Two BRICs – India vs. Brazil

by Dave

Emerginvest Featured Analysis: Rebacca Wilder

In fact, the BRIC data, side-by-side, paints a darker picture for Brazil’s growth trajectory than that for India. Let’s see why.

India, China, and Russia increased their respective investment shares of GDP over the latest decade- Brazil, too, but at a much slower rate. India (as I discussed in a previous post) has done this mostly through reducing barriers to inward foreign-direct investment.

However, more domestic saving is likely needed in India despite the falling of its consumption share (right graph) over the same 10-year period. India gets a bigger bang for each investment buck spent, so save more and supplement the inward FDI.

In stark contrast is Brazil, an economy that is clearly saving at a much lower rate than its peers. The consumption is a large 63.1% of GDP, essentially unchanged over the latest decade. And for a developing economy, the investment share is remarkably low in levels, 16.4% of GDP in 2008 (compared to India’s 32.2% share).

In all, the saving and investment story adds up to a level of productive capital stock. Without investment, there is no capital stock growth. And without capital stock growth, there is little productive GDP growth.

Currently India’s average income is low compared to its peers, based on years of questionable policy. Among the BRIC countries, India’s welfare measure (per-capita income) is the lowest, and that ranking is not expected to change by 2014 (see chart from a previous post, using data from the IMF World Economic Outlook in October 2009).

Brazil, on the other hand, is not setting itself up for sustained growth. The country is now enjoying the economic benefits of policy reform and open capital markets, an economic adolescent if you will. The next step in Brazil’s development is clearly to adopt policies that grow saving and investment.

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