After the stalled rupee-oil trade with Russia, India should be cautious on BRICS currency

On paper, India’s rupee-based oil trade with Russia was historic and also path-breaking for the world at large even more than what the arrival of euro and yuan might have been when they hit the global track. Nearer home, admirers of Prime Minister Narendra Modi celebrated it. The list included seasoned economists and money-managers. The academic assessment was simple and straightforward: Here was a Third World nation, the voice of the Global South, which did it all in real terms especially during Covid, that was venturing out to challenge dollar-hegemony as the ‘reserve currency’, which in turn had ruined smaller economies. But close to a year down the line, the India-Russia negotiations on the subject have stalled as Moscow has accumulated $ 40 million in Indian rupees and has no use for it. The reason is simple. Over the past decades, India has focussed on IT-based service sector exports for justifiable reasons, but Russia has no use for it. India has no other commodity or product to offer, either. The dichotomy could only accentuate if India were to fall into the trap of joining the BRICS chorus for a currency of its own, like the EU before it, especially without adequate thinking and preparations. There are two specific issues. One is political and the other economic. For all intents and purposes, China will dominate BRICS as the economic super-power among them. The story of India fast catching up with China is still a myth as only the Russian oil trade saga shows now. India does not have manufactured goods to offer the world, starting with BRICS member-nations, including those that intend signing up in the coming weeks, months and years. There is either a balance-of-trade problem with China, Russia and possibly Brazil on the one hand. The number could go up if nations such as Saudi Arabia and the UAE join up, as reported. On the other hand, there will be a balance-of-payment problem in the reverse, with many smaller nations, who may not have much to offer India for imports made. Maybe, Indian money-managers from the commerce and finance ministries and also RBI should do dry-runs on paper, based on past performance and future projections, to see if intra-BRICS trade would balance out one way or the other. Overall, New Delhi also needs to count the new-found bonhomie between China and Gulf-Arab nations apart from Central Asian republics, in the extended neighbourhood in political and economic terms, even discounting the strategic importance. It is unlike India reiterating its out-reach all the way up to Papua New Guinea and other Pacific Islands, as PM Modi did for the third time in nine years, during his Japan-Australia trip recently. If Indian out-reach is as part of the Global South initiative and comprises only humanitarian aid as happened during Covid pandemic that is one thing. For India to have political and strategic goals for the region, it could be over-ambitious in the short and medium terms at least. New Delhi should take time to study the graphs before jumping to conclusions, either way. Riding two horses Flowing from the premise that China will dominate BRICS economy – unless proved otherwise – is the fact that only India among member-nations have a politico-military problem with Beijing, and could feel cornered at every turn when crucial decisions are to be taken. As a founding-member, India may still have a veto but that should not lead others to see it as a hurdle in their shared progress. It is also because India is riding two horses, or multiple horses, what with New Delhi getting itself increasingly identified with the US-led Quad and Indo-Pacific. Indians can pride themselves and PM Modi for that invitation to the G-7 summit in Hiroshima, which his predecessors too have had. Unlike in the past, his presence in the past years was identified with G-7’s China-bashing reportedly without naming it. He also met Ukraine President Volodymyr Zelensky, and his statement on ‘territorial integrity’ applies as much to China (as interpreted nearer home) as to Russia from a western perspective. From the Indian view, the former is acceptable. From the Russian angle, the latter is not, though Moscow has not commented on it as yet. Both China and Russia have hit back, and Beijing went as far as to summon the Japanese envoy, to record its protest. Yet, when it came to the final outcome, the G-7 leaders resolved that they are not for ‘de-coupling’ but only wanted to ‘de-risk’ viz China, implying that they (only) wanted China on their terms. Almost in the same vein, US President Joe Biden also declared that the ‘silly balloon’ had spoiled bilateral relations with China, and it would thaw (soon enough?). He was referring to the US shooting down a Chinese ‘spy balloon’ some weeks ago, which strained bilateral relations more than already. His comment indicated that it was now in the past. De-dollarisation, what? Along with India, China and Russia are two of the five founding-members of BRICS. Brazil is the fourth member and South Africa, the fifth and is set to host the next summit in August. After the G-7 summit, Brazilian President Luiz Inacio Lula da Silva expressed unhappiness about not being able to meet Zelensky at Hiroshima, and said that the Ukrainian leader did not seem wanting to negotiate peace with Russia. India needs to see how it all plays out in the coming weeks, months and years, as the G-7 West will be ever ready to play pal with China if only Beijing takes a tactical backward step for them to crow about as their victory. India’s situation is entirely different as there are real issues, starting with the complicated border dispute and the recent yet persistent Chinese involvement in Kashmir-related issues, which is basically a bilateral between India and Pakistan. It’s a different ball-game compared to the West’s China-bashing, which is more political. Then, there are real BRICS-related economic issues with the possibility of the August summit deciding to admit nearly 30 nations into the cross-country organisation with expectations of de-dollarization and a switch-over to the yet-to-be-born BRICS currency. The list includes Saudi Arabia, the Gulf-Arab major with its own regional following. With the anticipation of joining BRICS, Iraq has announced its decision to ‘ditch’ the American dollar, which Saddam Hussein, had reportedly commenced in his time, for payments for Iraqi oil, but could not complete the process. Then there is the ASEAN, which is said to be weighing de-dollarisation in favour of a common currency for intra-ASEAN trade. If it happens, how will it impact India’s trade payments vis a vis ASEAN member-nations too will remain to be seen. This is because de-dollarisation by the 10-nation grouping will cause its own problems, especially if the new arrangement is extended to trade with third nations, not long after. Limited capacity What is it that the protagonists of the new currency have in mind needs to be made clear. That includes the question, where they come from. Whether it is going to be a domestic currency too in member-nations, as with the euro, or will it be something like the IMF’s SDR but with a paper currency to touch, feel and transact with, is what India would need to decide as a founding-member of BRICS. In the second scenario, the BRICS currency will be used only in bilateral transactions, and possibly at the levels of governments and corporate traders between nations. If it is going to be a common currency for domestic use, how will it be pegged against other currencies, say, the US dollar, Japanese yen, the British pound-sterling and of course, the euro, among others.? Naturally, the market decides and India will have only limited capacity to influence. Likewise, what will be the status of India’s current Vostro-based rupee-transaction agreements, supposedly with some 30 countries, starting with neighbours, and who may or may not be inclined to do business in BRICS currency for their own reasons? To be fair, India has not yet commented substantially on the idea of a BRICS currency. In the absence of a political process and institutions on the lines of the EU, New Delhi would also need to know how the new scheme, if introduced, will be managed. If it is to be a new paper currency, who will decide the quantum of currency to be printed, and who will print it, and what kind of supervision will it require, checking against frauds and counterfeits. That is a long way to go, and requires deeper studies than is being indicated now. But then, de-dollarisation as an idea has caught up, and not doing the right thing could also become problematic. It is all about timing it, which India can do on its own if alone, but not when it is a founding member of a grouping like the BRICS. The writer is a Chennai-based policy analyst and political commentator. Views expressed are personal. Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.