The proposed Bank announced by the BRICS leaders at their summit here will focus on infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock.
These are all areas of acute interest to India, said government sources as well as Indian industrialists attending the Fifth BRICS summit, which ended here on Wednesday.
But the specifics of the scale, location and structure of the Bank will be worked out over the coming months, and some finality is likely to be achieved by September when the five leaders are likely to meet on the sidelines of the next G 20 summit in St. Petersburg.
Side by side with the Bank, the BRICS summit also saw action on another front — creation of a Contingent Reserve Arrangement (CRA) amongst BRICS countries. This too has its genesis last year when, meeting on the sidelines of the G-20 summit in Los Cabos (Mexico), the BRICS leaders asked their finance ministers and central bank governors to explore the construction of a financial safety net. “This [the BRICS Bank] is now a reality…We gave a big idea, and this is a good beginning. We should be able to influence discussions and decisions in the G-20, International Monetary Fund and other multilateral institutions,’’ said Union Finance Minister P. Chidambaram who quarterbacked long-drawn out discussions on the setting up the Bank on behalf of India.
Federation of Indian Chambers of Commerce and Industry (FICCI) President Naina Lal Kidwai pointed out that long-term financing market in many developing countries, including India, was relatively undeveloped. The Bank’s resolve to prioritise investments in capital stock, she felt, would spur domestic and other financial institutions to step in also.
Emerging from the Summit deliberations, Prime Minister Manmohan Singh and Presidents of Brazil, China, South Africa and Russia devoted a separate statement on the Bank, thus signalling its importance in meeting the unmet infrastructure requirements of the developing world. The shortcomings in the orientation of the World Bank, said the leaders, constrained global aggregate demand. BRICS co-operation towards more productive use of global financial resources could make a positive contribution to addressing this problem, they added.
It was in March last year that the BRICS leaders had asked their finance ministers to examine the feasibility and viability of setting up a New Development Bank for mobilising resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.
The summit felt that the establishment of a self-managed Contingent Reserve Arrangement would have a positive precautionary effect, help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability. It would also help to strengthen the global financial safety net and complement existing international arrangements as an additional line of defence.
This has led to the announcement of a CRA with an initial size of $100 billion subject to internal legal frameworks and appropriate safeguards. As is the case with the BRICS Bank, the leaders asked their finance ministers and central bank governors to continue working towards its establishment.
“The CRA will assist in stabilising the domestic currencies of at least four BRICS countries which is crucial because increasing economic risks in emerging markets could lead to a currency and financial crises,'' said a government source.
While India and Russia did not want China to dominate the bank, they received support from unexpected quarters — the powerful Confederation of South African Trade Unions (COSATU), which did not want the proposed institution to be used by China to increase its exports to other countries.