The New Development Bank, formalised at the BRICS summit, is a major victory for India and the grouping, write GEETHANJAlI NATARAJ and RICHA SEKHANI
The major achievement of the BRICS Summit held earlier this month was that it led to the establishment of a development bank. Although China won the race in getting its headquarters established at Shanghai, India got the first presidency of the bank known as the New Development Bank. Heading the bank will give a window of opportunity to safeguard its interest and will turn out to be a landmark decision as quoted by Finance Secretary Arvind Mayaram. The Bank can be seen as a growing influence of the BRICS grouping which together represents 18 per cent of world trade and accounts for 40 per cent of the global population with a combined GDP of $24 trillion. The new bank will have a subscription of $50 billion equity capital contributed equally by its five founders, thereby ensuring equal shareholding for all.
The whole idea of lending in the New Development Bank is based on simple majority voting system which will grant the member nations the right to borrow loans up to 30 per cent during liquidity crisis. With its functioning based on the much talked about ‘Equity and Fair’ vision, the bank will give a bigger say to the emerging economies in the global financial order, currently led by United States and Europe who wield their influence through the International Monetary Fund and the World Bank. The New Development Bank is designed to compete with these global financial institutions; the New Development Bank will be accessible for developing countries to finance their infrastructure projects. As compared to the World Bank, the New Development Bank will grant loans with fewer restrictions and lesser delays. However, as per Reuter's analyst, the new bank might be less cautious in terms of selecting the projects, which might result in promoting an unsustainable environment.
The summit also lead to the setting up of a $100 billion currency reserve pool to which China, holder of the world's largest foreign exchange reserve, will be contributing $41 billion. Brazil and India pooling in $18 billion each, and South Africa $5 billion. This Contingent Reserve Fund, when created, can give competition to the IMF which has failed to provide greater representation of emerging market economies at international platforms and implement necessary reforms during the global financial crisis. The ineffectiveness of the IMF and the World Bank has paved the way for the New Development Bank to compliment, not compete, in financing infrastructure projects and help countries forestall short term liquidity pressure and, thereby, guarding against a crisis. However, India and Brazil fear that China may assert greater influence over the bank to amplify its influence abroad.
For India, the summit also proved to be vital as it led to the freewheeling and productive discussion between Prime Minister Narendra Modi and China's President Xi Jinping. The discussion was centered on all aspects of bilateral, regional and International matters. From discussions on how to encourage foreing direct investment from China in the infrastructure sector to the issues of growing trade imbalance between India and China, the meeting also led to negotiations on the India-China border dispute which is seen as the major stumbling block in the relationship between the two countries. The Summit also saw Mr Modi being invited by President Xi to participate of the Asia-Pacific Economic Cooperation Summit. Further, to add cherry on the cake, Mr Xi was generous enough to request India to increase its involvement with Shanghai Cooperation Organisation.
The BRICS Summit has brought one a major victory for India which will hold the first Presidency of the New Development Bank. The premise on which BRICS was instituted was that the group will be positioned as a viable alternative to the West in an increasingly multi-polar world. Though the summit witnessed much solidarity amongst the members, the grouping must continue to perform well on the economic front to continue to be relevant.