Alliances & antagonisms

At the 15th Summit (2023) of BRICS – an acronym denoting the emerging national economies of Brazil, Russia, India, China and South Africa — the leaders of the member nations agreed to enlarge their group from January 1, 2024. Accordingly, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates have been invited to become full members of BRICS. After the change in political leadership in Argentina, it abstained from joining BRICS. But five other nations, namely Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates have become full time members of the group since January 1, 2024. Thus a new group of BRICS+5 has been formed, which is expected to establish a multipolar world order by ending the economic and geopolitical dominance of the Western nations led by the USA. Russia, which took over from outgoing chair South Africa on January 1, assumes one-year rotating chairmanship of the expanded BRICS+5.

Reacting on the expansion of BRICS, Vladimir Putin, the current chairperson said, “The creation of a multipolar world was rooted in ‘the growing potential of many countries, including, not least, the growing potential of the People’s Republic of China.’ India is growing in Asia, Indonesia is also growing, many other nations in Latin America like Brazil, and Russia are getting back on their feet and gaining strength. Our countries do have their problems, and what countries don’t? There are always problems of some kind. But it’s not about that, it’s about growing our potential, and this growth is evident, including in the economic sphere,” the Russian head of state said.

BRICS+5: a leading economic and geopolitical power

BRICS is a huge economic power now. The inclusion of five new members has generated an additional USD 2.6 trillion in GDP terms, representing an overall BRICS (China USD 17.96 tn; India USD 3.42 tn; Russia USD 2.24 tn; Brazil USD 1.92 tn; South Africa USD 0.40 tn; Saudi Arabia USD 1.11 tn; UAE USD 0.50 tn; Egypt USD 0.47 tn; Iran USD 0.41 tn; Ethiopia 0.12 tn) economy of USD 28.5 trillion and 28.1 per cent of global output. Yet, by comparison, G7 countries still continue to dominate global output, accounting for 43.2 per cent of global GDP. Nonetheless, analysts estimate that the size and importance of the G7 economies will reduce over the coming decades, while many of the BRICS economies are projected to grow significantly. This is particularly the case in relation to new members such as Egypt and Ethiopia who are projected to grow by 635 per cent and 1,170 per cent, respectively, in GDP terms by 2050.

The expanded BRICS accounts for more than 43 per cent of global oil production. New members have doubled its capacity, and enhanced its geostrategic reach into the Middle East via the admission of Saudi Arabia, Iran, and the UAE. Moreover, the expanded group is now accountable for 25 per cent of global exports. Control on oil and a large share of global exports will help the new BRICS to challenge the hegemony of the US dollar.

Most significantly, the original four BRIC members account for and control 72.5 per cent of global reserves of rare earth minerals, with China alone producing 85 per cent of all globally refined earths in 2020. Rare earth minerals are a critical input for the production of a huge range of products from high-tech weaponry to every-day consumables including electric cars, circuit boards, semiconductors, and mobile phones. It is claimed that rare earths face huge demand, as part of the global supply chain for products that are consumed by the rapidly expanding global middle class – of which China, India, Brazil, and Egypt alone will account for 59 per cent in 2024. Finally, studies suggest that the newly enlarged BRICS grouping, which now accounts for 45 per cent of the world’s population, will continue to grow in economic and geostrategic importance, shifting the economic centre of gravity towards the Global South.

BRICS Agenda

Under Russia’s chairmanship, Putin emphasised Russia’s intention to explore the inclusion of a new category of partner countries within BRICS. “We are considering the potential inclusion of about 30 other countries, to varying degrees, in the multidimensional BRICS agenda. Hence, we are commencing the groundwork for a new category of BRICS partner countries,” he explained. Overall, Russia pledges to advance the BRICS partnership across three key domains: political and security cooperation, economic and financial spheres, and cultural and humanitarian exchanges, reports DD News.

It is claimed that BRICS+5 are dedicated to implementing the Strategy for BRICS Economic Partnership 2025 and the Action Plan for BRICS Innovation Cooperation 2021-2024. This includes ensuring energy and food security, bolstering BRICS’ role in the global monetary system, expanding interbank collaboration, and increasing the use of national currencies in mutual trade.

De-dollarisation and abolition of decades-long hegemony of the US dollar with the creation of a common BRICS currency is one of the major objectives of BRICS.

BRICS also seeks to leverage their collective economic weight to pursue a wider political ambition. Noting that the progress of emerging and developing countries are hindered by a Western-centric economic and political order, the BRICS members have engaged in a number of actions to rebalance and counteract the existing global order alongside its institutions, notably to reduce dependence on the World Bank and International Monetary Fund — institutions that are historically led by Europeans and Americans and are often criticised for their lack of transparency and draconian structural adjustment programmes. In 2015, the BRICS established the New Development Bank to mobilise resources for infrastructure and sustainable development projects with an initial authorised capital of USD 100 billion. By 2022, the bank has assigned USD 32.8 billion to 96 approved projects, helping to build and upgrade 15,700 km of roads, 850 bridges, and 260 km of rail transit networks.

De-dollarisation

Media reports suggest that Beijing and Moscow are already conducting most of their trade in local currencies, especially the Chinese Yuan. Russia has pitched for a new BRICS currency, perhaps backed by gold that would be used as an international medium of exchange between the members instead of the dollar. Russia spearheaded the BRICS de-dollarisation plans after Western sanctions were imposed following the invasion of Ukraine throughout 2023. China is taking charge of ditching the US Dollar in 2024. China is already inspiring other countries outside of BRICS to ditch the US dollar. In Africa, China is pushing some nations to trade in the Chinese Yuan instead of USD. China began issuing ‘Panda’ bonds which are renminbi-denominated to nations in Africa in its de-dollarisation bid. The move helps Africa in debt repayment and could ditch the US dollar using the Chinese Yuan to protect its interests.

It is reported that on January 29, 2024, the UAE and China settled a cross-border transaction using the new Digital Dirham— side-lining the US dollar. This was the first-ever transaction made directly to China from the UAE using the new mode of payment with the Digital Dirham. The direct trade settlement was initiated by the UAE through the ‘M Bridge’ {a multiple-central bank digital currency (multi-CBDC) common platform for wholesale cross-border payments}, making ways for BRICS to end reliance on the US dollar through digital methods.

While South Africa, Brazil and India have better relations with the West, they too see lesser reliance on the dollar as being a positive for their economic growth and trade potential. However, it is understood that to Brazil, South Africa and Indian strategists, de-dollarisation is less about overthrowing US Dollar from atop the hierarchy of reserve currencies and more about carving out a separate method to transact between member states without the need for the dollar, the Western-based SWIFT messaging system, and the services of New York banks, reports Al Jazeera.

IMF data shows that the US dollar accounted for 59.2 per cent of global reserves last quarter (2023). US dollar assets in central bank reserves dropped by 12 percentage points — from 71 to 59 per cent — since the Euro was launched in 1999. If a common BRICS currency is launched in near future, the US dollar hegemony is likely to be broken.

In a report titled, ‘Digital (De) Dollarisation?’, published in January by Morgan Stanley, the author, Andrew Peel, the investment bank’s executive director and head of Digital Asset Markets, has warned about the risk of the US dollar losing its dominance, fuelled by growing interest in digital assets, including Bitcoin. He further explained that the European Union is actively working to bolster euro’s role in international trade, aiming to provide a viable alternative to dollar, and China is advancing the yuan in international trade. Moreover, according to him, the inter-governmental organisations such as BRICS, the Association of Southeast Asian Nations (ASEAN), the Shanghai Cooperation Organisation (SCO), and the Eurasian Economic Union “are also expressing interest in using local currencies for trade invoicing and settlements.”

Challenges before India and BRICS

The expanded BRICS faces quite a few challenges which need urgent attention of the group leaders. Gregory Daco, chief economist at Ernst & Young’s global strategy consulting arm EY-Parthenon, observes

that the primary “problem is the current lack of trust, lack of alignment, and lack of priorities when it comes to each country’s strategic plan”. “What this means is that we currently have an environment in which these large emerging markets cannot represent a viable alternative to the dollar.”

India and China are strategic rivals that don’t see eye to eye on many issues. While India is the second-largest BRICS economy, China’s economy is five times larger in GDP terms. This hampers the bilateral power dynamic between China and India. China accounts for 62.9 per cent of the group’s economic output. This dependency on one nation is problematic, as it makes China disproportionately powerful within the group itself. Though the BRICS talks about ‘sovereign equality’ and ‘mutual respect,’ ultimately ‘money talks’ give China greater leverage and scope to implement its world view and interpretation of any recalibrated global governance system.

During the last Shanghai Cooperation Organisation (SCO) — which also includes China, Russia and India among its members — Summit, India refused to sign on to a key economic document because it included Chinese diplomatic language like references to Beijing’s Global Development Initiative. During the last few years, India has broadly aligned itself with Western interests against China. The availability of Western economic support and access to technology have increased significantly, and West-India relations are experiencing a new era. In addition to significant economic benefits for India, the presence of a large Indian diaspora in Western countries makes the Modi government very sensitive about being seen as permitting a rival bloc to G7 interests, reports Al Jazeera.

A cursory look at Table reveals the extreme forms of heterogeneity that exists among BRICS member nations:

* While the per capita GDP of Ethiopia is only USD 1.79 thousand, the corresponding figure for the UAE is USD 52.41 thousand. India’s per capita income ranks 9th, out of 10 members, at USD 2.85 thousand.

* With the exceptions of Ethiopia and India, HDI for other members are quite decent. India and Ethiopia rank 9th and 10th (among BRICS members) on the human development index.

* On the democracy index, the condition is pathetic. Though South Africa and India have decent scores, both the countries’ democracy index have declined by 11 per cent and 8 per cent, respectively, between 2006 and 2022. The worst score of 1.94 goes to China, which is 35 per cent lower than the China’s democracy index of 2006. Only two nations where the democracy index has improved during this period are UAE and Saudi Arabia. But their democracy score is still very low. BRICS is dominated by non-democratic authoritarian nations.

* On corruption perception index also, the member countries’ scores and ranks are very low. The UAE is an exception with 26th rank globally – the best among the BRICS members.

* The last column’s figures (balance of trade of India w.r.t to member countries) are major areas of concern. Trade deficits with Russia, China, Saudi Arabia and UAE are huge. Unless India improves its trade balance with major member nations, BRICS membership could prove fruitless.

Option before India

India is not a member of China’s Belt and Road Initiative (BRI) and Regional Comprehensive Economic Partnership (RCEP). A section of Indian strategy analyst argue that with the rise of China as a global economic and military super-power, India will be the odd man out in the SCO and the BRICS, as virtually all the members of these groupings are recipients of bountiful infrastructure aid from Beijing in the name of Belt-Road Initiative (BRI). Though Brazil is still to join the BRI, it has already received some USD 66 billion in infrastructure investment from China, reports Hindustan Times.

Nevertheless, it is also argued that the BRICS allows India and China to modulate their rivalry within the setting of a small grouping, even when bilateral relations remain rocky. This was observed during the Doklam standoff of 2017, when both sides remained engaged through BRICS throughout the entirety of the crisis. This has also been the case so far during the ongoing Ladakh standoff. BRICS and the SCO offer both India and China the opportunity to “decouple” their strategic contest from the other dimensions of the relationship.

Observations

A process has started for building a multipolar world order, breaking away from a unipolar globe. Till now, China is leading the Eurasian bloc to halt the Western hegemony. In this turbulent time, India – another emerging power and a great civilisation of 1.4 billion people — will have to choose its partners very judiciously. It may be recalled that the Ottoman Empire was once among the biggest military and economic powers in the world. War historians believe that siding with Germany in World War I might have been the most significant reason for the Ottoman Empire’s demise in 1922. Mostafa Minawi, a historian at Cornell University, believes “The Ottoman Empire joined the losing side”. As a result, when the war ended, “The division of territories of the Ottoman Empire was decided by the victors.”

Hope India’s policymakers will refrain from aligning with the losing side!

Views expressed are personal