MUMBAI (TIP): RBI governor Urjit Patel has highlighted the new challenge facing the Brics bloc in the form of political risk in the West. The governor said that potential black swan events such as the Brexit vote, the US Presidential election and political realignment in Europe towards the fringes — left or right — will affect policies of Brics nations. Against the backdrop of easy money and low interest rates in developed markets and current account deficits and low surpluses among Brics nations, Patel said that the bloc appeared to lack absorptive capacity.
“This is incongruous in the context of ultra-low cost of overseas finance, especially in mature markets, and the ability of large pools of footloose capital to seek returns,” said Patel. Speaking at a Brics seminar in Mumbai, Patel said that at a time when both trade and industry are stalling and there are extreme bouts of turbulence in financial markets, the Brics nations offer to the world a vast pool of opportunities in terms of sectors, companies and people. The governor pointed out that the five Brics countries with a growth rate of 5.1% this year overshadow not just the 3.1% for the world but also the 4.2% for emerging market economies in general. “The Brics economies are either expected to post current account deficits or reduce surpluses, thereby providing vital support to global aggregate demand. The investment-GDP ratio ranges from 19% in Brazil to 45% in China, attesting to the strong appetite for creating new avenues of aggregate demand,” said Patel.