NEW DELHI -- Mired in its worst economic slowdown in years, questions are being raised over whether India, once a star among big emerging economies, has permanently lost its shine.
The term "BRIC economies" -- Brazil, Russia, India and China, with South Africa added later -- was popularized in 2001 by Jim O'Neill, then chairman of Goldman Sachs Asset Management. They were lionized in financial markets at the time for their prospects. But while China and India have managed to keep growing strongly until recently, the other three have floundered.
Now people are having doubts about India as well. One Indian investor traveling to Thailand did not think Indian stocks were a good buy for the next decade, absent further economic reforms. Unless those policy changes happen, the term "BRICS" won't come up at all in financial markets, he said.
The five big emerging economies drew interest at the turn of the century because of their large populations and natural resources. O'Neill said in a report at that time that the BRIC economies, especially China, would make up a much larger share of global gross domestic product in 10 years and affect the world economy through their fiscal and monetary policies.
So where do the BRICS stand today?
There are clearly winners and losers. According to data from the International Monetary Fund, while all grew by more than 5% in 2007, the global financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers the following year caused a dramatic split: China and India kept expanding by between 5% and 10% after 2010. But Brazil, Russia and South Africa have faltered. The IMF estimates that while China and India each grew 6.1% in 2019, growth in the three smaller economies was around 1%.
In the early 2000s, both developed and emerging economies grew as globalization picked up steam. But worries about the health of the global financial system after the financial crisis have since transformed the world economy.
The U.S., Europe and Japan responded with massive monetary easing, while China opened up the fiscal taps. As a result, financial markets were flooded with capital. At the same time, investors became more discriminating in deciding where to put their cash.
The markets have stopped throwing capital at emerging economies as a whole "as the financial markets have started to emphasize theoretical [models] since the global financial crisis," said Toru Nishihama, chief economist at Dai-ichi Life Research Institute. "Russia and Brazil were written off as they took advantage of high natural resource prices and failed to push structural reforms forward," Nishihama said. South Africa, another natural resource producer, also suffered when prices fell.
Political instability in the three countries, in addition to the downturn in commodities, led financial markets to turn their backs. Now uncertainties loom over China and India as well.
China has been the clear winner among big emerging economies over the past two decades, thanks to the growth of manufacturing and other industries in the country. But the new coronavirus epidemic, which began in China and has badly disrupted supply chains there, highlights the risks of the world's heavy reliance on China.
India has also grown, bolstered by rising domestic demand as its population reached 1.3 billion. But it, too, is at a crossroads. India's economy grew an inflation-adjusted 4.7% in the October to December quarter last year, its slowest pace in about seven years. That is the weakest figure since Prime Minister Narendra Modi took office in 2014 and there are no signs of a quick rebound.
The country faces bottlenecks ranging from a shaky banking system, to creaking infrastructure, to inefficient state-owned enterprises. As nonbank lenders have fallen into financial difficulty, people in the countryside and elsewhere find it hard to get the credit they need to make big purchases such as cars and motorcycles.
The biggest worry for India-watchers thinking about the outlook 10 years down the road is the country's huge and still rapidly growing population. Once seen as a strength, that may become a weakness. In his Independence Day speech last August, Modi said the country's "rapidly increasing population poses various new challenges for us and our future generations," and could hamper growth.
According to the latest U.N. forecast, India's population will rise from 1.3 billion in 2019 to 1.5 billion by 2030, overtaking China, at 1.4 billion. India may have trouble creating jobs for those entering the workforce in the next decade. India's population growth is expected to exceed Japan's entire population during that period.
The unemployment rate for men living in Indian cities is around 7%, a record high. The World Bank has warned that the economy is likely to see slow growth and high unemployment for the time being.
Modi's "Make in India" manufacturing drive is meant to boost job creation by promoting some 20 industries, including pharmaceuticals. But so far there has been more sloganeering than foreign investment or technology transfer.
To reverse the economic slowdown, India must foster globally competitive industries by promoting deregulation and other structural reforms to its financial sector and the economy more broadly. Investors and financial markets are watching closely to see whether this bit of the BRICS can firm up once more.