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Ray, P. and B. Nag (2017). “Two Crises Separated by Two Decades: Savings Glut and Trade Strategy in select East Asian Economies”, IIM Calcutta Working Paper No. WPS 799.
US Treasury (2017). Foreign Exchange Policies of Major Trading Partners of the United States, Office Of International Affairs Report to the US Congress U.S. October 17, 2017, available at https://www.treasury.gov/press-center/press-releases/Documents/2017-10-17%20(Fall%202017%20FX%20Report)%20FINAL.PDF (accessed during January–March 2017).
1The term economic block is used generically — hence, it includes regional trade blocks, customs unions, or currency areas.
2The following four scenarios were considered in particular: (a) future nominal GDP projections are converted at end-2000 exchange rates; (b) future nominal GDP projections are converted using their fair value exchange rate estimates; (c) future nominals are converted at end-2000 exchange rates, but assume that the 2001/2002 nominal GDP paths continue for 10 years; and (d) projected GDP trends are arrived at using PPP conversions rather than estimated end-2011 current USDs.
3See for example, Baracuhy (2012) and Glosny (2010). Even Goldman Sachs came out with a volume on articles on BRICS and other emerging economies; see Goldman Sachs (2007).
4At market exchange rate, the sizes of the BRICS economies are, however, much smaller.
5In 1994, the Real Plan introduced a new currency, the Real. One real was valued at 2750 Cruzeiros Reais (the short-lived currency of Brazil between August 1, 1993 and June 30, 1994). The plan imposed restrictions on fiscal and monetary expansions and introduced price freezing.
6Since the macroeconomic identity can be written as, Y = C + I + G + X − M (where Y = GDP, C = Consumption; I = Investment; G = Government Consumption; X = Exports, and I = Imports), one would get, (Y − C − G) − I = X − M, so that it can be written as, S − I = X − M (where S = Savings). Since at a global level, aggregate exports have to be equal to global exports, current account balance at the global level has to be zero. By the mid-2000s, while the US and a few European countries had substantial current account deficits, this was matched by the surpluses of number of Asian economies led by China and oil exporters. See Ray and Nag (2017) for details.
7The areas of cooperation include: (1) BRICS Social Security Agreements; (2) Financial Framework for Sustainable Development; (3) BRICS Infrastructure Project Preparation Facility; (4) Local Capital Markets development through NDB; (5) BRICS Angels Network (for start-ups); (6) BRICS Trade Settlement in Local Currencies; (7) BRICS cooperation in Agri-business; (8) BRICS cooperation in Energy; (9) BRICS cooperation in Skill Development; (10) BRICS cooperation in Manufacturing; (11) BRICS Trade Facilitation Network; (12) BRICS Standardization Research Framework; (13) Advisory role and observer status for BRICS Business Council in NDB; (14) Cooperation and Facilitation of intra-BRICS Investments; (15) BRICS Rating Agency; and (16) New International Payment Card System for BRICS.
8Lieber (2014) was more critical and went on to say, “Other than where clear and unambiguous self-interest is present, the actual record of BRICS cooperation on a wide range of international collective action problems thus provides limited evidence of positive engagement let alone embracing of a ‘stake-holder’ role” (p. 143).
9In fact, notwithstanding their economic status, quotas of the BRICS block in the IMF have been meagre and stood as per the current quota formula as follows: Brazil 2.32%, China 6.41%, India 2.76%; Russia 2.71%; South Africa 0.64%; see https://www.imf.org/external/np/sec/memdir/members.aspx for details.
10https://www.ndb.int/about-us/essence/our-work/.
11Lindsay and Van Rossem (2014) argued from a neo-Weberian perspective that power in the global system is multidimensional and relational. Comparing the paths of the BRICs to integration in the global political, economic, and military networks, they argued that as the paths of the BRICS block differ fundamentally, these countries cannot be classified as a category of rising powers.
CHAPTER 3
China’s and India’s Economic Performance After the Financial Crisis: A Comparative Analysis
R. Nagaraj
Indira Gandhi Institute of Development Research, Mumbai, India
Introduction
In 2015, as per IMF data, nominal GDP in current dollar terms, China and India are world’s second and seventh largest economies, at $11 trillion and $2.25 trillion, respectively. In per capita terms, in global ranking, China stood 74th with $8,141, and India at 141th position with $1,604. In geo-political terms, though China carries considerable heft, it is as yet an emerging market economy (EME) as per the Morgan Stanley index for emerging market index (MSCI). These countries are the leading members of the ‘BRICS’ economies — a short hand for fast growing industrializing nations accounting for a quarter of world’s land mass and 40% of population — a grouping of non-western nations that Goldman Sachs created in 2001 for the purpose of developing financial products. Though the financial firm ceased to use the country grouping for selling financial products, BRICS as a category has stayed in policy discourse and in financial markets.
Just prior to the global financial crisis (GFC) in 2008–2009, China was world’s fastest growing large economy expanding annually at 9–10 for over 20 years; India was seen as a close second growing at about 9% annually (though for just 3 years). If China had emerged as world’s factory, India was getting to be reckoned (at least for a while) as its back office. The GFC and the great recession thereafter probably hit China much harder, given its much higher export/GDP ratio (at 30.7%) in 2008, compared to India’s share at 23.6%. Moreover, financial flows into China were much higher than in India. As part of the G20 initiative, both the countries undertook fiscal and monetary stimulus to prevent a repetition of the great depression — China did it on an enormous scale compared to India, given its greater external exposure, and to prevent large-scale unemployment and the potential political backlash domestically.
Economic growth in both the countries recovered quickly, giving rise to (instant) theorizing of ‘de-coupling’ of the EMEs (especially BRICS countries) from the developed economies, signifying the autonomous nature of their growth. Soon, it was realized that growth in China and India were sustained by large-scale short-term capital inflows on account of the QE in the advanced economies, that is, capital flowing into these economies in search of higher yield (or rate of return). However, the hint of a tapering off of the QE in August 2013 led to panic known as ‘taper tantrum, putting breaks on the capital inflows, adversely affecting growth in these countries. Thus,
