Modi’s Brics Summit Challenge
Modi’s Brics Summit Challenge
When Prime Minister Narendra Modi flies to Brazil mid-July, it will be a welcome respite from the heat and cacophony of post-budget Delhi. President Dilma Rousseff’s grand welcome to the sixth Brics summit will be energising. The summit’s pomp and ceremony will, however, be less important than Modi’s ‘side meetings’, especially with Chinese president Xi Jinping. It will allow him to take measure of the man who has emerged as one of the most powerful and ambitious leaders of modern China. Modi’s diplomatic skills in preserving India’s interests will also be tested as Xi attempts to turn Brics into a platform from which to advance China’s global agenda.
Brics was the brain wave of a Goldman Sachs asset manager in 2001 — an investment package with a catchy acronym involving fast-growing countries from three continents (Brazil, Russia, India and China). Later South Africa was invited to represent Africa.
Five summits and innumerable technical meetings have been held to give substance to an acronym. However, despite the promise held by a group representing 40% of the world’s population and generating 20% of global GDP, the Brics have mostly been five countries in search of a role. Instead of helping each other build their economies, they have become a lopsided organisation with China importing energy and raw materials from other members and raking up trade surpluses by exporting manufactured goods.
Brics’ early attempt to nominate its own candidate to head the IMF fizzled. Its demand to restructure international financial institutions to give a bigger share to developing countries continues to be blocked by opposition from US Congress. Economic mismanagement and unfavourable global trends have even seen India, South Africa and Brazil lose their lustre as investment destinations. And to add insult to injury, a recent report by Organisation of Economic Cooperation and Development forecasts dim growth prospects for all Brics countries except China.
It is thus not surprising that China, under its hard-driving leader Xi, has moved in to take over the leadership and turn Brics into a platform to challenge western domination. By ironic coincidence, four of five Brics leaders have had recent run-ins with Washington: Putin over Ukraine, Xi over Asian territorial claims, Rousseff over NSA spying that led her to cancel her trip to Washington and Modi’s visa denial until recently.
Even before these developments, China’s growing conflict with Japan and Southeast Asia, the US pivot to Asia and an emerging alliance between Russia and China in opposition to the US, have provided Beijing additional impetus to develop its economic and political muscle. China has called for establishment of an Asian security alliance and proposed setting up the Asian Infrastructure Investment Bank to rival Japanese-dominated ADB. It has now turned to Brics to build a global financial institution to challenge western-dominated multilateral lending institutions.
During the summit, Brics will unveil a development bank, with a starting capital of $50 billion that China wants headquartered in Shanghai. It would also set up a joint $100-billion emergency swap fund for financial crises. Although each member country will contribute an initial $10 billion towards the start-up capital, China’s economic heft is likely to give it a leading role in the new bank. Despite having considerably less capital than the World Bank (which has $223 billion) in callable asset, the Brics bank will mark a symbolic challenge to the global system set up under the Bretton Woods Agreement.
The formation of the Brics development bank could also conceivably allow India to borrow to meet its enormous need to build infrastructure without directly seeking Chinese funds. But India cannot forget that politics is in command in Beijing’s economic decisions. In 2009, China blocked an ADB loan that India had requested for a flood management, water supply and sanitation project in Arunachal Pradesh. Leaders in New Delhi ought to be wary of giving their counterparts in Beijing veto power over needed infrastructure improvements.
That said, China is clearly eager to woo the newly elected Indian prime minister, and has promised to push bilateral cooperation to “a new high”. The forthcoming sideline meeting between Modi and Xi will give India a sense of how far China is willing to concede its territorial claims in order to win Indian cooperation in achieving its wider global agenda.
Nayan Chanda is editor in chief of YaleGlobal Online.