Why India is poised to outperform the BRICS economies…
Back in the year 2002 when Goldman Sachs had coined the term BRIC to include Brazil, Russia, India and China, it was a unique proposition. China was built on commodity demand while Russia and Brazil were major suppliers of commodities. India was the only country that did not fit into one of these categories. Of course, much later South Africa was also added to the list to expand the nomenclature to BRICS.
Back in 2002, the world was in the early stages of the massive commodity super cycle. Rampant demand created a ready market for Russian oil and gas as well as Brazilian metals and agri-products.
Post Lehman period…
Post the Lehman crisis, it was expected that the commodity cycle would slow down. What happened was exactly the opposite. China stepped in to create a massive ready market for oil and metals to fire its factories. As China moved towards becoming the manufacturing capital of the world, the demand for commodities touched a new peak. So what has changed in the recent past?
Oil and China GDP…
It all began with the fall in oil prices as the world was hit by oversupply coming from the US shale reserves. The OPEC, which normally acts as the price arbiter, decided to focus on maintaining its market share rather than policing the price. The result was that oil prices fell from $115 / barrel down to $40 / barrel. This created a huge pain for the world’s leading oil suppliers like the Middle East, Latin America, Africa, Russia and the US. Of course, the US managed to hedge itself by making cheap funding available to finance its oil binge.
The result has been that most Middle East and Latin American Nations are facing a slowdown in growth as well as a drawdown on their reserves. Secondly, Russia has seen its Rouble depreciate almost 50% in the last one year due to a combination of cheap oil and Western sanctions.
What time India?
For India this could be a major opportunity for a variety of reasons. Firstly, India is not a major commodity supplier and hence it has benefited substantially from cheap commodities. Secondly, India has not thrived on Chinese demand alone and hence it does not have to worry overtly about a slowdown in Chinese growth or a fall in Chinese markets.
As the advantages for India play out, there are few imperatives. It needs to push regulatory reforms rapidly so that the animal spirits of capitalism can be unleashed. Secondly, it has to invest in quality infrastructure on a priority basis. Then India can stand out among the BRICS and capture growth! ©
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