Should India become a founding member of the BRICS currency?

 Us-China Relations: India at Crossroads Part 3

Both for India and China, US market access is very important for their full development. For the United States, trade with China is very important even as the US imports more from China than it exports to Chinese markets. In fact, Donald Trump imposed punitive tariffs against Chinese goods essentially to see that the existing trade surplus with China is minimized. The arrival of Joe Biden indeed brought China some relief on this count. COVID and (the aggressive economic measures that China took against Australia when Australia wanted more transparent investigation and) the steadfast refusal of China to share full information about the origin and spread of COVID-19 made members of the Western Alliance to do some serious introspection about their trade relations with China. Japan had already announced all the Japanese Companies would pull out of China. Apple is relocating its manufacturing facility to India. Hence, China will be under pressure to maintain its current level of exports to the rest of the world. Even for India, China is a major trading partner comparable with India’s trade with the USA. Hence, China would also love to expand its economic footprint in India. China is one of the biggest investors in US government treasury bonds. As and when these bonds mature, China is unlikely to renew the holding of its reserve currency in USD. It has already started using Yuan as its International Currency for global trade. In order to free itself from the economic grip of USD, China would naturally have its own currency which will be a supplementary international currency to USD and EUR. Already, for its oil trade with Russia and Saudi Arabia, China uses its Yuan. It will only be a question of time before more and more Asian and African countries, would start relying on the Chinese Yuan or even Indian Rupee as their currency for international trade. Hence, China has thought it fit to come up with the option of a BRICS currency. China’s Record in maintaining transparency and its record of currency stability/manipulation is not enviable. Hence, it is prefers the banking of BRICS countries that would be backed by the Central banks of these countries. Together, these countries will have 28% of the global trade share and 42% of the population. Hence, prima facie it looks like a viable option. These countries have announced their intention to back it up with adequate gold reserves. In fact, some of these countries have started buying more gold from the market to shore up the strength of the proposed currency.

As of date, the United States is apparently not perturbed. But, if more and more countries begin to trade in BRICS currency, the importance of the USD in global trade would come down. But, it will not disappear because the USA remains the biggest market in the world. It should be said to the credit of the United States that, by and large, they have been able to ensure the stability of the dollar, though the USA did away with the gold standard rule in 1970. Traditionally, the United States has not viewed India favourably because of the socialist leanings of Jawaharlal Nehru and the Swadeshi philosophy of Mahatma Gandhi. They had perceived India to be very argumentative and traditionally a supporter of the USSR in global affairs, notwithstanding its proclamation of non-alignment. Together, USSR and India played a great role in ensuring decolonisation and the elimination of apartheid in South Africa. The United States was ambivalent towards decolonisation and was one of the very few supporters of South African policies of Apartheid. The USA gifted sophisticated weaponry to Pakistan, compelling India to invest huge amounts of money in the purchase of weaponry from the USSR. Subsequently, when India became a nuclear weapons state, the USA subjected India to economic and technological sanctions. As pointed out, these sanctions were the best thing that happened to India. The buzzword today is self-reliance for our military needs (Atma Nirbhar). But with the American exit from Afghanistan, Pakistan is no more a geo-strategic asset for the United States. Many in the US cannot forgive Pakistan for having sheltered Osama Bin Laden, even while claiming to fight Islamic Fundamentalists in Afghanistan and receiving substantial monies for this end. However, India has demonstrated its capabilities in space sciences, and nuclear weapon technology, and has established good quality educational institutions resulting in more and more engineers and managers who are often compelled to migrate out of India for better economic opportunities. For example, a US senator remarked that people of Indian origin constitute less than 2 % of the US population and yet contribute to more than 6% of US income tax collection. Because of its population explosion, India has been compelled to allow more and more of its citizenry to migrate and become part of the adopted country in an admirable way. Already, 2 European nations have a person of Indian origin as their heads of state. The US has an Indian-origin Vice-president and some are contemplating contesting for the US presidency itself. Furthermore, even though about 10% of our population lives below the poverty line, India today boasts a substantial middle-class population. Assuming that about 30% of the Indian population falls under the category of middle class, their population will still be 450 million people, which is roughly 1.5 times the population of the US or even Europe. There is no doubt that India is a lucrative market for foreign goods and the size of the Indian market is too impressive for a serious capitalist economy to ignore. Hence, the United States is coming up with interesting plans and seeking to dehyphenate India from Pakistan and establish better economic and military relations with India. While India wants better economic relations it is not so sure of military cooperation with the USA. As of date, 70% of the hi-tech equipment and weaponry that Indian armed forces use are of Russian origin. American weapons come with a very high price tag, involve expensive maintenance and running costs and come with several strings attached. Hence, India is very circumspect about possible military cooperation with the USA.

Xi-Jinping, the current chairman of the People's Republic of China who has become the head of the Chinese state for the 3rd time rightly realized that China is the fastest-growing economy in the world and already it is the second biggest with a per capita income of 12,000 USD and a population of 1.3 billion. It has territorial/border disputes with all its neighbours and has openly declared that it would not hesitate to use military force for the annexation of Taiwan. Considering what China did to Tibet and what they are doing in the South China Sea, one can reasonably expect that China would give effect to their advance warning before the end of this decade. The USA is bound by its own statute to ensure the territorial integrity of Taiwan. Hence, the United States wants to use India as a possible buffer against the hegemony of China. If there is a real war with China, it is better to have the most populous country in the world fight against China as other countries do not have the population strength to fight China.

If the USA has been unfriendly to India, its relationship with China is positively hostile and tumultuous since its inception. China not only committed a serious act of aggression against India in 1962 but also seized the properties of the Indian mission in Beijing without paying any compensation. On the other hand, the Chinese embassy in Lutyens, Delhi is a very big property and a matter of envy to other nations. Of late, China has invested very heavily in the economies of India’s neighbours after leading them into a debt trap. China today is the biggest creditor of Pakistan and owns/exercises control over substantial chunks of Sri Lankan, Bangladeshi, Pakistani and Burmese territories. Very recently, about 3 years ago, there was a skirmish at the Indo-Chinese border at Galwan resulting in the loss of hundreds of soldiers from both sides. But, China has realized that India today, is better prepared to take on Chinese aggression than it was in 1962. However, due to the Ukraine war and Russia's total dependence on China for their oil exports, Russia will not be in a position to help India if and when China threatens India. Hence, it would be very tempting for India to strengthen its military cooperation with the USA, particularly when it involves the transfer of technology.

PROPOSED BRICS CURRENCY AND INDIA’S EXIT FROM RCEP

Actually, some of the most accomplished private bankers in India had openly declared that we must strive to make the Indian Rupee a freely convertible global currency. Brazil and many other Latin American countries have openly declared their desire to delink USD as their currency for international trade and would like to trade in the currency of the countries with which they do business. India has also declared in the past that the existing international currency exchange mechanism does not particularly meet the developmental aspirations of developing countries. Even though India had availed itself of World Bank-IMF rehabilitation programs in the past, at the earliest possible opportunity India got out of the IMF-world bank rehabilitation packages. India did it because these packages come with a lot of conditionalities and will involve compromises on national economic policy. For example India’s flagship project, namely, the Sardar Sarovar project was completed without World Bank assistance even though the project began with World Bank-IMF support. Hence, India has a vested interest in improving the global monetary exchange mechanism. But, as of now, India just has a 2% share in the global trade. China has a 10% share in global trade. All these BRICS countries (which at some point in time will include Saudi Arabia and Iran) will together have a 29% market share in global trade. Hence, it would also be in the best interest of India to think of a currency where its reserves will be safe instead of being subject to the unilateral decision of the most powerful state in the world.

In November 2019, India walked out from Regional Comprehensive Economic Partnership (RCEP) involving all major Asian powers. This RCEP, had it fructified, would have constituted one of the biggest Free Trade Zones. But that would have sealed the Chinese dominance of the Asian market. Hence, India was sceptical about it and now many countries are contemplating replacing China with the USA and coming up with a revised RCEP without China. But India has to recognise that China remains the most dominant Asian power. Trade with China and peace in Northern and Eastern borders are essential for India if it must achieve the pre-1600 C.E economic positions minus the poverty. So, India cannot outright reject the proposed BRICS global currency which would be a Chinese-inspired alternative to USD and EUR. Actually, even though India’s share in global trade is less than 2%, its internal market is huge. As and when more Indian people get into the Middle-Income Group (MIG), the size of the Indian market will increase even more. If the recent slogans like “Make In India” get really implemented, Indian share in global trade will increase perceptibly. Furthermore, if India succeeds in becoming a manufacturing hub of the world, a global currency where India is a sponsor and is a part of the administering mechanism, it would serve the best economic interests of India. Hence, India should not reject outright the proposed BRICS currency. It, will, of course, have to do extensive negotiations with the USA to make sure that the USA does not get very upset with India.

But as of now, the US gives an impression to the rest of the world that it is not so much concerned about it. In fact, many in the US believe that this is a natural consequence of the USA's unilateral decision to prevent its adversaries like Iran, North Korea, Venezuela and Cuba from using USD as a currency for global trade. If the above-mentioned countries' total dependence on the Yuan is to be prevented, then, it would be also in the interest of the USA to ensure that the proposed International currency is not totally dominated by China, Russia, Saudi Arabia and Iran. India can be a significant moderating influence. But, India should agree to the proposed International Currency only if China gives up its objection to India becoming a Permanent member of the Security Council. While all other contentious issues with China can wait for a reasonable time for their ultimate resolution, this quid pro quo from China is a condition precedent for India becoming part of the global BRICS currency.