BRICS Summit: India's Agenda

Though the FIFA world cup, 2014 ended yesterday with much grandeur and fanfare, Brazil continues to hit the headlines. The 6^th BRICS summit, a meeting of the five developing economies- Brazil, Russia, India, China and South Africa is scheduled to be held in the cities of Fortaleza and Brasilia, Brazil on July 15 -17. The summit assumes greater significance as it will be first occasion when Prime Minister Narendra Modi would flag off multilateral talks with World leaders on International platform. The meeting also marks the launch of BRICS Bank and the Contingent Reserve Arrangement (CRA), touted to challenge the domination of the Western nations in the global economic arena.  The proposal for BRICS Bank was initiated during the 5^th BRICS summit at Durban in 2013 at a time when emerging countries have been deeply affected by tapering of Quantitative Easing (QE) by US. This resulted in major depreciation in currencies of developing nations.

Often toughest lessons are learnt following major destructions and exacerbated financial crisis. America learnt the need for economic cooperation the hard way after its failure to cope up with the losses of the World War II and the economic depression of 1928. As a result America with its allies evolved a management plan, Bretton Woods agreement which resulted in genesis of two international financial institutions- World Bank and International Monetary Fund with key main focus on reconstruction of infrastructure after World War II. Now after 70 years of signing the agreement, launch of BRICS Bank is conceived to be a symbolic challenge to the existing global monetary structure.

Till now the World Bank and IMF have been controlled by Americans and Europeans who have been representative heads. The rich countries consequentially had greater leverage and say. Both the institutions are under severe criticism from developing countries for promoting the Euro-Atlantic economic agenda. With the evolving global trends, the contribution of the developing nations towards global economy has become cognizable. BRICS countries with a consumer base of over 3 billion account for 40% of population and contribute more than 25% of global GDP. Faced with the daunting challenges of the growing economy and its needs, BRICS realised the need for opening up new vistas to tackle the myriad challenges of the 21^st Century through establishment of credit cum financial institution. BRICS bank has thus been a great effort in this direction.

The new development bank, yet to be named is an effort in the direction of developing an alternate institution that would fund long term investments in infrastructure projects and sustainable development projects in BRICS and other emerging economies. It will supplement the existing efforts of the multilateral and regional financial institutions also for global growth and development. Such an institution on long term can enhance the influence of BRICS and other developing countries in the international developmental architecture.  The Summit would formally inaugurate a BRICS Bank, whose fund will constitute the $10 billion paid-in-capital (each country providing $2 billion over period of 7 years) and additional $ 40 billion to be paid- upon request and a Contingent Reserve Arrangement (CRA) of $100 billion.

CRA is coordinated central bank fund aimed to provide mutual liquidity in the event of crisis.  This fund would act as an emergency coffer if nation suffers from risk of currency depreciation. This would complement the existing financial safety net and established international arrangements as additional line of defence. Apart from the BRICS nations, UN member countries may also participate but their total share wouldn’t exceed 45%. Bank would be open for lending from 2016. The maximum amount of corpus fund of $41 billion is pitched by China and minimum of $5 by South Africa. India, Brazil and Russia are chipping in $18 billion from their foreign exchange reserves. The genesis of such a bank gained momentum due to the growing rifts between the US and Russia over the Crimean issue where nations have reiterated their deftness to impose sanctions against Russia.

Though the World Bank focuses on making huge chunk of investments in infrastructure projects, a study reported a gap of $ 1trillion in low and middle income countries between investments made in infrastructure and what is needed. The demand for infrastructure is growing. Existing multilateral development banks could close in the gap to a tune of only $40 to $60 billion. Financial experts’ view that time has come for a development bank for BRICS which fund the infrastructure projects from the hard-earned savings from the emerging and developing countries for more productive uses rather than funding bubbles in the rich-country housing markets.

BRICS Bank is aims to mobilize investments towards infrastructure development projects in developing countries. As countries graduate from the primary to secondary to tertiary sector-based economies infrastructure needs to expand. Studies suggest movement of roughly 2 billion people to urban regions implying a great need for major investments in urban infrastructure. Nearly 1.4 billion people in BRICS don’t have access to electricity, 0.9 billion don’t have access  to clean drinking water and 2.6 billion lack access to sanitation. Infrastructure investments are thus needed to improve the quality of living and accrue development without deviating from environment sustainability and climate resilience.

Existence of BRICS Bank will strengthen the voice of developing and emerging economies on global development and financial architecture. Apart from laying strong financial foundations in these countries, it would help in strengthening ties between culturally diverse nations. India and China are both competing to exert a greater influence on BRICS.  China with more economic clout is rather aggressive in its campaign and keen on assuming the leadership role. All nations except Brazil are competing hard to host the bank head quarters in their sovereign territories and to clinch initial presidency for tenure of five years.

For India stakes at summit are rather high. India under astute leadership of Modi should aspire to utilise this platform to play a crucial role in deepening integration between BRICS nations and foster cooperation. In wake of exiting American combat forces from tumultuous Afghanistan and the looming crisis of large scale fraud in highly contested Presidential elections. A high level diplomatic dialogue with China and Russia can be highly beneficial for the regional peace. A meeting with Chinese counterpart on the spate of recent incursions and stepping up trade would greatly enhance the Sino-Indian relationship. Finally, renewing a propitious relationship with the South American giant in this occasion would greatly stabilise India’s interests and commitments towards the BRICS.