The 6th BRICS Summit has begun on a positive note with the announcement of the New Development Bank and a Contingent Reserve Arrangement, the group's first major achievements since it was formed in 2009.
For Prime Minister Narendra Modi, it also opened bilateral doors with the Chinese and Russian Presidents.
The idea for an alternative to the Western-dominated financial institutions such as the World Bank and the International Monetary Fund was first conceived two years ago in India during the BRICS Academic Forum and discussed in the fourth BRICS Summit held in New Delhi.
The Development Bank has now become a reality, with the five nations launching it on Tuesday, announcing $100 billion dollars for it with an initial subscribed capital of $50 billion. They will also set up a $100 billion currency reserve pool under the Contingent Reserve Agreement.
But while India should be happy about the idea finally coming to life, were there any drawbacks as well?
Wins:
- Presidency: One of the biggest outcomes for India is that it gets the first-term presidency of the new Development Bank for six years. This is a major step, as India can set the course for how the Bank should grow and operate.
- Equal shareholding: India has been firm on the issue of all five nations becoming equal shareholders, given that the larger economies of China and Russia could overpower the others. Each nation now gets equal shareholding of the initial subscribed amount of $10 billion each and will follow a "one nation, one vote" policy in the functioning of the Bank.
"This is the biggest victory for India, given that China had been pushing for a larger share. It will ensure equal role for all countries in decision-making," Akshaya Mathur, Head of Research at foreign-policy thinktank Gateway House, told IB Times India Edition. - Funding in times of emergency: India will put in $18 billion in the Contingent Reserve Arrangement and can take out that much amount any time in case of economic instability or volatility. As an emerging market economy, this reserve pool will serve well in the future, if it sees an increase in capital outflows.
It will help India in short-term liquidity management without having to resort to curbs on imports and exports as India has done in the recent past. - Will India get entry to Security Council?: The BRICS nations reaffirmed the need for a comprehensive reform of the United Nations, including its Security Council, to make it more representative. China and Russia supported Brazil, India and South Africa's aspiration to play a greater role in the UN at the Summit. Does this mean India could get a Security Council seat? Currently, among the BRICS nations, Russia and China are members of the closed group.
Misses:
- India loses bank headquarters to China: It was almost as if a dream was broken when China leveraged it ways to ensure the headquarters of the New Development Bank remains with it in Shanghai.
India has for two years, ever since the idea began to roll, hoped to keep the headquarters in Delhi. The decision to let China keep the headquarters was arrived after an impasse. It is to be seen whether China exploits its power and tries to gain more control over the institution.
"It is definitely a diplomatic win for China to have got headquarter the bank in Shanghai," said Mathur.
However, Professor in Chinese Studies at the Jawaharlal Nehru University Srikanth Kondapalli told IB Times India Edition that this will not have too many implications for India. "The fact that the bank will be headquartered in China will not have much implication for India as it will be presiding over it for the first term. I don't think India has to worry about that," he said.
- Will India lose bargaining power with China?: Apart from the fact that the bank is headquartered in China, it is also the biggest contributor to the Contingent Reserve Arrangement putting in $41 billion as against $18 billion from India, Russia and Brazil. While these two points give China a bargaining advantage when it comes to bilateral relations with India?
However, Mathur said it was not a cause of worry since India can take only the amount that it puts in ($18 billion) and thus, it will not be affected by the volume of Chinese contribution. Professor Kondapalli reiterated that India does not have to worry about China getting a huge leverage, because of theway the system has been worked out, at least on paper.
"Given that a 'one nation, one vote' principle has been adopted, at least on paper, China does not have too much advantage. In institutions such as the International Monetary Fund, the shares are based on the GDPs of the member nations, which is not the case with the New Development Bank," he explained.
