The World, BRICs Dream and India

Date:   Wednesday , May 03, 2006

In 2001 we called for the world to 'Build Better Global Economic BRICs.' In doing so, we prompted what has become a global debate about the opportunities presented by Brazil, Russia, India and China. In the intervening five years the BRICs have emerged as central players in the world economy and global policymaking, affecting trade, capital markets, energy policy and investment decisions.

When we first wrote in 2001, we stressed these four countries' importance to the global economy. We calculated that their share of world GDP share was set to increase significantly over the next decade. This growing importance led us to argue that the time had come for a radical reform of international economic policymaking. Post-war economic institutions-most notably the G7 structure-had become outdated. Writing in the immediate aftermath of 9/11, we argued that the inclusion of the BRICs in formal policymaking was key to greater international economic and political cooperation.

Specifically, we called for reform of the G7 into a new G9 that would scale back Europe's role and incorporate Brazil, Russia, India and China.

We followed this paper two years later with Dreaming With BRICs: The Path to 2050. This ground-breaking work projected long-term growth rates and suggested that the BRICs as a whole would be bigger-in Dollar terms-than the G6 (the U.S., Japan, Germany, the U.K., France and Italy combined) by 2041. It was part of this research where we first truly appreciated the long term potential of India. Until this point we had assumed China had the greatest potential. Within the BRICs story, India has the best long term growth potential not least due to its fantastic labor force dynamics.

India's Place in the BRICs Dream
Within the BRICs Dream, India has the greatest growth potential of the four. We estimate that if India pursues the correct policies, then it can grow on average by more than 5.5 percent per annum over the next 45 years. We estimate that by 2050, India's GDP could be around $25 trillion, 50 times bigger than today. By 2032, India will overtake Japan to become the world's 3rd largest economy. It will have overtaken each of the major continental European economies sometime during the previous decade.

What is the reality about the BRICs dream? Indeed what is the reality about India's role and potential? In December 2005, we developed a set of growth environment scores, GES as we christened it, as a way of assessing countries readiness to deliver on their growth potential. It is one thing to have big potential, it is quite another to achieve it. Our BRICs Dreams are based on long-term demographic trends and the scope for growth driven by productivity catch up. The GES scores are designed to assess countries readiness for delivery on the productivity potential. They consist of 13 different variables including micro economic and social data, including educational standards, rule of law and corruption. We have calculated scores for 170 countries both developed and developing. China scores the highest of the BRICs, coming in 53rd Russia is next at 81st then Brazil at 95th with India just behind at 97th. India is the lowest of the BRICs; this means that India has the biggest potential but the most to deliver. Lots of things need to change especially on the micro front. For example, it is popularly assumed that India's education is the biggest advantage it has over the other BRICs. In fact, it scores the lowest, as the best education is only available to the elite.

As with anything, there are two ways of looking at India's place in the BRICs Dream. The optimistic way to think of all the exciting changes that may lie ahead in order for India to deliver.

Here's hoping!

Jim o'Neill is the head of Global Economic Research for Goldman Sachs. He oversees all the firm's economic research and the output of its team all around the world.