India Most Disappointing in BRIC: Goldman Sachs Chairman

The growth rates of all four BRIC (Brazil, Russia, India and China) economies have surpassed expectations in the decade since the term came into existence. However, India's record in terms of productivity, Foreign Direct Investment (FDI) and reform has been the most disappointing, according to Jim O'Neil, the Chairman of Goldman Sachs Asset Management, on Tuesday.

O'Neill, who coined the term - BRIC - in December 2001, to describe the four biggest developing economies was speaking at the London leg of the Reuters 2012 Investment Outlook Summit.

All four countries have become bigger (economies) than I said they were going to be, even Russia. However there are important structural issues about all four and as we go into the 10-year anniversary, in some ways India is the most disappointing, said O'Neill, who oversees almost a trillion dollars in assets at Goldman.

Just this week, India's government caved in to opposition pressure and put on hold a landmark reform of the retail sector that was seen as opening the doors to billions of dollars in FDI in the supermarket sector.

The long-awaited measure, passed earlier this month, had been hailed as ending the government's economic reform paralysis that is widely seen as the root cause of high inflation, shrinking capital inflows and a wider current account deficit.

India has the risk of ... if they're not careful, a balance of payments crisis. They shouldn't raise people's hopes of FDI and then in a week say, 'we're only joking', O'Neill said. India's inability to raise its share of global FDI is very disappointing, he added.

United Nations data shows that India received less than $20 billion in FDI in the first six months of 2011, compared to more than $60 billion in China while Brazil and Russia took in $23 billion and $33 billion, respectively.

The glacial reform pace has hit India's hopes for double-digit economic growth, O'Neill explained, adding that India was as bad as Russia is on governance and corruption and, in terms of use of technology, Russia is in fact much higher than India.

On the other countries under discussion, O'Neill said Brazil's main problem was an overvalued currency which puts the country in danger of Dutch disease - a term first used to describe how North Sea oil discoveries in the 1960s triggered a surge in Dutch energy exports but also in the Dutch currency, pummeling much of the country's manufacturing. China's was to effectively manage a transition to a higher-consumption economy with slower growth, he said.

O'Neill remains positive on Russia but said much depends on what Prime Minister Vladimir Putin can deliver in terms of reform, following an election at the weekend that left his ruling party with a much reduced parliamentary majority.