transitions, a universally replicable model will be used – a multipronged approach to achieve the above objectives. This would involve creation of innovative financial products based on purely quantitative data, create and publish sector wise and cross sectoral market reports, and facilitate progressive policy advocacy in order to en- able market realisation for its products. It will further seek to replicate the model in other developing countries through a hub and spoke approach to expansion.

Books / Papers

Chapter in ORF publication: “The Global Economic Meltdown”

Samir wrote one chapter in the new ORF publication “The Global Economic Meltdown”. Book Cover
Please find here the original link

Please find here the full document (PDF version): Deconstructing India’s Inclusive Development Agenda

The Global Financial Crisis (GFC) of 2008 is widely recognized across the globe as the most severe economic downturn since the Great Depression. The prolonged global economic slowdown has stymied the US economy, brought the Eurozone to the precipice, and continues to retard growth momentum throughout the world. Even developing economies that were previously thought to be crisis-averse are now experiencing the rough waters after an economic tsunami.

The writers in this compendium address the many complexities of the GFC and present a holistic overview of its background, how it unfolded and how many nations sought to respond to it. This publication is unique in its approach of the crisis from a global perspective, with pieces focusing on India, Europe and the United States. Furthermore, the book provides a thorough examination of the economic, political, environmental and social implications of the crisis and offers glimpses of the road ahead, replete with policy recommendations for a more stable and prosperous future.

BRICS, Columns/Op-Eds

Thinking the Russian Choice: BRICS v/s OECD

Please find here the link to the official publication.

After a long wait, come 2014, that most exclusive club of nations, Organization of Economic Co-operation and Development (OECD) will have a new member – Russia, which at one point was its most vocal critic. With the grouping’s influence arguably on the wane, despite efforts to make it more reflective of the zeitgeist, Russia’s eagerness to join it makes for an interesting study. By itself, it may largely be emblematic of Russia’s aspirations for a slice of imagined glory on the high table of the rich. Apart from saving denizens of St Petersburg a drive across the border to Finnish supermarkets, thanks to reduction in import tariffs, it brings to the fore the dichotomies that define Russia’s foreign policy, and more notably, its unique position within the BRICS. Russia’s impending accession to OECD, will see it attempting to align to an arrangement that could be characterized ‘old world’, with attitudes to political and economic models that compete and collide with those the developing world consider optimum to their own needs. This OECD membership will be at odds with the BRICS aspiration of offering a credible alternative to extant western systems currently governing international trade and economic exchange.

Strategic Expectations

Up until the disintegration of Soviet Union, the anxious need for this ‘super-power’ to shape an equally prevailing alternative to US domination of world affairs was central to the bipolar architecture that informed world politics. While bipolarity is now a remnant of history, lingering anxieties have continued to play a visceral role in shaping Russia’s foreign policy discourse. Russia’s presence in BRICS and other multi-lateral organizations such as SCO or G-20, its play at the UN, and response to issues such as opposition to proposed NATO missile shields in erstwhile client states of Poland and Romania, can be consistently traced to this arc of alternate leadership challenging legitimating discourses of the US led Western bloc.

Russia stands at the crossroad of global power flows today, where the signboards often appear fuzzy. On the one hand, the exclusivity of OECD beckons it. Even as Russian policymakers see OECD accession as natural fit, Russia may have to remain content with a seat at the periphery of OECD policy play. Powerful, entrenched lobbies within OECD, and Russia’s own political and economic architecture, could scupper effective integration and any gains thereof. On the other hand, Russia is rightly upping her engagement ante at BRICS. Even though BRICS agenda and agency may have been shaped by characteristic developing world priorities such as urban renewal, universal health and poverty alleviation, yet it is the only capable agent on the horizon that can offer a credible political and economic alternative to extant western systems. These nations have ‘emerged’ more ‘despite’ than ‘because’ of the developed world’s hand in their own journeys of growth. Their homegrown brews of practical logic in economics and governance, which helped them over the threshold, hold valuable lessons for Russia, which needs customized rather than copybook solutions.

Economic Priorities

Russia has the highest per capita GDP in the BRICS grouping, with Brazil a close second. Viewed in isolation, this means little. However, figures have a peculiar ability to obscure reality. For, Russia’s growth is based on skewed planning logic, spindled around commodity leverage aiding wealth concentration that has created physical and economic habitations literally at the opposite ends of the spectrum, with little in the middle. So, while Russia may have one of the largest populations of billionaires on the globe, the country does not figure anywhere in the top fifteen in the world millionaires chart, even as a significant mass of people struggle to make a decent living. Even today, commodities, especially oil and gas, which contribute the biggest slice of income to the national exchequer retains high policymaking attention in the Russian schema, even as the financial sector tethers at frontier market levels with subprime level interest rates for even high quality assets. While the predictability of such economic logic is close to the Russian roulette, even its frailty exposed by oil economy collapse in the aftermath of financial meltdown of 2008, has led to little meaningful change in planning behaviors.

Russia urgently needs systemic overhaul and its BRICS calling card offers it the maximum single point leverage in this regard. Economic ethos of BRICS historically has been pivoted around creating sustainable and inclusive institutional structures, which operate with high degree of predictability, posited as counterweight to overcome the highly negotiated nature of their national agency. Dipping into this rich collective experience, especially those of Brazil, India and China, who have long perfected models of sustainable reform with emphasis on equitable wealth distribution, could significantly alter Russia’s own learning curve, delivering quicker results with much less effort and fiscal pain.

Social Priorities

With close to cent per cent literacy, healthy sex ratio, high education levels, and, almost ten hospital beds and over four physicians per thousand individuals, Russia’s social statistics rival the best in the developed world. Years of disciplined social planning by the erstwhile Soviet regime had created one of the best national social architectures anywhere. Whereas the disintegration of the Soviet Union, and the economic chaos that ensued, consumed most other national institutions, strong fundamentals anchored in robust institutional frameworks helped Russia’s social architecture negotiate adverse headwinds of over two decades or so of policy challenges and spending cuts. However this fabled resilience is now showing unmistakable signs of fracture, with income inequity, rising unemployment levels and falling living standards, all of which are making the population increasingly restive.

There is an increasing constituency within Russia’s policy-making apparatus, which realizes the long-term consequences of this trajectory. A rethinking of national priority, away from the overdependence on oil economy to improving social conditions is underway, as Russian planners realize this is perhaps the only sustainable option going forward. In this, Russia can draw and adapt from the immense experience and resource within the BRICS, especially those of post reform Brazil, India and China, where creating sustainable social architectures that balance opportunity and growth with improved living standards has been key to managing large and diverse population groups with disparate interests, and certainly with differing degrees of success.


Even while BRICS will continue to make the right noises towards providing an alternative to the extant global system, its short to medium term agenda will continue to be dominated by shared domestic priorities and their interplay with global governance frameworks. For realizing their dreams of expanded geopolitical influence, member states are already operating outside the BRICS ambit, and will continue to do so. Brazil has waddled into issues in far off Middle East while China has embraced Latin America, as a single point alternative to United States. As emerging states, they are situated uniquely, being both competitors and partners at the same time. For instance, India has been romancing Japan and United States as counterbalance to China in the political play, while Brazilian policymakers are responding to China’s increasing foothold in Latin America, by establishing closer economic and political collaboration with regional states, a move away from its traditional Euro centricity.

At the same time, on the more substantive issues such as climate change, Doha rounds and WTO which hold real potential to impact the life and times of their citizens, they have functioned as a cohesive unit, even compromising stated national positions, in the finest spirit of give and take. Their development emphasis notwithstanding, BRICS agency remains sufficiently reflective of global commons, and, their interactions are witnessing an increasing play of heavy political content. BRICS have taken firm and independent positions, on the Israel-Arab conflict, Iran and Syria, broader issues of sanctions, transnational interventions and the UN system that governs peace and stability. However, BRICS are unlikely to morph into a security bloc or alliance, and neither are they likely to be anti-western in their orientation. Yet, together they have shown to be able to stand-up and take an effective position against irrational acts stemming from whimsical or partisan objectives that hold potential to disturb global stability. And, that will be the moral space BRICS will seek to occupy in global political consciousness.

Promiscuous Future

We live in a world awash with promiscuous choices. But, the high rush in such flirtation is not without matching dangers. Russia will find reasons and perhaps even the wherewithal to court both BRICS and OECD simultaneously. Even so, Russia will have to delicately balance divergent expectations of the two groups who situate themselves at different ends in an uneven spectrum.

Inclusive growth, prosperity and a stable environment (internal and external) is what each of the BRICS seek as they transform their national economic and political landscapes. While this development emphasis within the BRICS agenda (which will only increase as South Africa assumes leadership) may appear to disturb the role Russia envisaged for BRICS, and herself within it, in reality Russia stands to gain immensely from this dispensation. Considering Russia’s own urgent need for systemic overhaul, there can be no better reference point than countries at the forefront of shaping the new global order. Staying the course will also see the BRICS increase the political content of their engagement, something the Russians always sought from the group of five.

Gains from accession to the OECD, which some feel Russia is speed-gating, may yet be notional. For, reduction in tariff barriers or better access to cutting edge technologies may all be part of the solution, but by themselves, they hold little value unless fundamental changes are effected in governance and planning behaviors to release energy and vibrancy into its national system, which is incidentally the signature BRICS objective.

Jaibal Naduvath is a communication professional and Samir Saran is Vice President at theObserver Research Foundation, a premier Indian Think Tank. The article is a revised version of the column that appeared in the Russia India Report on Jan 21, 2012.

BRICS, Columns/Op-Eds

Column in SAFPI: More than just a catchy acronym: six reasons why BRICS matters

by Samir Saran and Vivan Sharan
Please find here the link to the original article.

New Delhi: There have been heated discussions over the role of BRICS recently. Ian Bremmer, President of the Eurasia Group, a political risk consulting firm, wrote an eye-catching article in the New York Times in late November, proclaiming that BRICS is nothing more than a catchy acronym. The BRICS nations represent over 43 percent of the global population that is likely to account for over 50 percent of global consumption by the middle class – those earning between $16 and $50 per day – by 2050. On the other hand, they also collectively account for around half of global poverty calculated at the World Bank’s $1.25 a day poverty line. What, then, is the mortar that unites these BRICS?

First, unlike NATO, BRICS is not posturing as a global security group; unlike ASEAN or MERCOSUR, BRICS is not an archetypal regional trading bloc; and unlike the G7, BRICS is not a conglomerate of Western economies laying bets at the global governance high table. BRICS is, instead, a 21st-century arrangement for the global managers of tomorrow.

At the end of World War II, the Atlantic countries rallied around ideological constructs in an attempt to create a peaceful global order. Now, with the shifts in economic weights, adherence to ideologies no longer determines interactions among nations.

BRICS members are aware that they must collaborate on issues of common interest rather than common ideologies in what is now a near “G-0 world,” to borrow Bremmer’s own terminology. Second, size does not matter and it never has. Interests do and they always will. Intriguingly, Bremmer expresses his concern over China being a dominant member within BRICS. Clearly, Bremmer has chosen to ignore the fact that the US accounts for about 70 percent of the total defense expenditure of NATO countries or that it contributes nearly 45 percent of the G7’s collective GDP.

Third, BRICS is a flexible group in which cooperation is based on consensus. Issues of common concern include creating more efficient markets and generating sustained growth; generating employment; facilitating access to resources and services; addressing healthcare concerns and urbanization pressures; and seeking a stable external environment not periodically punctuated with violence arising out of a whim of a country with means.
Fourth, it is useful to remember that the world is still in the middle of a serious recession emanating from the West. As Bremmer himself points out, systemic dependence on Western demand is a critical challenge for BRICS nations. Indeed, it is no surprise that they have begun to create hedges. The proposal to institute a BRICS-led Development Bank, instruments to incentivize trade and investments, as well as mechanisms to integrate financial markets and stock exchanges are a few examples.

Fifth, through the war on Iraq, some countries undermined the UN framework. The interventions in Libya reaffirmed that sovereignty is neither sacrosanct nor a universal right. While imposing significant economic costs on the world, they failed to produce the desired political outcome. By maintaining the centrality of the UN framework in international relations, BRICS is attempting to pose a counter-narrative.
Sixth, in the post-Washington Consensus era, financial institutions such as the IMF and the World Bank are struggling to articulate a coherent development discourse. BRICS nations are at a stage where they can collectively craft a viable alternative development agenda.

In the Fourth BRICS Summit in New Delhi in March 2012, there was clear emphasis on sharing development knowledge and further democratizing institutions of global financial governance within the cooperative framework. BRICS is a transcontinental grouping that seeks to shape the environment within which the member countries exist. While countries across the globe share a number of common interests, the order of priorities differs. Today, BRICS nations find that their order of priorities on a number of external and internal issues which affect their domestic environments is relatively similar.

BRICS is pursuing an evolving and well thought out agenda based on this premise. And unlike Bremmer, we are not convinced that they are destined to fail.

* Samir Saran is vice president and Vivan Sharan an associate fellow at the Observer Research Foundation, New Delhi.