The bank can be an alternative to the IMF for infrastructure funding
India’s status in the world order could get elevated by the success of the proposed $100 billion New Development Bank and Contingency Reserve Arrangement proposed by the BRICS nations.
At the on-going BRICS Summit (Brazil, Russia, India, China and South Africa) in Fortaleza, Brazil, the two issues will be the key to determine the relevance of the grouping for India.
New Delhi, which is already grappling with balancing its economic and diplomatic interests in various regional trade pacts, can leverage the BRICS grouping only if it can use it to elevate its status in the global geo-political and geo-economic order.
Finalising the modalities for the BRICS Development Bank and the Contingency Reserve Arrangement is, therefore, top priority for Prime Minister Narendra Modi, who is attending the three-day Summit. “I look forward to the successful conclusion of major BRICS initiatives, like the New Development Bank and the Contingent Reserve Arrangement, which have seen significant progress since their launch in New Delhi in 2012.
“These initiatives will support growth and stability in BRICS and also benefit other developing countries,” Modi said in a statement before leaving for the BRICS summit.
BRICS countries account for a population of 3 billion.
“One reason why BRICS is important for India is the fact that it got an outsider (a Goldman Sachs economist) to acknowledge its importance as a member of the group,” points out Ram Upendra Das from RIS (Research and Information Systems) for Developing Countries.
Although the BRICS nations got together during the 2008 economic crisis and demanded that multilateral institutions be reformed to reflect the increasingly central role of emerging markets, the US Congress did not ratify IMF Quota Reforms of 2010, which would have given a greater voice to them in the running of the fund.
The New Development Bank, with an initial corpus of $50 billion which could later be doubled to $100 billion, could be an alternative to the IMF to fund not just India’s infrastructure needs, but also of other developing countries, like many in South America, who don’t like borrowing from the IMF because of the many strings attached.
“The Modi-Government has to ensure that the Development Bank gets operationalised soon as funding other develop economies will increase India’s global clout,” an economist from a Delhi-based research agency said.
The Contingency Reserve Arrangement would give an added insurance to BRICS countries, that in times of crisis they can bail each other out, Das added.
A stronger BRICS can also have more influence in other multilateral forums such as the World Trade Organisation and the Climate Change convention.
The challenges ahead, especially one posed by China’s dominance in the region, however, have to be tackled first. To ensure that it has an equal say in the Development Bank’s activities and China does not get an upper-hand, India will have to ensure that all BRICS members contribute equally to it.
But China’s weight also makes the group stronger. “Chinese support to BRICS will make sure that group remains a force to reckon with in the future. Therefore, BRICS is likely to remain an effective multilateral forum in a multi-polar international order,” a report by the Institute for Defence Studies and Analysis said.