Global political events such as Brexit, forthcoming US elections and political realignments in Europe may pose some risks for the BRICS group of nations and affect their policies, RBI Governor Urjit Patel said today.
"Potential unconventional sources such as Black Swan type of events like the Brexit vote, the US presidential elections and the political realignment in Europe have blipped on our (BRICS) radars and will affect our policies going forward," Patel said at the BRICS seminar on Investment Flows.
The event is being held here ahead of the BRICS summit on October 15-16. The BRICS group comprises Brazil, Russia, India, China and South Africa.
Other challenges for the 5-nation grouping are energising investment, management of spillovers in view of uncertainties injected into the business climate and prospects of returns by bouts of financial market turbulence usually on account of policy uncertainty from the systemic central banks of the world.
Even though the sensitivity to spillovers has waned, he said, managing them claims non-trivial resources and policy attention.
"In 2016, we have had seen umpteen times when capital flows to emerging markets flowed and ebbed," he said.
With the current account deficits/surpluses narrow in BRICS countries, these economies seem to be showing some lack of absorption capacities and the wherewithal to convert capital flows into investible resources.
"This is incongruous in the context of the ultra-low cost of overseas finance, especially in mature markets and the availability of large pools of footloose capitals driven to low returns," he added.
Patel also flagged commodity headwinds that most of the BRICS nations face and underlined the need for them to manage the commodity price cycles.
The modest firming up of commodity prices in the first half of this year has alleviated some stress among net commodity exporters and shaved off some trade gains accruing to some of commodity importers, he noted.
"The outlook for commodities, however, generally remains soft and so we must work on a mechanism that even out large real economic effects over the full duration of the cycle so that BRICS economies are not worse off," Patel said.
He said the BRICS nations need to work hard to improve their business environment in domestic economies so as to make investments attractive.
BRICS over the years has grown not just in size but
also in stature, Patel said.
He added that when both trade and industry are stalling and extreme bouts of turbulence periodically roil global financial markets with real economy spillovers, the group offers to the world a vast pool of investment opportunities in terms of sectors, companies and people with high personal income growth potential.
BRICS countries will post a growth rate of 5.1 per cent this fiscal which not only overshadow the 3.1 per cent for the world growth but also the 4.2 per cent of the emerging market and developing economies in general, he said.
Patel also mooted an idea of having a common BRICS investment platform that pools country experiences in improving the environment for investment, identify investment opportunities in each of the member economies, builds institutional structures that facilitate investible resources in a viable manner.
"The platform could address regime issues for tax treaty, arbitration of disputes and easing of doing business and boosting investment relations among other nations," he said.
Patel said: "India has taken several initiatives aimed at consolidating public policies for skill building and supporting self-employment with the initiatives like the Startup India, Digital India and Make in India.