New Delhi, India – A supplementary source of financing for developing countries, the newly established BRICS bank has been hailed as a possible long-term alternative to Western institutions such as the World Bank.
But although India secured the bank’s first presidency, and even as Prime Minister Narendra Modi recently hailed “our capacity to set up global institutions” for development, some government officials have questioned whether they are handing the reins of global finance to China.
The BRICS bank, formally titled the New Development Bank, was first proposed in 2012 at a meeting among the leaders of Brazil, Russia, India, China and South Africa (known by the acronym BRICS). Uneasy with Western dominance of institutions such as the World Bank – where the United States controls 15 percent of the votes – BRICS formalised the new venture in July at a summit in Fortaleza, Brazil.
The five founding countries agreed they would hold equal voting rights, despite differences in economic heft: Like Russia, China’s exports of goods and services more than pay for its imports, while India has a current account deficit. China’s economy, meanwhile, is 28 times the size of South Africa’s.
In India we have always been afraid of the Chinese after India's defeat in the 1962 war. In 2000, when import quotas were abolished, there was a fear of invasion of Chinese goods. A 'war room' was set up in the federal trade ministry. The fears were unfounded. Now we fear China will dominate BRICS Bank.
Fear of the Chinese
Both China and Brazil had to be persuaded to accept the principle of one country, one vote, said Rathin Roy, the director of India’s National Institute of Public Finance and Policy.
Roy, who advised India’s finance ministry on the bank, cited apprehensions over the role that China would play.
“The fear of the Chinese is the biggest fear,” Roy told Al Jazeera.
“In India we have always been afraid of the Chinese after India’s defeat in the 1962 war. In 2000, when import quotas were abolished, there was a fear of invasion of Chinese goods. A ‘war room’ was set up in the federal trade ministry. The fears were unfounded. Now we fear China will dominate BRICS Bank.”
An official with India’s Finance Ministry, who spoke on condition of anonymity because his views do not mesh with the government’s official position, told Al Jazeera that the bank appears to be a better fit with China’s foreign policy aims.
As China aims to eventually match the US in clout, the official said, it has been encouraging trade settlements in renminbi, the Chinese currency, and winning over African and Asian countries with soft loans and infrastructure development.
“China could use the BRICS bank to chip away at the influence of the Asian Development Bank (ADB), which is controlled by rival Japan,” he said.
Although the BRICS bank will be headquartered in the Chinese city of Shanghai, India expects to shape policy by virtue of holding the presidency, Roy said – although much will depend on the stature, personality and competence of the candidate, so far it has not been discussed.
But Bibek Debroy, a pro-market economist who is known to be close to India’s government, told Al Jazeera this is little consolation because the “presidency revolves, while the headquarters are static”.
“China will get a chance at the top job in 16 years,” he told Al Jazeera.
A former Indian government leader, speaking to Al Jazeera on condition of anonymity, said the apprehensions about China’s role in the BRICS bank were exaggerated. While China will try to dominate the institution, he said, “We have taken enough precautions” without elaborating what precautions were taken.
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India’s Planning Commission estimates the country’s infrastructure financing requirements at $1trn for the five-year plan which ends in 2017.
The BRICS bank will have an initial capital of $10bn, contributed equally by the five member countries. This is expandable to $100bn. With the initial capital of $10bn it should be able to raise about $20bn to $30bn in debt, if it is rated very high in credit worthiness.
India’s former finance minister, P Chidambaram, told parliament last year that he expected India to be among the borrowers – but if India dips into the pool, it will displace smaller and needier countries, eroding the bank’s leverage over them.
In the meantime, China has also taken steps towards founding the Asian Infrastructure Investment Bank (AIIB); with a proposed $100bn in capital, it could rival the ADB or even the World Bank.
China has invited India to join, but with foreign exchange reserves of $3.99trn compared with India’s $290bn, the Chinese would clearly be directing the play.
Indian finance ministry sources say the moves by China have triggered calls for India to expand its financial footprint.
East African nations, such as Kenya, have recently approached India for help in setting up stock exchanges and depositories, while Asian members of the former Soviet Union like Kazakhstan and Uzbekistan have sought India’s advice on counter-terrorism and money laundering.
The difference of opinion also reflects a turf war within the government. The bank is regarded as a baby of India’s Department of Economic Affairs.
The Ministry of External Affairs has been left out of the conversation, sources in the finance ministry said.
“There is a need for a serious discussion in the National Security Council so that a composite view can emerge about how India can push its objectives though the BRICS bank,” sources said.