Cracks in the BRICS: Is India Outgrowing Its Power Allies?

The deteriorating relationship between the world’s two most populous countries is threatening to set back the BRICS currency project and undermine the bloc’s de-dollarization goals.

As Indian Prime Minister Narendra Modi prepares to host world leaders at the G20 summit in New Delhi this weekend, relations with China, which have been tense for some time, appear to have deteriorated further. Earlier this week, China announced that President Xi Jinping would not be attending the G20 and would instead send Premier Li Qiang in his place. This is the first G20 that Xi has skipped since he came to power in 2013, and no explanation for his absence was given.

The rift between the two Asian giants was also evident at the recent BRICS summit in Johannesburg, South Africa. Xi and Modi did their best to project a unified front, but after Chinese and Indian diplomats held discussions about their disputed border region, which saw an outbreak of conflict in 2020, each country gave conflicting statements about who called for the meetings, and what was agreed. The result was a diplomatic snafu at the highest levels.

Russia will now assume the chair of BRICS in the new year, and no country on Earth is more motivated to accelerate the ongoing process of de-dollarization and to follow through on the creation of a new financial infrastructure for international trade and settlement, including a new commodity-backed currency to supplant the U.S. dollar.

But a gold-backed BRICS currency will never take off without the full support of the world’s second- and fifth-largest economies. While China’s $18.3 billion-dollar economy trails only the United States and is double those of the other BRICS nations combined, India’s $3.5 billion is still much larger than Russia’s $2.1 billion. And while Russia’s economy is in decline after 18 months of sanctions over the Ukraine war, and China’s economy continues to slow, India’s is projected to grow by 6.1 percent this year.

China and Russia also bear the dubious distinction of having two of the worst demographic profiles among all nations, which means that economic growth in the medium and long term may favor India as well.

Another sticking point is India’s participation in the Quadrilateral Security Dialogue (QSD), commonly known as the Quad, which is a strategic security dialogue between Australia, India, Japan and the United States. Not surprisingly considering its membership, this dialogue has centered on containing China’s territorial and military ambitions in the Eastern hemisphere. India has participated in the Quad since 2007, and they would regard those conversations as only more important after the events of 2020.

Then there’s technology, where China and Russia find themselves on the outside of Western high-tech supply chains and sharing agreements, while India has continued to align itself more closely with the United States and its allies. India’s successful moon landing during the BRICS summit, coming just days after Russia’s own spacecraft created a new crater, further highlighted what could be a growing technological divide among the BRICS members.

Speculation that China and Russia may be setting aside some of their massive gold production to back the new BRICS currency may prove to be true. China and India now account for nearly 50% of the total demand for gold, and both are likely to continue as major players on the precious metals purchasing side as well. But security nearly always trumps economy, and alliances, borders, technology, trade and demographics are increasingly pushing India and China apart.

If the two countries can’t engage in high-level diplomacy at the G20, and can’t even maintain the appearance of unity on behalf of the trade bloc, then all the gold in the world won’t make the rival BRICS currency a reality.

Originally published by Ernest Hoffman at Kitco