The major achievement of the recent BRICS Summit was the decision to create the long-awaited (BRICS) New Development Bank. The bank can be seen as a growing influence of the BRICS which together represents 18% of the World trade and accounts for 40% of the global population with a combined GDP of $ 24 trillion.
The sixth annual BRICS Summit, held in Brazil on July 14-15, has paved the way for shifting of powers from developed economies like the United States and Europe to emerging economies of BRICS. The Summit was conducted at a time when the political, economic and social scenario around the globe was more tensed and unstable than at any other point in the past 20 years. The forum brought an opportunity for the leaders of BRICS to discuss and figure out solutions to the issues relating to peace and stability and humanitarian conflicts and crisis around the globe apart from economic issues which were an integral part of the agenda of the summit.
The major achievement of the Summit was that it decided to establish the long-awaited (BRICS) New Development Bank. Although China won the race in getting its headquarters to be based at Shanghai, India won the opportunity to head it. Modi team’s hard bargaining is reported to be behind this victory. This is a celebrating time for India as heading the bank will give a window of opportunity to safeguard its interest and will turn out to be a landmark decision as quoted by Finance Secretary Arvind Mayaram.
The Bank can be seen as a growing influence of the BRICS which together represents 18% of the World trade and accounts for 40% of the global population with a combined GDP of $ 24 trillion. The new bank will have a subscription of $50 billion equity capital contributed equally by its five founders and thereby equal shareholding. The summit also led to the setting up of a $100 billion currency reserve pool in which China, holder of the world’s largest foreign exchange reserves, will be contributing $41 billion, Brazil and India contributing $18 billion each and South Africa $5 billion.
The whole idea of lending in the New Development Bank is based on simple majority voting system which will grant the member nations the right to borrow loans up to 30% during liquidity crisis. With its functioning based on the much talked about "Equity and Fair" vision, the bank will result in a bigger say for the emerging economies in the global financial order which is currently led by the United States and Europe who tend to wield their influence through the International Monetary Fund and the World Bank.
The New Development Bank initiative is designed to compete with the global financial institutions -- IMF and World Bank -- by making the bank accessible for developing countries to finance their infrastructure projects. As compared to the World Bank, the new development bank will grant loan with fewer restrictions and lesser delays.
The Contingent Reserve Fund also can give competition to the IMF which has failed to provide greater representation of emerging market economies at international platforms and implement necessary reforms during the global financial crisis. The ineffectiveness of IMF and World Bank has paved the way for the New Development Bank to be a complement and not competitor in terms of financing infrastructure projects and to help countries forestall short term liquidity pressure and thereby guarding against crisis.
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Kangkanika Neog Programme Associate Council on Energy Environment and Water (CEEW)
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