Colonial cousins: The makings of a fruitful India-Brazil relationship

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In Perspective by Joel Sandhu & Oliver Stuenkel — November 1, 2010 at 12:50 am |

http://pragati.nationalinterest.in/2010/11/colonial-cousins/

Two former colonies of continental size, ethnically diverse and home to vibrant democracies, are finally starting to fulfil their potential, lifting millions of citizens out of poverty. Liberalisation in the 1990s allowed smaller, more dynamic businesses to flourish, while the largest companies cause fear and admiration abroad as they go on global shopping sprees. Prospects are bright, but serious challenges remain. Among the issues that India and Brazil need to address in order to continue their rise in the global economy and fulfil the aspirations of their citizens are the environment, the tax system and education. These shared challenges can be addressed by deepening bilateral co-operation and share lessons learned, which would allow both to contribute to global public goods.

The dismantling of the “license raj” ushered in an era of economic liberalisation and growth unprecedented in India’s independent history and exemplified by its swelling middle class. But the environmental impact of India’s rapidly urbanising population and rising energy consumption are major causes of concern. While India’s entrepreneurial energies are crucial to its progress, setting rules about what private industry can do and where is vital to the sustainable growth of the country. This calls for clear guidelines that balance the needs of industrial development with concerns about the environment. Here, India can learn from Brazil, which remains, despite its growth, the cleanest big economy in the world. Eighty percent of Brazil’s electricity comes from hydropower, and it is the world’s largest producer of sugarcane-based ethanol, which India could consider in its future energy plans.

The two countries’ appeal to the global economy rests on the size of their markets. India, with over 1 billion consumers spending almost $600 billion a year, is projected to be the third largest economy in the world by 2050, with Brazil in the fourth spot. India’s innate economic dynamism and a growth rate, humming to the tune of 8.8 percent, have put it at the centre of the world economic stage. But take a closer look and it becomes clear that India is not one market, but 28 states, each with different tax regimes. Similarly, in Brazil, the tax system is so convoluted that leading Brazilian entrepreneurs concede in private that it is impossible to grow a business in Brazil while strictly following the rules.

Tax reform is widely recognised as a crucial step towards establishing a coherent fiscal system, tackling tax evasion, improving transparency and making both countries more competitive and attractive for global investment. India’s nationwide Goods and Services Tax (GST), arguably the single most important project in the fiscal history of India, has been pushed back to 2012. As rapidly growing economies, Indian and Brazilian leaders must put forward an intellectual vision and bring to the table a clear agenda on fiscal reform around which they can build broad consensus at home. An Indian-Brazilian exchange of best practices on reform could potentially help matters, not only on a technical level, but also with regards to overcoming political veto players that invariably exist in tax reform.

Finally, education often seems like the most obvious priority. India and Brazil share a vision of achieving universal education for their citizens and expanding opportunities for future generations. They are pro-active in international debates including the Millennium Development Goals (MDG), which, amongst other pledges, promises access to primary education for all children. Because of their shared values, India and Brazil should work together to realise their shared interest of achieving universal education for all. Yet shockingly little has been done. India and Brazil are on the rise because their people have been set free to change the world—as entrepreneurs, thinkers, factory workers, and in many other activities. Still, large numbers of Indians and Brazilians remain hostage in a system that prevents them from obtaining basic education.

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Brazil has been successful at tackling the issue, developing a cash-transfer program to parents dependent on their children’s regular school attendance and successful participation in class. The approach has been copied in several Latin American and African countries, so there is a chance it could work in India as well. On the other hand, in higher education, it is India that might be able to help Brazil get reform under way. While Indian institutes producing thousands of top-level graduates and promote social mobility, there are so few spots in Brazil’s top public universities that only rich students who attended private high schools pass the qualifying exams.

To be sure, relations between the two rising powers have not always been rosy. Following India’s independence in 1947, Brazil supported Portugal’s quest in keeping Goa, a strategy condemned by the Indian government. The following decades witnessed an improvement of bilateral relations and the alignment of India and Brazil during the Cold War in multilateral institutions such as UNCTAD, G-77 and today in the WTO. In 2011, India, along with South Africa, will join Brazil at the UN Security Council in a collection of regional economic powers which will give these expanding economies considerable political clout. IBSA, a trilateral alliance between India, Brazil and South Africa, could serve as the platform for expanded knowledge exchange.

It is time for Indian and Brazilian leaders to take a bigger step in moving forward their co-operation within bilateral and multilateral mechanisms. Beyond the UN and IBSA, a deepened India-Brazil cooperation would also have far reaching impacts on the Millennium Development Goals; global financial governance by coordinating action with emerging markets; trade negotiations in the WTO; and on nuclear non-proliferation issues.

While each nation contends with its own competing priorities, their shared challenges and the existing landscape of common interests should enhance co-operation between the two rising powers, which in turn could yield positive results for the security, prosperity and aspirations of millions of their citizens, and by extension the global community. Working together, India and Brazil can expand the intellectual leadership for their peoples, continue their success stories and provide the developing world with two powerful examples that democracy is no obstacle to prosperity.

Joel Sandhu is research associate and Oliver Stuenkel is fellow at the Global Public Policy Institute (GPPi) in Berlin where they contribute to the Rising Powers and Global Governance program.