IndiaInc: Will BRICS continue to stand divided?

India's Prime Minister Manmohan Singh, shown here walking with his South Korean counterpart in Seoul, will address India's massive trade deficit with China's Hu Jintao this week. A mutually satisfying solution will be crucial to making the BRICS grouping a viable negotiating force.

Brazil, Russia, India, China, and now South Africa may have little in common but rapid economic growth. But if Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao can hammer out a solution to India's ever-widening trade deficit, the BRICS could well become a potent force in negotiations on more than climate change.

As Walter Ladwig writes in the New York Times, the economic grouping -- which was first posited by a 2001 Goldman Sachs research report -- faces many obstacles. Much like the European Union, its members face vastly different economic conditions internally, and are competitors in many areas abroad. But the BRICS are also very different politically, with the democratic nations of Brazil, India and South Africa contrasting sharply with the authoritarian regimes of China and Russia.

As Ladwig puts it, that "heterogeneity of the BRICS members hinders their ability to adopt a common position, even on issues of shared interest."

However, I'd argue that the biggest divide (at least economically) lies between India and China. Not only are the two nations competing for natural resources in the same neighborhood, but India is also looking to implement a similar economic model to China's (despite limited success so far) so they will increasingly be in direct competition. At the same time, India has failed to tap the Chinese market even as Chinese companies have made inroads here through direct exports, local offices and combined ventures with local players that rebrand Chinese-made goods.

The upshot: Even though bilateral trade has increased by leaps and bounds, India's trade deficit keeps climbing, too. For the first eight months of 2011, India-China trade topped $48 billion -- growth of about 20 percent over the same period last year, according to the Hindustan Times. But India's trade deficit also widened to $16.8 billion. As a point of comparison, consider the figures for 2008 -- when bilateral trade for the year was about the same as the total for the first eight months of 2011, at $52 billion, but India's trade deficit was only about $10 billion. In other words, assuming that ratio holds true for the full year, India's trade with China has grown some 40 percent over the past three years, but its trade deficit has increased 60 percent.

Meanwhile, though it may sound smallish compared with America's $295 billion trade deficit with China, for India it's a much more vital issue. To continue growing and to bring its massive population out of poverty, India needs to industrialize. And that means that, like China, it needs a trade surplus.

So what happens next? This week Manmohan Singh is going to try to extort some concessions from China in opening up its market to Indian pharmaceutical manufacturers and information technology companies. But any real movement would be a serious departure from China's general trade policy, and that means the BRICS grouping will likely remain a venue for negotiations, not cooperation, another EU (or worse) rather than another OPEC.

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