Taking forward the proposal for a SAARC Development Bank, India is examining the feasibility of creating a special window within the Exim Bank of India dedicated to funding infrastructure development in South Asia.
“The Finance Ministry has asked the Exim Bank to have a study done on whether a separate special window can be created (in the bank ) dedicated to South Asia to do multilateral funding,” a Government official told BusinessLine . It is one of the options being looked at, he added.
ConsensusIn the July ministerial meeting of the South Asian Association for Regional Cooperation (SAARC), there was a consensus on the need for of a SAARC Development Bank to meet low-cost infrastructure funding needs of the region.
“Everybody agreed that one of the ways for meeting the need for low-cost funds would be development of a SAARC Development Bank. But nobody discussed the actual mechanics,” the official said. SAARC countries include Afghanistan, Bangladesh, Bhutan, India, Maldives, Sri Lanka, Pakistan and Nepal.
Creating a special window, within an existing institution, would be faster and less arduous than putting in place an entire new set-up, the official added. However, a final decision on the matter will be taken at the political level.
The consent of all SAARC members is also necessary as tricky issues like voting rights have to be settled. “The proposed development bank will be discussed in greater details at the SAARC Summit in Kathmandu later this month,” the official said.
Major contributorWhile India, being the largest economy in South Asia, will have to be a major contributor of funds to the bank, it can also borrow in international markets.
“We have to learn from the failure of the SAARC Development Fund which did not take off because the amount involved was too small. However, things will be different with a Development Bank as it can also borrow and leverage its equity,” the official said.
The possibility of consortium kind of lending could also be examined where other Indian banks could examine a project and then pool in.
Boost for tradeA development bank for SAARC countries could go a long way in boosting intra-regional trade ( at present at about 5 per cent of total trade carried out by the countries), points out Ram Upendra Das, Professor, Research and Information System for Developing Countries.
“Any developmental project would necessitate movement of goods within the region. It can generate a spate of export and import of goods as well as services.
“Moreover, synergies will be created between development projects and trade finance, which will further boost commerce,” Das said.