Benefits of BRICS New Development Bank for India

Francisco A. Laguna & Annapurna Nandyal

 Today, we continue our series on the impact of the BRICS New Development Bank (NDB), focusing on the potential benefits the NDB may provide India as well as a possible focuses the NDB can use to compete with historical institutions such as the World Bank and the IMF.

The 2008 global recession affected most parts of the world, and India was no exception. Apart from challenging economic conditions, there was a widespread criticism of the previous government’s policies which took a toll on the Indian economy. India’s newly elected Modi government, which recently completed its first 100 days, has promised to revive the economy and improve the ease of doing business in the country. As pointed out earlier in this series, it was India that proposed the establishment of a BRICS bank as a way of aligning the growing economies of the five emerging powers with those of the developed nations. India hopes to benefit greatly from the formation of the NDB and play a more prominent role in the global order in the 21st century.

Emblem of India Photo Credit: Zscout370 via Wikimedia Commons

Emblem of India
Photo Credit: Zscout370 via Wikimedia Commons

The NDB is already providing impetus for the BRICS to increase intra-member trade and investment. For instance, the tense relations between India and China have been an open secret despite the fact that they are strategic trade partners in Asia. Recently, trade volumes have lessened; however, after the creation of the NDB, the two countries have vowed to correct the decline. Since BRICS economies can trade in their local currencies instead of dollars, the Indian government has allowed domestic infrastructure companies to borrow yuan-denominated loans from the Chinese government to pay for imports from China. Continued improving relations between these two most populous countries could result in profound, short-term economic benefits.

The NDB is also influencing India’s relationship with Russia. India is the third largest importer of energy, and it may become the largest energy consumer. With instability in Middle East and West Asia, India is reaching out to traditional partners, like Russia, for help. Since 2005, India and Russia have been negotiating a gas project. After the announcement of NDB in July, both countries are actively working toward concluding the agreement. Analysts feel the countries’ increasing common interests could help finalize this much-needed energy deal.

Rupee Notes

Rupee Notes

Another energy-related event may also affect India. In a major shift in the policy, the World Bank has announced that it would restrict funding to new coal projects in developing countries and only fund the poorer nations on a case-by-case basis. As a result, developed countries such as US, United Kingdom and Netherlands have decided to stop funding coal projects. Many new coal plants are being built around the world, and the majority is or will be located in India and China. The new policy obviously impacts India: China can fund its own projects; India cannot. India’s extreme dependence on coal plants for its electricity generation and alternative source of income to fund coal projects must be addressed as quickly as possible. The NDB could play a crucial role by urging India and other developing countries to adopt solar panels and clean energy methods and offer cheaper loans for such power projects, while providing financing for existing coal projects.

Besides improving trade among the member states, the NDB needs to have broad policy framework to make the bank robust. For instance, climate change could have a profound impact on the BRICS. Global warming will have severe effect on developing countries affecting agriculture and tourism. The bank could focus on utilizing its funds on climate projects and educate poorer countries on climate change policy. In fact, BRICS leaders have advised their finance ministers to work out modalities for the bank to include environmental safeguards. This could help the NDB emerge as a bigger player in the future, thereby increasing the BRICS global economic influence.

TransLegal has correspondent offices in each of the BRICS. Contact us with your questions concerning doing business in Brazil, Russia, India, China and / or South Africa.

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