India is joining hands with four other top developing economies to set up a $100 billion fund that could help it weather currency storms like the one that has blown the rupee away this year.
The biggest of the five Brics economies, China, will contribute $41 billion, while India,
Brazil and Russia will pay in $18 billion and South Africa $5 billion, officials said on Thursday after the group of leaders met informally on the margins of the G20 summit in this Russian city.
The fund, or Contingency Reserve Arrangement (CRA), could become a reality next year, though hurdles remain. It is expected to function as a second layer of cushion after domestic foreign exchange reserves.
In effect, much like a chit fund or a group insurance scheme in the case of individuals, these economies can lean on each other's reserves through the CRA in proportion to their contribution and use any borrowing from the International Monetary Fund (IMF) only as a last resort.
The IMF imposes stringent, politically challenging conditions that these economies want to avoid.
India has reserves of $278 billion, enough for about 7 months imports. It has been dipping into its reserves to defend the rupee, which has fallen by about 20% this year. Central banks sell dollars in the market to prop up the value of their national currency vis-à-vis the dollar.
The Brics fund was proposed at a meeting of the group in Durban earlier this year, and bringing it to life has become more urgent as global funds exit emerging markets for a resurgent United States, battering the currencies of developing countries.
The leaders of the five emerging economies said "good progress" had been made towards the CRA and the Brics-led "New Development Bank" (NDB), which will have a startup capital of $50 billion.
"In the list of the progress achieved in the negotiations of the NDB and the CRA, the Brics leaders expect tangible results by the time of the next Summit," the statement said. However, foreign secretary Sujata Singh said there were further details still to be considered.
"I don't think you can put a timeline on this," she said.
Prime Minister Manmohan Singh met his Brics counterparts ahead of the bigger summit of 20 leading global economies taking place in this picturesque city of canals and spires, which is also the hometown of Russian president Vladimir Putin.
As expected the Brics leaders also called on the US and other developed economies to consider the impact of their monetary policies on emerging economies
"They emphasised that the eventual normalisation of monetary policies needs to be effectively and carefully calibrated and clearly communicated," the Indian delegation said in a statement after the Brics meeting.
"There was general concern over the spillover effect (of monetary policies)," foreign secretary Singh told reporters. However, Brics members at the summit will only speak as individuals at the summit, not as an official caucus.
While the main summit attention is on planned military action by the US in Syria being staunchly resisted by host Putin, the sideshow on the currency issue is no less significant because the official agenda of the summit is on economic growth and jobs.
The Brics group emphasises the interconnectedness of economies in the age of globalisation and is serving as a strong pressure group within the G20.
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