By Cindy Pereira
Five years ago, when Indian prime minister Narendra Modi last attended a BRICS summit in Johannesburg, the world of geopolitics looked quite different.
President Vladimir Putin of Russia was able to sit alongside his fellow leaders from major emerging economies, and top of the agenda was the threat of a US-led global trade war after then-president Donald Trump slapped stiff levies on goods from China.
This month, when the leaders of Brazil, India, China and South Africa – and foreign minister Sergey Lavrov, representing Russia – gather once more in Johannesburg, the agenda-topper will be nothing less than the creation of a new world order.
There is talk, for example, of a new gold-backed currency that will allows BRICS nations to reduce their reliance on the US dollar and an integrated payment system for cross-border transactions and strategic alignments of central bank digital currencies.
None of this is pie in the sky because the gross domestic product (GDP) of BRICS now outguns the G7 (Canada, France, Germany, Italy, Japan, the UK and the US). And the bloc’s appeal is expanding in line with its economic muscle. Sixty-seven leaders from Africa, Latin America, Asia and the Caribbean have been invited to the summit, and 23 countries want to join BRICS.
The India-South Africa Chamber of Commerce is energised and excited by the evolution of Brics and the opportunities its growing influence will bring to emerging economies. The chamber was launched in 2019 to strengthen ties between two countries whose historical relationship was shaped by their shared experience of colonialism, struggles for independence, common values and economic interests.
Covid-19 was an early setback, but we are now working hard to build trade relationships, as well as economic, cultural and technological ties, and we are recruiting members in India and South Africa.
We are encouraged by the dramatic economic progress India has recorded in the nine years since Modi came to power, and eager to capitalise on this for the benefit of business in South Africa. There are plans to bring in trade delegations, for example, because the growth of India’s economy and the rapid expansion of its middle-class mean there’s significant potential to grow South African exports well beyond the $5.2 billion (R99bn) they were worth in 2022.
It’s all a far cry from 2013, when India experienced a sharp slowdown in economic growth, high inflation, worrying current account and fiscal deficits and political uncertainty, with an election due the following year. And since this isn’t a million miles away from a description of South Africa in 2023, it’s instructive to understand how Modi and his team turned things around.
A report in May by financial services giant Morgan Stanley said even though India was the world’s second fastest-growing economy and had one of the top-performing stock markets, it encountered “significant scepticism”, particularly among overseas investors, who felt equity valuations were too rich. “However, such a view ignores the significant changes that have taken place in India, especially since 2014,” it said.
The first change involved what Morgan Stanley’s team in India called supply-side policy reforms, including cutting the corporate tax rate and dramatically increasing spending on infrastructure.
From an effective rate of 33.99% in 2013, corporate tax is down to about 22%, says the Bank of Baroda. And since 2015, India has built 54 000km of highways, electrified 29000km of railways, added 96GW of renewable energy to its electricity grid and connected 771 million subscribers to broadband services.
Next, Morgan Stanley noted the decline in the informal economy, particular since a Goods and Services Tax (GST) replaced VAT in 2017. By the end of 2021, the informal economy accounted for less than 20% of GDP, down from 52%, and GST collections had virtually doubled.
The Real Estate (Regulation and Development) Act of 2016 was the third change. It sought to protect home-buyers and boost investments in property, and it worked. Construction and sales of new homes have tripled, with a significant effect on employment: real estate is the second largest job creator in India after agriculture.
Then there are direct benefit transfers, which were aggressively expanded by Modi’s government. Subsidies and grants from social welfare schemes are paid straight into beneficiaries’ linked bank accounts, and Modi claims every penny of the $84bn transferred in 2021/22 reached the people it was meant for.
Another change in 2016 gave India a single framework for insolvency and bankruptcy proceedings. The outcome is a 12-year low in the impaired loan ratio and a reduction in corporate debt from 62% of GDP to a forecast 50% this year.
Modi’s government introduced 37 reforms in its first three years in power to ease restrictive rules on foreign direct investment (FDI). The result? An 85% increase in FDI between 2014/15 and 2021/22. “Initiatives like ‘Make in India’, ‘Digital India’ and tax incentives have attracted global companies to establish a presence in India,” World Trade Centre managing director Vineet Verma told BusinessWorld in June.
Morgan Stanley said “India’s 401(K) moment” was also significant. The phrase refers to the US retirement savings plan, and it was re-purposed to describe the increase in household savings and investments in financial assets. In essence, it means Indians are planning well for retirement, with net assets under management multiplying by a factor of five in a decade.
Finally, India has won over multinationals: CEOs who took part in IMA India’s global operations benchmarking survey this year said it was the top destination they were exploring as an alternative to China.
What are the likely implications of the changes India has experienced in the past nine years? Morgan Stanley says they include a steady increase in manufacturing and capital expenditure, a doubling in the country’s global share of goods and services exports, dramatic increases in per capita income leading to a boom in discretionary consumption, lower volatility in inflation and shallower interest rate cycles, and a steadily declining current account deficit.
It’s the kind of outlook any political leader would embrace, and South Africa is perfectly placed to benefit from its geopolitical proximity to the new Asian economic powerhouse.
Cindy Pereira is executive director of the India South Africa Chamber of Commerce.