India Vs Brazil - a Macro-Economic View on the Past, Present and Future of the Two Countries

Table of Contents

Introduction        2

How similar are Brazil and India in the present context?        3

A look at their not so similar economic aspects        4

Brazilian Political System: A brief historical overview        5

Brazilian Political System: The Present        5

Brazilian Political System: Its role        5

Brazilian Political System: Under Luiz Inacio Lula da Silva        6

After Monetary and Fiscal Stimulus: The Trade        7

Brazilian Governance: The Not-so Positives        7

India Vs Brazil: A Comparison        8

India Vs Brazil: Political structure and Policies: Similarities and Dissimilarities (1950-2003)        8

Gross Domestic Product        10

India Vs Brazil: Sector-wise breakup of GDP contribution        11

India Vs Brazil: Comparison of key macro-economic indicators        13

Demographics        16

References:        19

Introduction

 In the present text, we attempt to understand the similarities and dissimilarities between the two BRIC Nations: Brazil and India with respect to their respective economic growth- the past, the present and the future.

Both the nations are strikingly similar in many aspects. They had similar policies between 1950-1980 (Import Substitution, trade barriers, etc.), started their liberalization process at approximately the same time (early 1990s) and both of them, for a very long time, have had a stable democratic form of government.

So why has Brazil, historically, not been able to clock similar GDP growth rates as that of India? Well, the political policies adopted in the 90s were similar yet different in the ways the two countries went about implementing the guidelines. We explain this in the first part. We also explain some of the major steps taken by the Brazilian government during its democratic regime (under Fernando Henrique Cardoso (1990 -2003) and Lula da Silva (2003 – present)) to solve some of the most recurrent problems faced by the Brazilian economy (high inflation, high inequalities, etc.)  

What is the current state of economic well-being in the two countries? We take a look at some of the macro-economic factors for both the giant economies and understand their respective strengths and weaknesses. (Ex: Brazil’s GINI index is very high implying an economic growth with large inequalities in the society)

Which amongst the two nations is better placed in the future- India or Brazil? We finally end our discussion by taking a look at one of key drivers of economic growth: Demography: The quality of Labor force in both these countries. This shall allow us to take a quick look at what does the future hold in store for the two countries.

How similar are Brazil and India in the present context?

According to the latest Mckinsey Quaterly report, Brazil and India have both managed to revive most of the Macroeconomic and Financial parameters in the wake of the Global Financial Turmoil.

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A look at their not so similar economic aspects

Brazilian Economy in Numbers

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Vs
Indian Economy in Numbers

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Brazilian Political System: A brief historical overview

Brazil gained its independence in September, 1822 from Portugal and ever since the monarchy rule was overthrown in 1889, Brazilian political system has swayed between military dictatorship which can be traced back, as recently as, to 1985 and Democracy which has had a continuous run of success only after the civil rule returned in 1985.

The re-election of Luis Inacio Lula Da Silva in 2006 has finally proved that Brazil has succeeded in achieving its long sought political stability.

Brazilian Political System: The Present

The current form of government is that of a democratic republic, with a presidential system. The president is both head of state and head of government of the Union and is elected for a four-year term, with the possibility of re-election for a second successive term.

Brazil has a federal character based on the union of three autonomous political entities viz. the States, the Municipalities and the Federal District. The Constitution has defined explicit roles for the three branches of the government: executive, legislature and judiciary.

Brazilian Political System: Its role
Now having dealt with the facts let us turn our attention to the role played by the Brazil’s political system so far in its economic growth.

Much of the country’s current success was due to the good sense of its recent governments, in particular those of Fernando Henrique Cardoso from 1995 to 2003, which created a stable, predictable macroeconomic environment in which businesses could flourish.

During 1990s as the then FinMin, he controlled the inflation which was hovering around 764% by introducing a new currency –the current Real- in 1994. In 1999, during his presidency the exchange-rate peg was abandoned, the currency was allowed to float and the central bank was told to target inflation.

Both federal and state governments now have to live within their means. A requirement to run a primary surplus (before interest payments on the public debt) was introduced in 1999, and the federal government has hit the target for it every year since. This has allowed Brazil to get rid of most of the dollar-denominated foreign debt that caused such instability every time the economy wobbled. Now international creditors trust the government to honor its commitments. Moody’s, a rating agency, elevated Brazil’s government paper in September to investment grade just as the governments of many richer countries fretted about being able to meet their obligations.