BRICS Summit – As India flexes its muscles, it has a big trade problem

The ongoing BRICS Summit in Delhi is not just a show of strength for India, but also a statement that BRICS has arrived on the global scene. For India, the big challenge is to reverse the negative trade balance in its trade with BRICS nations.

Big trade dreams for Indian trade

It is said that when you are dreaming; as well dream in colour; than black & white. India surely believes in that. Some of the projected numbers presented by ASSOCHAM on BRICS trade is quite stunning. India wants to double its BRICS exports over next 4 years from $97 billion to $200 billion. Remember, the 11 BRICS countries combined run a trade surplus of $1.1 trillion, but India runs a trade deficit of nearly $226 billion with the BRICS countries. The aim of the export push is to substantially reduce this massive trade deficit; and that is one of the biggest agendas that India is chasing at the BRICS Summit.

A skewed focus on importing from BRICS

If one were to break up the Indo-BRICS trade, bulk of its BRICS trade deficit of $226 billion comes from just 3 countries viz. China, Russia, and the UAE. If it is oil imports from Russia, then it is oil and precious metals from UAE. Almost everything that India needs to run its export engine is imported from China. This includes rare earths, machinery, equipment, metals, specialty chemicals and APIs for pharmaceuticals. The growth in imports from BRICS nations has been quite sharp. While overall trade doubled since 2021, it was driven by imports. As a result, India’s trade deficit with the BRICS nations has increased three-fold from $75 billion to $226 billion between 2021 and 2026.

Big question; what exactly will India export?

That remains the million-dollar question. What exactly can India export on scale to these BRICS countries? India’s traditional exports like textiles, gems & jewellery, chemicals, pharmaceuticals etc have a much bigger market in Europe and the Americas that with the BRICS nations. The BRICS nations, as a whole, still rely heavily on markets in the US and Europe to run their export engines. Then there is also the issue of currency, especially in India’s trade with Russia and China. It is not possible to have dollar trade with Russia and India does not want to encourage Yuan as a pivotal currency. Also, dollar-denominated trade means that India continues to be dependent on dollar economics!

India has to rethink its BRICS trade strategy

Most of the BRICS nations run their economics on an export engine. In fact, India is a rare instance in the BRICS; still being a predominantly consumption-driven economy. Countries like Brazil, Russia, UAE, Saudi Arabia, and Indonesia are rich in natural resources while China is the factory to the world. India does have meaningful exports to the Middle East and to Latin America, but that still cannot give the required scale to the Indian economy. For now, the focus must still be on pushing exports to the US, UK and the EU region. Also, India’s strength lies less in goods exports and more in services exports. India must continue to look at BRIC for imports and rest of the world for exports.