Not so fast on “the rise of the rest.” The BRICS (Brazil, Russia, India, China and South Africa) — always a false construction — are not decoupling from the world economy to become independent powerhouses, as was fashionable thinking a few years ago. As the American economy strengthens and the Federal Reserve prepares to back off on the stimulus that provided so much “hot money” investment in developing nations, capital is exiting most developing markets. China may, or may not, be serious about creating a more balanced, consumer-based economy. India, the world’s second most populous nation and soon to be first, is in outright trouble. The rupee is in freefall, growth has slowed, inflation is a problem and foreign investment is headed for the door. It is also suffering from a persistent and growing current-account deficit.
Ashoka Mody of Princeton writes that India squandered an opportunity to make a leap forward:
Infrastructure did not keep pace with the economy’s needs. And, more deplorably, educational standards lagged. For a country positioning itself as a leader in the global knowledge economy, neglecting investment in education was a grave error, with other countries now staking a claim to the role to which India aspired. And, even when times were good, India never gained a foothold in the global manufactured-goods trade.
The consequences are not insubstantial for Washington trade, which reached $1.3 billion with India in 2012, compared with $354 billion in 2005. Total exports to the BRICS, plus Indonesia which is also ailing, were nearly $19.6 billion out of $75.6 billion in 2012. Washington is India’s fifth largest export destination among the states.
Harvard’s Kenneth Rogoff has coined the term “submerging markets” for the crisis engulfing the developing world. It may not be as bad as the Asian crisis of the late 1990s. Much will depend on what happens in the coming months.
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Today’s Econ Haiku:
Inbox full of mail
Bosses back in the office
Fall is in the air