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Brics bank: Can India counter China’s ambitions?

Narendra Modi’s wanted India to host headquarters of New Development Bank (NDB) but China garnered the group’s support to locate it in Shanghai. India had to be content with the first presidentship of the bank. Photo: AFPPremium
Narendra Modi’s wanted India to host headquarters of New Development Bank (NDB) but China garnered the group’s support to locate it in Shanghai. India had to be content with the first presidentship of the bank. Photo: AFP

New Development Bank approved at Brazil summit may pose challenge to World Bank, IMF but it's emerging that India is playing second fiddle to China

New Delhi: The New Development Bank (NDB) created by the five-member Brics group may be the first credible challenge put to the 70-year-old Bretton Woods institutions, but even before the ink dries on the agreement to establish the bank, India is being pitted against co-founder and neighbour China.

Questions are already being raised as to whether India is playing second fiddle to China’s ambitions to become a global superpower by agreeing to the new arrangement, put in place in Brazil at a Brics summit on Tuesday.

The agreement marked the fruition of an Indian proposal for a development bank financed by the Brics (Brazil, Russia, India, China, South Africa), put forward at the New Delhi summit of the grouping two years ago.

At the sixth Brics Summit in Fortaleza, Brazil, on Tuesday, the five emerging economies agreed to mobilize resources for infrastructure and sustainable development projects in Brics and other emerging and developing economies through the NDB.

India’s demand for equal shareholding in NDB was accepted at the summit. Each of the five members will contribute $10 billion to create a capital base of $50 billion for the NDB. But India’s attempt to host the headquarters of the bank was thwarted and China garnered the group’s support to locate it in Shanghai. India had to be content with the first presidentship of the bank.

PTI reported from Fortaleza that India will hold the presidency of NDB for the first six years and that the bank will become operational in about two years time. India’s presidency will be followed by Brazil and Russia, who will have a five-year term each, under an agreement reached after intense negotiations among the five countries.

The group of five emerging economies also signed a treaty to establish the Brics Contingent Reserve Arrangement (CRA) with an initial size of $100 billion to help countries guard against actual or potential short-term balance of payments pressures.

Prime Minister Narendra Modi said at the summit that Brics as an international institution for the first time had brought together a group of nations on the parameter of their future potential rather than existing prosperity or shared identities.

“The very idea of Brics is thus forward-looking. Thus, we must ensure that the future development of our partnerships, and institutions, stays true to this original idea," he said.

The NDB is a good initiative for developing countries given that they could now “dip their hands into their own pockets" rather than look towards Western international lending institutions, said T.C.A Rangachari, a former Indian ambassador to Algeria and China expert.

“It’s a new grouping, they bring different development experiences to the table which are different from the trans-Atlantic experiences," he said.

The agreement was forged 70 years after the Bretton Woods conference led to the establishment of the World Bank and the International Monetary Fund (IMF) that have been come to be dominated by developed economies.

Developing economies have been unhappy with the progress of reforms at the multilateral institutions. IMF has so far been unable to implement the 2010 agreement for governance and quota reform at the Fund which was scheduled to be completed by the 2012 annual meetings, because it has not been ratified by the US.

The reforms at the multilateral institution are intended to make the Fund more representative of the current global economic scenario, in which many developing countries have overtaken developed nations on a variety of economic parameters.

India’s quota share at IMF will rise to 2.75% from 2.44%, making it the eighth-largest shareholder in the multilateral agency from its present 11th position, once the quota reform is carried out.

India has also often voiced concern over the depleting financial resources of the World Bank, which it thinks could handicap the ability of the multilateral lender’s fight against poverty.

Former finance minister P.Chidambaram said at the development committee meeting of the Bank at Tokyo in 2012 that a noticeable deterioration in the capital adequacy of the World Bank was indicative of the vulnerability of the bank.

“Considering the pre-eminent position of the World Bank in the arena of development finance, it would be a tragedy if the bank is handicapped in meeting the requirements of the member-countries when they need it the most," Chidambaram said.

The Chinese gambit

On Tuesday, concerns arose whether India was risking being undermined by the ambitions of neighbour China in the NDB. China is looking at becoming a superpower by 2020, according to Bobby Mishra, who was India’s executive director at IMF between 2003 and 2006.

“China will try to use NDB towards that goal. India should be careful. However, the bank would require 10 years to find its feet in international development financing," he said.

Multilateral lending agencies have often expressed reluctance to finance infrastructure projects in Indian border areas that about China, such as Arunachal Pradesh. Ties between the neighbours have oscillated between conflict and a tense bonhomie over the past few decades.

China claims 90,000 sq. km of Indian territory in Arunachal Pradesh and occupies around 38,000 sq. km in Jammu and Kashmir, which India claims is its own.

To be sure, experts say the agreement to establish NDB is a positive development from the point of view of emerging economies.

“For the first time, countries outside the OECD (Organization for Economic Co-operation and Development) have set up an international institution. At least there is an alternative to other multilateral institutions," said Biswajit Dhar, a professor of international trade at Jawaharlal Nehru University.

China outside Brics is a bigger threat than within Brics, Dhar said.

“China could have done without NDB. Brics Bank was an Indian proposal. The perception that China will run away with it is wrong. The bank has equal shareholding and India should be more proactive and should not allow anybody to run away with it," he added.

Some analysts argued that it is in China’s best interest to be a team player—at least for now. “For China there is interest in making it look like this is not a Chinese-dominated bank because that will allow it to finance projects that otherwise it couldn’t," Oliver Stuenkel, a professor at the Getulio Vargas Foundation in Sao Paulo, told Reuters. “The bank is a way to depoliticize Chinese credit."

Former foreign secretary Kanwal Sibal said the establishment of the Brics bank had belied many Western perceptions about the viability of the grouping.

“There was an emphasis on the inherent weaknesses of Brics—the tensions between India and China, for example. Then there was the slowing of economic growth which took away shine from the Brics idea," he said.

But the establishment of the bank showed that the importance of Brics as a grouping in the long term cannot be overlooked, he said.

The establishment of the bank comes before a summit meeting between Prime Minister Modi and US President Barack Obama on 30 September in Washington.

Global issues

A sizeable portion of the BRICS declaration referred to major international issues—civil strife in countries like South Sudan, the Central African Republic and the Democratic Republic of Congo, besides the ongoing tensions between Israel and Palestine and negotiations between Iran and the international community over its nuclear programme.

There was condemnation of terrorism, an expression of “grave concern over the continued threat of terrorism and extremism in Syria…perpetrated by Al-Qaeda, its affiliates and other terrorist organizations".

Afghanistan was another issue that figured in the Brics joint statement, given that it is a matter of concern for three of the five members of the grouping—India, China and Russia.

India is worried that the increase in influence of the Taliban in any forthcoming Afghan administration would be favourable to Pakistan and detrimental to its interests. China’s concern stems from the fact that the Taliban could support and encourage religious fundamentalism in its Muslim majority restive Xinjiang province. Russia on its part is wary of the overflow of drugs and terrorism into the mainly Muslim Central Asian Republics that border the country.

Concern was also expressed over the situation in Iraq, where Sunni Islamist militants have captured a huge swathe of the country and declared a Caliphate in an area straddling Iraq and some parts of Syria. Iraq is also India’s second largest supplier of crude oil, behind Saudi Arabia.

According to former foreign secretary Lalit Mansingh, Brics had evolved out of a desire for multi-polarity and challenging established Western hegemony, and each (country) is now looking for what it thinks is its rightful place in the world.

“Through the years, the emerging economies have not been performing well. Their economic clout has diminished and so we see longer references to political interests," Mansingh said. “The grouping at present is not strong enough to challenge the Western countries either in economic or political terms. I don’t see anything in the declaration that poses a challenge to existing power structure of the world. When their economies start doing better, they will be taken more seriously."

Rangachari said Brics countries were getting together, evolving a common position and trying to push their agenda through. “Whether they will be successful, we will have to wait and see."

Reuters contributed to the story.

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