Reflections on India in the BRICs
Jim O’Neill provides punchy insights to The Sign about his views on India, the up-coming elections, the challenges and the opportunity for the country in 2014
The Sign: What do you think have been the biggest issues facing India from being as successful as might have been hoped for in the original BRICs report?
Jim:I think the single biggest issue is lack of delivery, poor implementation. The contrast with China is staggering. So many of India’s less visible issues have now become evident. All the jitters that hit the Indian markets as a result of the Fed taper talk would not have hurt India if India had credible policy delivery in place. The new RBI Governor Raghuram Rajan is clearly helping but India’s issues are not only issues related to its monetary policy.
The Sign: What are the key policy focus areas that might get India back on track?
Jim:Governance, governance, governance! I wrote a Bloomberg piece about the ten specific objectives for economic policy at the end of June. A new government, from whichever party, will need to embrace these. But governance is key.
The Sign: Has India’s experience led you to modify your view on the smoothness or bumpiness of the rise of the BRICs?
Jim:Not really as China continues to outperform my BRIC assumptions. India has disappointed. If India addresses the governance points and the ten key policy areas, India could still easily surpass my 6.5 per cent assumption for the next decade.
The Sign: Is India’s democracy a strength or a weakness for the country?
Jim:If you look at China and India in the 12 years since I created the BRICs concept, the answer is clear. Twelve years ago, China was twice the size of India. Today, China is more than four times the size of India. China is now creating another India every two years. India needs to have a democracy that can lead and provide effective governance. This said, Indian equities do better than China implying markets think India a better bet these days (a statement I’m not so sure of).
The Sign: What are the implications of the success of Kejriwal’s Aam Aadmi Party in the recent Delhi elections?
Jim: I think the Delhi elections are dangerous to over-interpret. Many countries have seen new protest groups fair really well but not sustain impact (Italy is an especially good example). That said, it seems the Congress led coalition will be out in 2014, which markets think is better for India.
The Sign: What are the drivers and chances for a stock market boom in coming year?
Jim:2014 is a big, big year for Indian markets (including for the Rupee). If the BJP win the election and can make democracy work (or if the incumbents can manage a huge real and perceived transformation in their approach and leadership), then Indian markets could be the global star of 2014. If the election results in status quo and indecisive leadership Indian markets are in for a tough 2014.
Who You Calling a BRIC?
I spent last week in Indonesia, working on a series for BBC Radio about four of the world’s most populous non-BRIC emerging economies. The BRIC countries — Brazil, Russia, India and China — are already closely watched. The group I’m studying for this project — let’s call them the MINT economies — deserve no less attention. Mexico, Indonesia, Nigeria and Turkey all have very favorable demographics for at least the next 20 years, and their economic prospects are interesting.
Policy makers and thinkers in the MINT countries have often asked me why I left them out of that first classification. Indonesians made the point with particular force. Over the years I’ve become accustomed to being told that the BRIC countries should have been the BRIICs all along, or maybe even the BIICs. Wasn’t Indonesia’s economic potential more compelling than Russia’s? Despite the size of its relatively young population (a tremendous asset), I thought it unlikely that Indonesia would do enough on the economic-policy front to quickly realize that potential.
Now, meeting a diverse group of Indonesians — from the leading candidates for the 2014 presidential elections to shoppers in Jakarta’s busy malls — I found a healthy preoccupation with the country’s economic prospects. Could Indonesia do what’s needed to lift the country’s growth rate to 7 percent or more, they were asking, or would it have to settle for “just” 5 percent?
During the trip, I got word that Russia’s economy minister, Alexei Ulyukayev, had suggested Russia was likely to grow by just 2.5 percent a year over the next 20 years. How’s that for contrasting ambitions? It made me wonder about the “R” all over again.
Certainly if Russia can only grow by 2.5 percent this decade and beyond — far too little to maintain, let alone increase, its share of global output — that would be cause for concern. Not least because the country faces a growing demographic challenge as it moves toward 2050. By that year, I and many others assume Russia’s population will be closer to 100 million than today’s 140 million. This worsening demographic drag will slow the economy further.
Russia’s recent economic performance has undoubtedly been poor, and demography isn’t the only problem. The country is far too dependent on oil and gas, afflicted with corruption, and lacking a credible legal framework for business. Even so, one wonders about the thinking behind Ulyukayev’s public pessimism. Until recently, Russian officials were determinedly upbeat. I recall in 2008 telling a group in St. Petersburg that Russia would probably grow at 4 percent a year or less through 2020, and that it was a mistake to assume ever-rising oil prices. As they made very clear, that wasn’t what they wanted to hear. I suspect the new pessimism may be deliberately exaggerated. Maybe some influential policy makers are trying to build support for genuine reform — by saying, see what happens if we don’t act. Let’s hope so.
Last week also saw the buildup to the much-anticipated meeting of China’s leaders that began over the weekend. As I discuss in a new book, “The BRIC Road to Growth,” China has a unique role in the group, not just because of its size but also because of its global economic reach and ambition. Nonetheless, its approach to development needs to be adjusted. Reports suggest that the government is considering new steps to create a more consumer-led economy, which is indeed necessary to lessen China’s dependence on low-value exports and state-directed investment.
That will be a difficult transition to manage, but, by emerging-economy standards, China’s leadership has a history of clear thinking about economic strategy — not to mention an unmatched record of success. The policy review coincides with new economic figures that continue to be somewhat better than expected. China is likely to grow by more than 7.5 percent this year. If so, it will have beaten my expectations for growth since the start of this decade, the only BRIC country to have done so.
By the end of this year, China’s annual output will be more than $9 trillion — not far off 1.5 times the output of the other three BRIC countries put together. If its leaders can deliver the reforms they’ve been discussing since the weekend, the country’s rapid growth can be sustained. The global economy will continue to be transformed, and the other BRIC and MINT economies will have an even more daunting standard against which to measure their performance.
(Jim O’Neill, former chairman of Goldman Sachs Asset Management, is a Bloomberg View columnist.)
Source: Bloomberg, Nov 12, 2013, Courtesy of Jim O’Neill
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