Despite softer growth rates, BRIC is best bet for investors: Jim O'Neill

In an interview with The Economic Times, Jim O’Neill, chairman of Goldman Sachs Asset Management and the man who, 10 years ago, coined the term BRIC to represent four nations (Brazil, Russia, India and China) that he believed would eventually drive the future of the global economy, said he thought India’s biggest problem is leadership.

“Its problem is one of a state of mind,” he said. “The problems it faces all boil down to one issue: leadership. India must wrestle to change and advance because it is such a complex nation to govern. I sincerely hope India can achieve a Chinese-style growth.”

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At the moment, that sounds like a tall order. On Wednesday, data showed that India’s economy expanded 6.9 percent on an annual basis for the September-ended quarter - the slowest growth rate in more than two years.

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Certainly, policy paralysis on the part of the government has played a large role in this abysmal performance, along with high inflation and high interest rates.

Even its first attempt at economic reform in recent years - permitting 51 percent foreign direct investment in multibrand retailing - has sparked so much uproar in Parliament that it has been adjourned repeatedly for several days now.

The lack of leadership and policy initiatives from the government have sparked criticism from not just O’Neill but several other analysts from institutions such as Crisil, CLSA and Morgan Stanley.

Some comfort can be derived from the fact that other BRIC nations are experiencing slowing growth as well. China’s GDP expanded 9.1 percent in the September-ended quarter - its lowest rate since 2009.Brazil’s GDP is expected to slide to 3.8 percent this year, its lowest growth rate since 2009 too, while the official forecast for Russia’s GDP growth in 2011 is 4.1 percent.

These are not heady growth rates by any stretch of imagination; so, does this indicate the beginning of the end of the BRIC story?

Not according to O’Neill, who believes that in the next decade, the BRIC group will probably grow around $12-$13 trillion (nominal terms), although at slightly lower growth rates, according to Mint. That will be ahead of the expected expansion in developed nations, he added.

And despite the leadership deficit in India, O’Neill said he is more confident about India than China. “China seems likely to grow by modest rates, perhaps in the 7-8 percent range, but India could accelerate,” he told the newspaper. “This could be especially true if India persists with what looks like some sudden passion for policy reform.”

He also thought that India could achieve Chinese-style growth rates if it adopted policies such as foreign direct investment in retail. “It’s a huge development and highly controversial. It has had such an undeveloped commercial approach to retailing and agriculture that (it) could be a massive thing. India could get to Chinese-style growth rates,” O’Neill told CNBC.

So investors, don’t lose heart just yet. “In terms of the collective growth of the world, BRIC is the thing. That’s the core structural investment thesis and it’s very difficult for that to change unless the BRIC countries back off what they’ve been doing. But look at what India has announced (retail FDI). They’re trying to embrace it more,” he toldthe news channel.

That means all bets on BRIC growth are still on.