Column: The BRICS Bank and India

Aug 02 2014, 02:04 IST
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SummaryIndia is stuck with the BRICS, but the countrys long-term interest lies in building ties within the rest of the G20

The BRICS Bank or, to give it its formal name, the New Development Bank (NDB), was announced in 2013 and formalised in July 2014, garnering international headlines. It is meant to increase the flow of funds for infrastructure development projects to the BRICS countries, and possibly to other emerging markets. Its planned capital base will be comparable to that of the Inter-American Development Bank, about 60% of the Asian Development Banks (ADB) capital, and somewhat less than half of the World Banks capital base. That will be a not-insignificant addition to the funds flowing for such projects. There are questions about the potential cost of funds that will flow through the NDB, since most of its members do not have top credit ratings, and perhaps the need for human capital in the form of expertise for specialised lending will be a binding constraint.

Some commentators have seen the NDB as an attempt to shift the balance of power away from the World Bank, seen to be dominated by the US and other Western powers. This well may be a goal that is inextricably tied to the goal of smoothing the path for large-scale investments in development infrastructure. However, the World Bank has welcomed the new entrant, and clearly the global demand for developmental investment is many times the new addition to lending capacity. One commentator, pushing the anti-Western line to a rather incredible extreme, hoped that the NDB will be more sensitive to environmental concerns and human rights than its older cousins. Given the nature and track record of the NDBs member governments, this seems less than unlikely.

It is clear that the 800-pound-gorilla of the NDB will be China (just as Japan has been for the ADB). Indeed, India reportedly had to insist that all members put in equal capital, which made South Africas ability to contribute a binding constraint. India got the consolation prize of the first presidency, but China got the permanent location, which matters most. The other big two, Brazil and Russia, also received governing clout, with South Africa, the S add-on to the original BRIC, being left with a regional centre for Africa. Clearly, China will use this as part of its long-term Africa strategy.

Since the BRIC creation by a Goldman Sachs employee had little logic beyond size and the growth potential that comes from not being rich, perhaps pooling capital is the best the BRICS group

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