The New Development Bank (NDB) being created by leaders of the emerging economies – Brazil, Russia, India, China and South Africa (BRICS) – shall have initial equity capital of USD 10 billion each.

With China having invested its huge foreign exchange reserves in different parts of the world including in the developed nations and coming as a crucial founding member of the BRICS promoted New Development Bank, India has to situate itself as an equally “relevant voice” and strike a balance outside China-led or likely dominated multilateral structures, a recently concluded ASSOCHAM study has said.

The moot question, according to the study titled ‘BRICS Development Bank – Prospects & Challenges,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), is: How should India place itself in the emerging world economic and political order with China’s over-arching influence on the major levers of the global financial institutions and channels.

“Obviously, India has to seek a balance outside China-led or likely dominated structures, while remaining a relevant voice within them,” said the study that was jointly released by Dr C. Rangarajan, chairman, Madras School of Economics, former chairman of the Prime Minister Economic Advisory Council (PMEAC) and former governor of the Reserve Bank of India (RBI) and D.S. Rawat, national secretary general of ASSOCHAM at an event.

The New Development Bank (NDB) being created by leaders of the emerging economies – Brazil, Russia, India, China and South Africa (BRICS) – shall have initial equity capital of USD 10 billion each.

However, by its sheer financial muscle power of USD 3.8 trillion of foreign currency reserves, China wields influence over critical components of the major financial channels, noted the ASSOCHAM study.

Besides intra-BRICS differences are as stark as their similarities. The grouping comprises highly disparate countries. “Russia, Brazil and India desire the emergence of a multi-polar international system in which they are major actors, in contrast, China aims at a bipolar world in which it serves as the counterbalance to American power.”

Then, there is a sheer size of the Chinese economy which may tilt the BRICS balance in its favour. “China’s economy is larger than those of all of the other members combined. In 2012, China’s GDP at USD 12.20 trillion was more than the GDP of all the RIBS (Russia, India, Brazil and South Africa) combined (USD 10.85 trillion) in Purchasing Power Parity,” said Mr Rawat.

The basic objective of the NDB which was decided at the Fortaleza, Brazil on July 15, 2014, is to mobilise resources for infrastructure and sustainable development in BRICS and other emerging economies and developing countries to complement the existing sources from the multilateral and regional financial institutions.

While the contribution of emerging economies in the global GDP has increased over the last decade, there is a kind of disorder in the sense that these economies have accumulated large foreign exchange reserves USD 4.4 trillion which are largely invested in the developed world. Bulk of it comes from China.

On the other hand, there is a tremendous shortage of funds for building infrastructure within the emerging and developing countries. Close to USD one trillion are needed for this purpose in these countries.

According to the ASSOCHAM study, the BRICS Bank–NDB should explore lending for private projects on the lines of World Bank arm, International Finance Corporation (IFC) and the membership of the bank should not be confined to the BRICS.

While the NDB will be making a start with initial capital of just USD 50 billion and annual lending capacity in the USD 2.4 billion to USD 18 billion, the inadequate capitalization of BRICS Bank can be corrected over time. Significantly, the quality of loans would be very important.

“At the structural level, the bank “should avoid the temptation of modeling itself on the lines of existing multilateral institutions with huge bureaucracy,” ASSOCHAM’s national secretary general said.