Banking on next big role

BRICS have laid the foundation for a New Development Bank at its sixth Summit at Fortaleza. But let’s not forget that it needs much to be done by India in the long run to derive benefits from the proposals and position itself as a leader of hope for the developing and emerging economies.

The proposal stipulates setting up of the bank at Shanghai, placing China at a more advantageous position. After getting the approval for BRICS Development Bank at Shanghai, China has another plan to push for hosting a separate multilateral bank – Asia Infrastructure Investment Bank (AIIB). With these two projects, China intends to spread its economic clout not only in Asia but also among the developing world.

It is proposed that the BRICS Bank will have an initial authorised capital of $100 billion and the initial subscribed capital will be $50 billion, equally shared among the five founding members – Brazil, Russia, India, China and South Africa. Thus meaning equal voting rights for all the five members, though the Fortaleza Declaration has not stated this in specific terms. Perhaps it has been left to Charter of the bank to define this aspect.

BRICS has also set up a $100 billion Contingent Reserve Arrangement to forestall short-term liquidity pressures through currency swaps and a MoU has been signed among BRICS Export Credit Guarantees Agencies to improve support environment for increasing trade opportunities.

However, analysts and think tank in China think in a different way. Professor Zhu Ning at the Shanghai Advanced Institute of Finance has raised the issue of coordination problem if the five founding members have equal share and say in the bank. Chinese think tanks have favoured more countries joining the bank and China contributing more to be in a dominant position. They feel that with the BRICS Bank and the proposed AIIB, China will be able to extend its sway over Asia and the developing world.

The AIIB was first announced in October last year when President Xi Jinping was on a tour to Southeast Asia, offering billions of dollars in trade deals and extending hope for a maritime silk route to link China with Southeast Asia and the Indian Ocean region apart from a silk route connecting Central Asia.

While the BRICS Bank stipulates ‘mobilising resources for infrastructure and sustainable development projects in BRICS countries and other emerging and developing economies,’ the AIIB is being proposed to solely finance infrastructure projects and not prioritise poverty reduction as the World Bank and the Asian Development Bank do.

What is the intention of China to host these two banks? A deeper study is necessary to unveil Chinese intention. It was India in 2012 New Delhi Summit who proposed setting up of the BRICS Bank. However, India failed to get the proposal for setting up of this bank in New Delhi in 2012.
China cleverly played its diplomatic cards to get the bank set up at Shanghai. China extended olive branch to India by inviting Prime Minister Narendra Modi to the APEC meeting which it is hosting in November. But November is a busy month for the Prime Minister with G-20 Summit in Brisbane and SAARC Summit in Kathmandu already scheduled. India has long being yearning for membership of APEC.

Modi’s meeting with Chinese President Xi Jinping initially scheduled for 40 minutes, lasted for 80 minutes, practically leaving no time for his meeting with the Russian President Vladimir Putin. Jinping, however, made no firm commitment to Modi for China’s support to India’s candidature for a permanent seat in the UN Security Council or for the full membership of Shanghai Cooperation Organisation (SCO) which India is long aspiring. Jinping just said that he looked forward to India working more deeply with the SCO. India currently enjoys Observer status at SCO.

Had Modi discussed the issue of location of BRICS Bank more extensively with the Brazilian President Dilma Rousseff, South African President Jacob Zuma and Russian President Vladimir Putin, the outcome could have been different.

However, the first presidency of the BRICS Bank has gone to India for a period of six years, taking into account that two years will be needed to set up the bank. The first chair of the Board of Governors will be from Russia and the first chair of the Board of Directors will be from Brazil. All these posts are however, on rotation basis.

India which will hold the presidency of the bank for six years has the onus overseeing how the Charter of bank would be drafted so that it can present itself as an alternative global financial architecture to the Bretton Woods – the World Bank and the International Monetary Fund. Whether the five founding members will have an equal say in the bank or China have a monopoly say? Whether the bank will in real sense be able to meet the needs of the emerging and developing economies?

For India, China is a hard nut to crack. It all depends upon the government of Narendrabhai Damodardass Modi to deal with the Chinese diplomacy in the near future. Xi Jinping has assured Modi to rectify India’s trade deficit through Chinese investments in India and encouraging Chinese tourist flows. Modi had pressed for more exports of software and pharma from India.

India has a lot to do to get the BRICS bank going in a transparent and equitable manner and not unfavourable to its interests. It should be careful that it does not result in monopoly say of China. We had the bitter experience of China striking down the proposal of ADB loan to Arunachal Pradesh. Modi government should wake up to this realty and act.
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