BackNDA govt scraps plan to set up Saarc development bank
Expert committee's findings show creating a South Asian lender unviable under present circumstances
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New Delhi: The National Democratic Alliance (NDA) government has junked the idea of setting up a Saarc Development Bank for the South Asian region on the grounds that the concept is unviable in the present circumstances.
The South Asian Association for Regional Cooperation, or Saarc, groups Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.
The proposal to create a Saarc Development Bank, originally a brainchild of the NDA’s predecessor, the United Progressive Alliance (UPA), was unanimously endorsed by commerce ministers of the regional grouping at a meeting in Thimphu, Bhutan, in July last year.
The UPA government had set up a high-level committee under the chairmanship of the finance secretary to study the viability of the proposal.
“The committee prepared a 600-page report going into all aspects of the issue. We studied the contributions that can be made by other multilateral institutions, funding that can be sourced through external commercial borrowing route, but the shortfall after that is still huge. Ultimately, that shortfall has to be borne by India. So we decided to explore alternatives available," a ministry of external affairs official said on Monday, speaking on the sidelines of an event organized by the Indian Council for Research on International Economic Relations.
At the 19th Saarc summit in Kathmandu in November last year, Prime Minister Narendra Modi put forth an alternative proposal for a special purpose vehicle for the South Asian region which the government is now working on, the official added on condition of anonymity.
“Infrastructure is my greatest priority in India. And, I also want to set up a special purpose facility in India to finance infrastructure projects in our region that enhances our connectivity and trade," Modi had said at the summit of Saarc, which established a South Asian Free Trade Area (Safta) in 2006 with the aim of forming an economic union.
A Saarc committee of experts comprising the commerce secretaries of the eight member countries had earlier recommended the formation of a Saarc Development bank to the Safta ministerial council, arguing that such a bank would help meet the infrastructure funding gap in the region’s least developed countries (LDCs) and save them from high borrowing costs.
All member nations except India, Pakistan and Sri Lanka are considered LDCs.
The eighth meeting of the Safta ministerial council in Thimphu in July last year approved the proposal made by the committee of experts.
India’s trade minister Nirmala Sitharaman skipped the event citing a busy schedule in Parliament; India was represented by senior commerce ministry officials.
The Saarc Development Bank was mooted at a time when the BRICS New Development Bank (NDB) was taking shape and China had proposed an Asian Infrastructure Investment Bank.
BRICS is short for Brazil, Russia, India, China and South Africa.
At the sixth BRICS summit, held in Fortaleza, Brazil, in July last year, leaders of the emerging economies agreed to mobilize their resources for infrastructure and sustainable development projects in the group and other developing economies through the new bank.
Each of the five members will contribute $10 billion to create a capital base of $50 billion for the NDB; its headquarters will be in Shanghai and the first president will be an Indian.
Commerce ministry officials earlier had talked about possible synergies between such institutions and the proposed Saarc Development Bank.
Ram Upendra Das, a professor at Research and Information System for Developing Countries (RIS), a Delhi-based think tank, said it would be a folly on the part of the South Asian countries not to put in place a well-structured, efficient Saarc Development Bank.
“It is only in the interest of the region that has one of the most under-developed social and physical infrastructure in the world to have such an institution," he added.
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