Vivan Sharan Qutoed on FDI Vote in Deutsche Welle, December 09, 2012

http://www.dw.de/singh-wins-support-for-foreign-conglomerates/a-16430120

"Of course it would mean more products available on the market if chains like Wal-Mart were to come to India. It would also encourage a new brand of efficiency. But it is very obvious that there would no longer be as many jobs in the sector as there are now."

Deconstructing the Asian dragon's inexorable rise - Article by Vivan Sharan and Saurabh Johri in MInt, November 23, 2012

http://www.dnaindia.com/analysis/column_deconstructing-the-asian-dragons-inexorable-rise_1768351

Two full weeks of travelling and meeting people in different provinces of China can help deconstruct many myths and criticisms about the country and its phenomenal rise on the global stage. Managing 1.35 billion people, enabling a per capita income of about $8500 (PPP) and growing at nearly 9% year on year, is not a task that can be easily replicated.It requires seamless harmonization between politics, economics and social aspirations — an alignment evident in everyday life.

Even a cursory glance at the pace and pattern of development across the vast geography is astonishing.Indeed much of this has been made possible through ruthless implementation of bold and decisive policies across the political and administrative spectrum. To many critics, China can come across as brutally utilitarian. However, by creating a coherent and effective regulatory regime around family planning, China’s policymakers have embedded the levers for socio-economic transformation within the very construct of families and societies.It is instructive to note that China’s one child policy was introduced simultaneous to market reforms. While the restrictive nature of the policy is often criticised, there is no doubt that the one child policy has led to the emancipation of women. Moreover, just as China will likely gradually move towards a more liberal market regime, it will slowly relax this policy.

Similarly, the Chinese Government has ensured that the political economy around land is significantly less convoluted by not giving any landownership to individuals. This has led to a number of socio-economic and political benefits. For example, we found that the inequality among different income classes in the access to agricultural land is virtually absent. There is hardly any inter-generational poverty among the landless - another example of ruthless implementation bearing dividends.

We also realised that the DNA of Chinese governance is not embedded in radical left of centre ideologies but a more progressive performance oriented thinking guided by the intellectual elite who are included in the policymaking process at almost every administrative level; from County to Centre.

Institutional inputs from universities and research centres (even at the village level) are sought throughout the policymaking process. Each province has an organically crafted development model based on a wide range of factors. While governance is administered by those who are selected rather than elected, the efficiency and inclusiveness is achieved by a palpable social solidarity.

Comparisons between India and China are often stretched, with unrealistic parallels drawn between Mumbai and Shanghai. This is done without acknowledgment that in the context of a noisy, increasingly federalist democracy such as India comparisons with China are increasingly aspirational. For example, infrastructure development in India is sabotaged by a combination of socio-political malaise. Moreover, the Chinese State apparatus, manages to deliver basic services including electricity to nearly the entire population; a feat which now seems insurmountable for the Government of India.

Globalisation has left a strong imprint on both China and India. While China has been able to reverse engineer the forces of globalisation to suit its needs, India has dealt with them in a much less strategic or productive way. Over the past three decades China has unleashed market forces with enviable hyper efficiency. While doing so, the country’s social texture changed considerably. 

We feel it is likely that in the next three decades would see the Dragon unleash another growth driver and lever of transformation – the English language!

A small episode in a remote Chinese town confirmed our assumptions. Our room-service operator came up to our room and put us in touch with his English teacher over Skype using his Chine made smart-phone. We explained the order through the teacher and hot food was served within another few minutes. 

This incredible zest for learning English and service delivery complements the government’s sustained thrust at promoting English as a useful tool in the globalised world. Soon enough, we are more or less certain that the Chinese will start servicing the world — Bangalore and Hyderabad will struggle to stay competitive! The room service operator is positioning himself to be ready for this next silent revolution. The Chinese Dragon is embarking upon a journey towards 22nd century. The transition of power in the Politburo is perhaps little more than a symbolic representation of this strategic continuity.

Climate change meets global hypocrisy, Samir Saran and Vivan Sharan for DNA, June 2012

http://www.dnaindia.com/analysis/column_climate-change-meets-global-hypocrisy_1709255

And so the saga concludes. A tired, weather-beaten group of States have retreated from Rio de Janeiro after a half-hearted attempt to rescue the world from a host of unsolved problems including climate change and unsustainable development. What unfolded was largely predictable. The Rio+20 declaration, ‘The Future We Want,’ is punctuated with old rhetoric around action and responsibility, laden with sweet murmurings on change, some affectionate recognition of imminent apocalypse and defined by absence of commitment.

The highly contested Kyoto Protocol remains the last substantial effort at the global level on environment. With developed countries lacking resolve to agree and/or act to achieve the set of common goals at the recent Durban Summit, and now, at Rio+20, it is becoming clear that global action is illusory, utopian and certainly less efficient.

It is ironic that at the same time as we dither on committing finance and technology to save the Earth, nations have, with great alacrity and commitment, pumped in trillions of dollars in concert to save wanton banks and financial entities that have failed to meet even basic regulatory and supervisory norms. The US alone has doled out $1.5 trillion to save its financial institutions following the financial crisis created by the same entities, while the developed world collectively put forth around $3 trillion for the same.

In stark contrast, the mightiest leaders of the world gathered at Copenhagen nearly three years ago and pledged, very proudly, a meagre $100 billion a year from 2020 as a collective financial response to climate change. A commitment to provide ‘new and additional’ resources approaching $30 billion for 2010-2012 was also made as part of a ‘fast start’ process. As of now, the fund has still not been capitalised and even the physical location where the fund will be hosted remains uncertain.

The message for Joe the plumber and the aam admi is unambiguous. Saving the banks is a multi-trillion dollar effort requiring action today. Saving the planet will cost only a fraction and can wait for 10 years. So it is hardly surprising when surveys reveal significant decline in interest on matters climate.

And the hypocrisy continues. Most recently, at the G20 Summit at Mexico, BRICS nations, including India, collectively pledged $75 billion through the IMF, to save the failing Eurozone economy from imminent collapse. That developing nations’ policymakers and economists rely on the unsustainable consumption of the western economies for their own obsession with perverse growth makes us willing accomplices. India, Russia, Brazil, South Africa, China are no victims, they just seem eager to sustain the lifestyles of the rich. Lifestyle emissions today account for nearly two thirds of total emissions.

According to the seminal Stern Review on ‘The Economics of Climate Change,’ global atmospheric levels of carbon dioxide equivalent gases must stabilise in the range 450-550 parts per million (ppm) by 2050. Anything higher would ‘substantially increase risks of very harmful impacts.’ Arctic monitoring stations reported this year that the concentration of these gases has already reached 400 ppm and the global average is predicted to reach this level in a few years (2016).

Developed countries currently occupy approximately 80% of the greenhouse gas (carbon) stocks. Developing countries like India need room to grow and per capita energy consumption will have to rise to enable this economic growth and development. Even to rise above the energy poverty level prescribed by the UN, India and Africa will need to increase their energy production by at least three times.

Carbon space will be a natural requirement. This space is now being denied. Hypocrisy becomes malafide now. 
The alchemists of capitalism have turned the sparse carbon into ‘carbon real estate,’ available for sale to the highest bidder. The weak and poor have been priced out. And at the G20, we have just offered to subsidise the rich to buy more.
The core issue of equity still eludes all debates and was missing at Rio+20 as well. Mitigation commitments being discussed are just not enough; they are deceitful as they undermine the sovereign rights of other nations. Developed countries will need to vacate their holding of carbon stocks.

One sixth of humanity cannot continue to hold 80% of the total carbon space that is available if western science is to be believed. This is what needs to be negotiated. The time lines and specific action by which these countries have carbon negative footprints must be sought.

It is unfortunate at the very least, if not downright conspiratorial, that countries like China and India have not been able to see through the haze created by the multilateral discourse and identify the real priority: to evict the developed countries who are squatting on carbon real estate that does not belong to them rather than negotiating the partaking of what is left.

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

inbox@dnaindia.net

Preparing for Rio+20: Emerging Dilemmas , First Published as ORF Analysis, June, 2012

At the first Rio Summit, global leaders met over the course of ten days to discuss ways to save the planet. At the upcoming Rio+20 summit in June, two decades after the initialisation of a comprehensive multilateral process to respond to climate change risks, global leaders will meet over a shortened period of three days to try to save the world from completely falling off a sustainable trajectory. 

The draft-zero of the declaration of the Rio+20 Summit mentions the phrase “green economy” twenty two times without ever defining it. It is also no surprise then that one of the architects of the Kyoto Protocol, Ambassador Raul Estrada of Argentina publicly expressed “serious concern” about the reversal of the Kyoto process back to “square one” at the recent Bonn negotiations which were a follow up to last year’s COP summit.

At the 1992 Earth Summit at Rio, the world agreed to the idea of “Common but Differentiated Responsibilities” to build a viable framework to mitigate the imminent risks posed by the gradual changes in the environment. This principle was the key takeaway from Rio and was received well by the developing world at large as it flowed out of the equitable and fair notion of “polluter pays”. 

Even if the principle in itself has not lead to the optimal desired outcome, the very idea of developing countries being entitled to grow and to receive financial and technological support by the advanced developed economies has been a central pillar of the responsibility discourse. The role that this messaging of ‘differentiated responsibilities’ has played has been decisive in how developing counties have traditionally positioned their arguments at multilateral fora.  

Antonio Gramsci the famous Italian philosopher wrote that “history has left us an infinity of traces” and that the task before all of us is to “compile an inventory of the traces that history has left us”. Multiple rounds of meetings and negotiations have followed after the first Earth Summit and the diffusion of the core principle of differentiated responsibility has been a consistently visible trend. 

At the multilateral level, there is a fairly clear push towards disposing off with differentiation altogether (led by the EU and its cohorts) and as the Rio+20 conference draws nearer, developing counties including India continue to struggle to articulate themselves coherently or envision an alternative long term agenda for action. Besides keeping equity at the forefront, India needs a strategic vision. The pattern of negotiations has been that developed countries give ‘incremental concessions’ to developing nations (for the lack of a better term) to pre-empt dissent.

There is definite scientific consensus that the Earth’s atmosphere is changing. The multilateral discourse on climate change also indicates that there is broad political agreement about imminent threats posed by climate risk. The Kyoto Protocol was perhaps the most honest attempt by the global collective of nation states to recognise two fundamental facts – that climate risks are real and imminent, and that developed countries have a greater historical responsibility to act and facilitate mitigation and adaptation actions of developing counties. 

With the first phase of the Kyoto Protocol coming to an end, and with no foreseeable consensus on the future course of action, developing countries have everything to lose and nothing to gain from new frameworks or catchphrases that may evolve in the near future. In this context, it is surprising that even countries, with significant economic weight and bargaining power such as India, have refrained from becoming proactive champions of a progressive discourse rather than continuing on as reactionary rule takers. 

The blame should not of course be limited to bad policymaking.  We are regularly bombarded by apocalyptic climate change scenarios as well as overwhelming narratives of poverty and probably are functioning within a collective denial of the information that confronts us – whether on the lack of intentions in the alleviation discourse or the actual systematic degradation of the planet. The human tendency to herd into binaries of affirmation and negation leads to formation of ideological coalitions without suitable contexts. Some of this obduracy and short sightedness of individual thought no doubt translates into decision making at the highest political levels.

Interestingly it can be argued that in 1992, it was the developing world that wanted to use multilateral agreements such as those on climate change, as possible access points into the consumer spending driven markets of the developed economies. With the ongoing financial crisis continuing unresolved, and no end in sight for a faltering European economy, Western countries are now looking for greater access into emerging markets and are actively trying to peddle a new kind of reverse protectionism by obfuscating the discourse. The world has changed considerably over the past 2 decades and yet such characteristics of global governance remain inherently hegemonic. 

India has relentlessly argued that stark levels of energy poverty and basic sustenance are more immediate and relevant concerns. Images of the Environment Minister at Durban, waving her arms around, defending India’s right to emit greenhouse gasses no doubt made for provocative news coverage, perhaps even inciting patriotic fervour in some of us. However the sad truth is that as a country we have seldom been able to act with strategic foresight on issues of long term significance. With clearly increasing patterns of inequity, social strife and marginalisation based on identity divisions, India’s policymakers must understand that they cannot continue to articulate its pro poor agenda shamelessly at the global high table, without first enabling visible socio-economic transformation at home.

Quoted in Fortune Magazine, June Edition, Vivan Sharan

Identity and Energy Access in India -Setting Contexts for Rio+20, Academic Paper, Energy Security Insights Journal, June 2012, Samir Saran and Vivan Sharan

Making BRICS Development Bank Work - Vivan Sharan, Samir Saran, Courtsey Ria Novosti

Putin 3.0: Creating hedges for the next decade?

http://indrus.in/articles/2012/05/17/putin_30_creating_hedges_for_the_next_decade_15789.html

May 17, 2012, Indrus.in Samir Saran, Vivan Sharan

Is Putin going to lessen the Russian dependence on stagnant European demand for oil and gas despite the favourable terms of trade and rely on the hard-bargaining China?

The Kremlin has recently announced that Vladimir Putin will be skipping the upcoming G8 meeting in the US sighting domestic concerns and will be visiting China on June 5-7 as his first foreign trip since being inaugurated as President. It is clear that Putin views Chinese demand for Russian oil and gas as a hedge against stagnant Western demand, particularly European demand for Russian exports which showed a huge 47% negative year on year variation in 2009 and is unlikely to grow at rates that will sustain the Russian economy for too long. However, China drives a hard bargain and its quest for energy security through import diversification and oil equity means that it will not accommodate for more than a minimum amount of dependence on Russian raw material linkages.

While his predecessor and protégé Dmitry Medvedev repeatedly emphasised the need for Russia to diversify away from its “primitive” focus on the oil and gas sector, Putin seems to be doggedly set on continuing his outlined profit maximisation doctrine by largely relying on the sector to fulfil social spending promises made during his election campaign. Russia recently surpassed Saudi Arabia as the largest producer of crude oil, and holds the world’s largest natural gas reserves.  Approximately 40 percent of the Russian Government’s tax comes from oil and gas related businesses. While Putin has been able to successfully leverage Russia’s natural resource endowments in the past, he is now faced with burgeoning structural problems including huge manufacturing sector inefficiencies, negative demographic trends, deepened socio-economic inequities and populist rebuttals to alleged systemic corruption under his oversight. 

The European Union (EU) is Russia’s biggest market and the EU also accounts for around 75 percent of FDI into Russia. According to the European Commission, Russia accounted for 47 percent of overall trade turnover in 2010; a trend which has normalised after the brief disruptions caused by the global financial crisis. However Russia’s competitive advantage with the EU is largely restricted to the trade of fuels and minerals. Even with its massive oil reserves, Russia has lagged behind in the production of petrochemicals and refined oil. While the margins earned on refined oil based products in a globally integrated oil market may not justify expansion of production facilities and there is a distinct competitive advantage in favour of the “Global South” in terms of labour costs and environmental tariffs there are few explanations for the lack of emphasis on developing a profitable export oriented petrochemicals sector in the country. It doesn’t help that the recent socio-political turmoil adds to the disincentives created for any FDI investment flowing into the country.

Indeed Russia exhibits many of the symptoms of the “Dutch Disease”, a term that broadly refers to the deleterious effects of large asymmetric increases in a country’s income, most commonly associated with discovery of natural resources such as crude oil. While there is no consensus about whether the country suffers this affliction and indeed there have been significant per capita income gains as a result of exploitation of raw material wealth, there are real and palpable threats to sustained growth that need to be proactively mitigated by the establishment. A 2007 IMF Working Paper found that some of the exhibited symptoms included a slowdown in the manufacturing sector, an expansion of the services sector and high real wage growth in all sectors. Simultaneously, oil exports have increased by close to 70 percent over the last decade and the value of exports has gone up by around 620 percent during the same time span. Russian crude oil production recently hit an all time high, and Putin is determined to maintain production levels above 10 million barrels per day (about a third of OPEC’s total production) for a “fairly long time”.

In many ways, resource based linkages have guided and defined Russian foreign policy since the disintegration of the Soviet Union. Resources have also dictated Russia’s economic fortunes, which have traditionally fluctuated with the price of crude oil. Crude oil has quadrupled in value since the early 2000s, and at the same time, Russia has transitioned into becoming a Middle Income Economy with an incredible number of super-rich. It is interesting to note however, that despite the asymmetric dependence on raw material exports, Russia’s currency has been depreciating. Due to the underinvestment in the manufacturing sector and the overall lack of competitiveness of the domestic goods, import growth has tended to outpace export growth. The current account balance as a percentage of GDP has declined substantially since the mid 2000s and with structural production ceilings being hit in the oil and gas industry, there is uncertainty about where the additional export growth is going to be generated. Putin seems certain that recently announced tax breaks for upstream oil and gas exploration projects and fiscal incentives for M&A activities will help fuel this production growth. Tax breaks have been provided for offshore energy projects with Western companies including Exxon Mobil Corp., Eni SpA and Statoil ASA.  Simultaneously he also plans to raise extra revenues from the resources sector to pacify some of the populist anger that is brewing through increased government spending, in particular by significantly increase extraction tax on gas suppliers.

Putin has an uphill task, to reassure foreign institutional investors of the legitimacy and stability of his political apparatus. In order to achieve competitive advantage in the export of petroleum related products, the Russian Government has ambitious goals to create six regional clusters of world class ethylene (the world’s most widely produced organic compound) production facilities and expects production capacity to reach 11.5 million tonnes per annum by 2030. This projection assumes a fundamental amount of investments and supporting infrastructure capacity building in the form of product pipelines, road and rail links. Distribution and feedstock concerns already plague the industry.

The seemingly irreversible economic meltdown in Europe must act as a trigger to stimulate new ideas and a break out of the traditional resource centric growth mindset in the Kremlin. Developing and emerging countries account for around 50 percent of global GDP in purchasing power parity terms and Russia must look to deepen integration through trade with these markets. China is but one of these and its sino-centric economic startegy may soon be an albatross around its neck. Moreover trade must be on the basis of a diversified basket of products on offer with emphasis on value addition.

The East Siberia-Pacific Ocean (ESPO) oil pipeline which is now operational has enabled Russia to bring oil to its remote eastern coast, from where it supplies to China, Japan and South Korea. The Chinese have been actively lobbying to get all of the oil transported through the ESPO, but Russian oil companies are naturally hesitant as they are unwilling to forgo the higher margins they receive by selling to Western countries. The Russian experience with the hard bargaining Chinese must not colour their prospective engagements with other emerging and developing countries. In the next few decades, global growth will be a function of how such economies in Asia and Africa perform, and in turn, so will Russia’s economic fortunes. Putin would do well to hedge away from dependence on European demand even though terms of trade may be favourable and fall in the comforting squeeze of the Chinese option.

Summing Up Human Rights

In what is essentially an unequal world, preponderance on development, especially amongst the lower per capita income economies, is natural. The Eurocentric discourse on human rights is simply not applicable to large proportions of the world’s population. The notion of a basic minimum entitlement to goods and services is utopian given the technology and productivity levels that exist today. This entitlement by its very definition, involves a necessary redistribution of consumption patterns across the world. Given that the Earth has a finite amount of resources, only a finite amount of real wealth can be created. This in turn implies that unless the democratic frameworks in existence throughout the world are overturned, and the fundamental right to accumulate wealth through legal enterprise is denied, any meaningful discourse on redistribution of wealth and in turn basic human rights stands on shaky foundations.

The BRICS View on Iran: India's Motivations, Vivan Sharan * As Published in Dalal Street Investment Journal, April Issue

The recently concluded BRICS Leaders Summit in Delhi yielded comprehensive and progressive outcomes on a number of important issues. Besides being able to achieve consensus on significantly deepening the intra-BRICS cooperation agenda with emphasis on market based integration, BRICS Leaders for the first time, were also able to coherently express views on sensitive foreign policy issues including on the Arab-Israeli conflict, the Syrian imbroglio and the contentious Iranian nuclear programme. Through the Declaration, BRICS members have recognized Iran's right to "peaceful uses on nuclear energy consistent with its international obligations". The Declaration has also unambiguously stated that BRICS members do not support "plurilateral initiatives that go against the fundamental principles of transparency, inclusiveness and multilateralism". The BRICS position on Iran's sovereign rights and the respect of international law is an unequivocal rejection of interventionist policies outside of the UN framework. It is interesting to briefly examine India's motivations for adopting such a firm policy stance given its simultaneous proximity to powers such as the U.S and the EU.

For decades, Iran has faced multiple sanction regimes, for allegedly sponsoring terrorism and for developing a nuclear programme with the intent to make nuclear weapons. The U.S has led such efforts, following a fairly predictable model of incrementally imposing unilateral sanctions each time Iran's governance apparatus has been less than deft in handling its foreign policy priorities and messaging. This default model of response has been used by the U.S administration since the Islamic Revolution, which led to the overthrowing of the Shah of Iran, a close ally of the West. Sanctions have been used by the U.S to achieve highly ambitious foreign policy goals, which history proves, are hard to achieve without simultaneously establishing economic and political synergies (South Korea) or the blatant use of force (Iraq). Repeatedly, studies have shown that sanction regimes cannot work in isolation of comprehensive strategies for engagement. Yet, there has been little or no will to explore alternatives and with the Jewish lobby at Capitol Hill, the policy hostility towards Iran will be hard to reverse.

The problem with imposing sanctions on a country which has the world's third largest proven reserves of oil and second largest conventional natural gas reserves is that the implications are felt globally. An important characteristic of the global oil market is that it is an integrated market. The price of oil is highly correlated throughout the world due to market arbitrage. This means that plurilateral initiatives by the U.S or the EU to curb Iran's economic viability by imposing barriers on the free flow of trade and finance are in effect paid for by all net consumers of oil, including developing countries such as India. Iran's production capacity has also been more or less stagnant for many years at around four million barrels per day. Sanctions have prevented Iran from accessing technology to upgrade oil infrastructure and increase supply, which would theoretically ease oil prices. This is a perverse and fundamentally flawed dynamic. Why should the developing world pay for the foreign policy interventions of the West? Why should India, a country with over 800 million poor and stark levels of energy poverty, subsidise American and European foreign policy and in turn face insurmountable fiscal deficits year after year?

India and Iran share historical ties, and there is definite cultural affinity between the two nations. However, these are not the reasons why Indian policymakers have supported the seemingly ideological stance taken by BRICS members. India imports around 12 percent of its oil from Iran, its second largest supplier after Saudi Arabia. While in a globally integrated oil market, import substitution should theoretically be fairly simple, Iran sells oil to India based on long term supply contracts that offer a competitive rate. Moreover, many of the PSU refineries in India are geared towards the processing of sweet crude oil which is imported from Iran. Mangalore Refineries and Petrochemical Limited (MRPL) and Hindustan Petroleum Corporation Limited (HPCL) in particular are two large PSUs whose profit margins depend to a significant extent on the sweet crude mix imported from Iran. While the private sector, including Reliance, has been fairly quick to respond to the political risk and diversify imports, the public sector understandably cannot adapt as fast (Essar Oil is the private sector exception which was the largest importer of Iranian Crude in the first quarter of 2012). India is certain to continue importing oil from Iran and only the relative quantities in the composite import basket are likely to fall over the long run as gradual refining technology improvements are carried out by the aforementioned PSUs. 

In the first quarter of 2012, India overtook another BRICS member, China as the largest importer of Iranian Crude, with direct imports of over 430,000 barrels per day. This is in spite of the difficulties of carrying out financial transactions with Iran due to the existing sanctions regime which specifically also targets financial institutions such as the Central Bank of Iran. In 2010, the Reserve Bank of India mandated that oil import payments to Iran would have to be settled outside the Asian Clearing Union (ACU) mechanism, which involves the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal and Sri Lanka. There is an old adage that "markets always find a way' and this has largely been true in the case of imports from Iran. A recent development has been the institution of a settlement mechanism through which India can pay up to 45 percent of its import costs in local currency. India in its Union Budget for FY 2013 paved the way for the efficient working of this mechanism by including a tax exemption for such transactions which would otherwise be classified as "income earned abroad' (by Iran) and therefore be liable up to a 40 percent tax.

A common argument by Iranian Government officials is that if the current sanction regime followed by the U.S and EU has led to the appreciation of oil price by 8 or 10 percent, it has only benefited Iran, which continues to supply oil to its major consumers China and India at more expensive rates. Indeed the cost-benefit works in Iran's favour as Iran is more than able to offset losses due to higher transaction costs with the appreciation of the underlying price of the asset. The BRICS members consist of both net oil exporters and importers and represent 43 percent of the world's population and therefore represent a more than credible global zeitgeist. They have suggested better international policy coordination to maintain macroeconomic growth momentum and curb commodity price volatility as immediate imperatives for the global economy. Since commodity prices are highly correlated with the oil economy, it is in all nations' interests to ensure a viable and stable price for oil to ensure sustainable development in the current sluggish and uncertain global economic growth environment. BRICS provides a platform for India to voice concerns and direct strong criticism against Western countries that directly influence oil prices through the conduct of irresponsible foreign policy outside the international framework. In a way the BRICS platform allows India to express views that the constraints of realpolitik do not allow it to. It allows India's 21st century foreign policy to evolve and emerge to better reflect domestic concerns.

BRICS, Steel, Mortar....and Money: Samir Saran and Vivan Sharan* 04 April 2012, ORF Analysis

With the Delhi Declaration, BRICS nations, which met recently in the Indian capital, have shown that they have the steel to stand up to traditional power structures, a cohesive vision to jointly respond to development challenges through institutionalisation of concrete mechanisms, and the determination to channel monetary power to strengthen markets, businesses and trade. The Declaration indeed gives insight into the gradual transformation of BRICS, from essentially a response mechanism crafted to address the various development challenges posed by the global financial crisis, to a forward looking entity seeking to enact and enable real global transformation. 

The Delhi Declaration extends over 50 paragraphs which are all encompassing in some sense and address many relevant themes for BRICS countries and the developing world at large. The Declaration is significantly more impressive and comprehensive than the 16 paragraph Joint Statement of the BRICS Leaders at the first summit held at Yekaterinburg in 2009 and the sketchy and macro statement of purpose at Sanya last year. The Action Plan within the Delhi Declaration consists of 17 steps which will deepen intra-BRICS engagements. There are three prominent narratives that define the Delhi Declaration - reaffirmation of the UN framework for global governance, disappointment with financial regimes shaped in the mid 20th century and a confidence to tap into economic opportunities that exist within BRICS.

The Delhi Declaration has stamped the intent of BRICS nations to coordinate and collectively respond to global security challenges within appropriate frameworks that give precedence to fundamental principles such as international law, transparency and sovereignty. BRICS members have recognised and re-emphasised the centrality of the UN in dealing with regional tensions and they have explicitly outlined this for specific cases including the Arab-Israeli conflict, the Syrian imbroglio and the contentious Iranian nuclear programme. 

The Declaration unambiguously states that "plurilateral initiatives" that go against the fundamental principles outlined earlier, will not be supported by BRICS. The Declaration is clearly against actions such as asymmetric trade protectionism, unilaterally imposed sanctions and taxes imposed on businesses. The EU's Aviation Tax is one such example from contemporary policymaking. In terms of trade, there is strong emphasis on operating within legal instruments such as the WTO and institutions such as the UNCTAD for furthering the inclusive development efforts through consensus and technical cooperation.

The aftershocks from the financial crisis are still a cause of concern to the BRICS nations. The pre-occupation with Europe has distracted attention from the social transformation programmes and poverty alleviation efforts among BRICS members. The Delhi Declaration has spelt out the "immediate priority" of restoring market confidence and getting global growth back on track. The steps to address such concerns will include attempts to rebalance global savings and consumption, furthering of regulatory and supervisory oversight in the financial markets, increasing the voice of developing and emerging nations in global financial governance and the institutionalisation of financial mechanisms to redirect existing capital to tackle development imperatives. 

The BRICS members have therefore announced a working group led by the Finance Ministers of the individual nations, in order to examine the "feasibility and viability" of a BRICS Development Bank. When formed, such an institution will likely be able to shift and contextualise the development discourse within and outside BRICS and therefore is one of the most significant actionable outcomes. It is evident that such a multilateral institution is not meant to compete with existing ones, but rather, to enhance lending and investment to create sustainable development trajectories. Contrary to expectations several high ranking Chinese policymakers, including the Assistant Foreign Minister, Ma Zhaoxu, have supported the idea.

The BRICS members have clearly outlined that the purpose and nature of Bretton Woods Institutions such as the World Bank, must shift from being essentially a mediation instrument to enable North-South cooperation, to one which can actually prioritise "development issues" and overcome the "donor-recipient dichotomy". They have also called upon the World Bank to mobilize greater directed resources and enable development financing at reduced costs through financial innovations and improved lending practices. Indeed for BRICS, the focus on World Bank and IMF reforms has remained constant through the years, yet the Delhi Declaration articulates these concerns more lucidly than ever before.

Given that intra-BRICS trade has been consistently on the rise over the past decade, BRICS Leaders have endorsed the conclusion of the Master Agreement on Extending Credit Facility in Local Currency under the BRICS Interbank Cooperation Mechanism and the Multilateral Letter of Credit Confirmation Facility Agreement between their respective EXIM/Development Banks. Such steps to mitigate market risks and enable local currency transactions will only add to the existing momentum and build resilience in BRICS economies to global business cycle fluctuations and exchange rate volatilities. Notably, BRICS have also endorsed the market led efforts to set up a BRICS Exchange Alliance between the major stock exchanges of BRICS, which will enable investors to efficiently allocate capital across BRICS economies and invest in the BRICS growth story. 

The unity and purpose of BRICS has been the target of speculation and scepticism from various quarters. With the Delhi Declaration, BRICS members have been able to assuage such doubts as they have begun to create a credible hedge against traditional global narratives of security and development. They have simultaneously been able to project that there is resolution within the group to deal with issues that are not only of immediate concern but even those that will need attention in the future. The Delhi Declaration paves the way for the institutionalisation of BRICS cooperation, making BRICS a significant transcontinental and politically united force. In Sanya BRICS spread wide to include South Africa; in Delhi they went deep to include substance. 

(Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at Observer Research Foundation. The Foundation hosted the BRICS Academic Forum in March this year)

Quoted in Times of India, 1 April, 2012.

http://articles.timesofindia.indiatimes.com/2012-04-01/special-report/31270010_1_brics-robert-zoellick-world-bank/2

Power of 5

Far from Delhi's decked-up roundabouts and sanitised hotels, Robert Zoellick was aboard a boat on Wednesday, crossing the river Bhitarkanika on his way to a village in Orissa. After greeting the villagers with folded hands, the World Bank president sat down to talk to a global news agency. A few stock questions later, the Bank chief turned his attention to the proposed BRICS bank. "It's a complicated venture which will have a hard time getting off the ground and match the expertise of the World Bank," Zoellick said.

It was hard to miss the symbolism of Zoellick's foray into a dark corner of India and raise doubts about a new development bank just one day before the leaders of Brazil, Russia, India, China and South Africa (BRICS) met in the Capital to thrash out the nitty-gritty of the Delhi Declaration. It was clear that the Bank didn't want a new global rival that couldn't be controlled from Washington.

But by Thursday evening, BRICS leaders had proposed to trade among themselves in their local currencies, made significant progress on the setting up of the new development bank, expressed their concern at the slow pace of quota and governance reforms in IMF, and decided to abide by UN sanctions and not the unilateral ones imposed by the US and European countries on Iran and Syria. "We wish to see these countries living in peace and regain stability and prosperity as respected members of the global community," the declaration said.

This was a giant leap forward, much more than what skeptics like Zoellick had expected. In the days leading to the summit, the air was thick with negativity. "What do they talk at these summits? It's just a talk shop and a photo op," an American diplomat had said, making no effort to hide biting sarcasm. The same day, an op-ed piece in the New York Times argued that the focus of the new bank was misplaced. "It is the fundamental incompatibility of the BRICS nations , not their lack of organisation, which prevents this collection of emerging economies from acting as a meaningful force on the world stage," the op-ed said. In this western worldview, BRICS is an idea whose time hasn't come.

By Thursday evening, however, the mood at the summit was upbeat, with ministers, diplomats, businessmen and journalists smelling a change in the air. "BRICS is not an idea. It's already a reality. The balance of the existing global order is tipping," says Jackson Schneider, vice-president of Embraer, the Brazilian aviation giant. "If BRICS has no force, why is the NYT wasting so much ink and time on us?"

The problem with the view from New York is that it ignores ground reality. Today, the BRICS countries account for 25% of global GDP based on the purchasing power parity of national currencies; 30% of land area and 45% of the world's population. The bloc's contribution to global economic growth has now reached almost 50%, making this group the principal driver of global economic development. "Last year, trade between the BRICS countries stood at around $230 billion and we are targeting $500 billion by 2015. We all are important countries in our respective regions and we want the world architecture to be more inclusive," says MariaReis, the top Brazilian diplomat for BRICS affairs, also known as the 'BRICS Sherpa'. "We are not against anyone but we want changes in terms of transparency in global affairs."

Signs of change are already there. On the morning of the meeting, the Syrian prime minister sent a letter to his Indian counterpart Manmohan Singh about the situation in his country and his government's commitment to the peace process. By evening, the BRICS leaders had taken a collective and clear stand: no foreign interference in Syria. "By making clear that issues likeSyria, Iran and Palestine-Israel dispute be resolved within the UN framework, the BRICS leaders have moved from plain rhetoric to specific areas, and have also given a message to those countries which tend to act unilaterally outside the UN framework. It's a huge development," says Vivan Sharan, an associate fellow at the Observer Research Foundation which hosted the BRICS academic forum this month in preparation for the summit.

Experts like Sharan see the Delhi summit as a success in terms of the changing global order. "They have demanded specific reforms in the IMF-World bank structure. Now Exim banks will be able to give loans to each other in local currency. This is deepening of financial integration. Even on the issue of a development bank, it's a win-win situation for everyone. This summit has cleared a lot of noise and confusion," says the ORF expert. "I don't see any major obstacle in the creation of the BRICS bank."

The bank, according to participants in the summit, is now a question of when and not if. This can fundamentally change the existing world order. "According to the West, in the global village, the Chinese manufacture , the Indians provide services, the Brazilians do farming, the Russians supply oil, and we are a source of cheap labour. But, not anymore," says a South African diplomat. "Because of our history, the entire African continent is looking at the BRICS bank."

If BRICS has become a force to reckon with, it's because of the hard work done by a lot of people. Contrary to the perception that BRICS leaders meet once a year to click some snaps together, the members have already put in place a number of mechanisms to deepen their cooperation. In the past couple of years, there have been a number of meetings between BRICS ministers for trade, other ministers for agriculture, health, and a contact group on economic and trade issues. "The BRICS countries today comprise new growth poles in a multipolar world," says Sudhir Vyas, secretary (economic relations), in the ministry of external affairs and the Indian sherpa for the summit.

Though the BRICS countries have been meeting and talking for the past eight years, they realised their power only in 2008, when the western economies began to wobble. "During the financial crisis, the BRICS countries played a vital role as drivers of growth that helped the global economy. They are not a threat to global growth, but an opportunity for global growth," says Vyas. Despite suspicions in the western capitals, no one in BRICS is seeking confrontation . "We need very much the euro zone to recover. No one wants this crisis to aggravate," says Maria Reis of Brazil.

Of course, there are challenges ahead, even misgivings . But everyone is willing to give BRICS a chance. Li Zhongmin, an expert on the grouping at the Chinese Academy of Social Sciences, says it was essential for their future for the members to "finance each other's infrastructure projects, internationalise their currencies , provide trade credit to each other, ease visa norms and encourage investment in each other's country."

All this was achieved at BRICS 2012. Now the next step should be the creation of an institution -a new global bank -that holds the grouping together. "Foremost amongst the reasons for the creation of the institution is the need for BRICS to assume pole position in global financial governance,'' says Sharan of ORF.

On Thursday evening, the delegates were confident that the bank will be a reality sooner than later. It could be real good news for India, which was the first country to propose this bank.

On Friday, Zoellick landed in Delhi, met ministers and businessmen and told them how the World Bank "can help India meet the challenges ahead."

Zoellick is going to retire soon. Is he trying extra hard to sell an idea whose time may be up?