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BRICS bank: how PM got big powers to accept India's idea

The final negotiations between India and China on the bank modalities, and Modi's meeting with President Xi Jinping, offer us some insights into the evolving Modi doctrine vis-a-vis big powers. China gets BRICS bank, India to be its first head

india Updated: Aug 09, 2014 14:18 IST
Prashant Jha
Prashant Jha
Hindustan Times
BRICS,BRICS bank,China

Prime Minister Narendra Modi's maiden multilateral outing to Brazil for the BRICS summit is already a success, with the announcement of the New Development Bank.

It is remarkable that a group as diverse and disparate as this, in such quick time - the idea of the bank was first mooted only two years ago at the Delhi summit - has carved out a tangible design for a global institution of this scale with the potential of changing the rules of the financial game.

The final negotiations between India and China on the bank modalities, and Modi's meeting with President Xi Jinping, also offer us some insights into the evolving Modi doctrine vis-a-vis big powers - especially seen in the backdrop of his meeting with US deputy secretary of state William Burns last week.

But, first the bank.

Ever since its first meeting in 2009 in Russia, a running theme of the group's declarations has been the inequities of the current financial institutions and the need for their reform in the context of the changing world economy and order.

Read: Brics bank will restore balance in world financial system, says China

Remember this was happening right after the global financial meltdown when the developed economies took a battering. At that point, Brazil-Russia-India-China sought 'greater voice and representation' in such institutions and an 'open, transparent, merit based selection process' for its heads instead of the division of spoils among the more developed economies that continues to date.

HT Explains: What has Modi achieved in his maiden overseas summit BRICS

In 2010, in Brazil, they spoke of the 'legitimacy deficit' of World Bank and IMF, asked for a substantial shift in voting powers for emerging market economies, and warned that if the reforms did not happen within a time frame, these institutions would risk becoming obsolete.

The following year, South Africa joined the group and added to the chorus for reform. It was here in China in 2011 that BRICS also spoke of a reserve international currency providing stability and certainty.

2012 was a turning point for before the summit, the BRICS Academic Forum, hosted by the Delhi think tank Observer Research Foundation, recommended to the leaders 'studying the establishment and operational modalities of financial institutions such as a Development Bank and/or an investment fund'.

The summit took it up, and in its declaration, slammed the pace of reforms and considered the possibility of a Development Bank 'for mobilising resources for infrastructure and sustainable development projects in BRICS countries and other emerging economies and developing countries'.

It was however careful not to project this as a competitor or counter but as a possible supplement to existing institutions.

This brief glance at the history of the idea shows that the bank is an organic conception - rooted in the perceived and real discrimination that developing economies have felt in a world order that has not taken into account their needs and rise.

It is a mechanism for the additional financial capital required for rapid development in these economies. And it is a safety valve in case any of these economies faces a severe crunch.

Read: China gets BRICS bank, India to be its first head

But besides the economics of it, it is a huge political and symbolic message. Countries which cooperate but also compete can come together and work together, especially if the victors of World War 2 behave like the balance of power is still the same.

It was in this backdrop that the current summit started with several unresolved issues. There was concern among the other four countries that China's economic weight would make the bank its appendage, which is why India insisted on equal holdings and the one country one vote principle. This has now been accepted.

Delhi also wanted to host the bank, but gave into China's insistence on location being Shanghai. But in return, India would lead the bank for 6 years followed by the other three countries for five years each.

The group also set up a currency reserve fund where China's contribution is by far the largest at $41 billion out of a pool of $100 billion. But as a check and to bring in a degree of equity, it can draw out only half its contribution while South Africa can draw out double its contribution of $5 billion. Russia and India would put in $18 billion and would be eligible to ask for the amount they have put in.

Brazilian President Dilma Rousseff (C), Russia's President Vladimir Putin(L), Prime Minister Narendra Modi(2L), China's President Xi Jinping(2R) and South Africa's President Jacob Zuma pose for the official photograph of the 6th BRICS summit in Fortaleza, Brazil. (AFP Photo)

There are already murmurs among sceptics in New Delhi about losing out to China on location, and how this is symbolic of how Beijing would call the shots. This is myopic and it is heartening that PM Modi - despite the occasionally aggressive rhetoric against China in his election campaign - has seen the need to negotiate a compromise.

The two countries have elements of conflict, but both establishments recognise that it is the cooperative element that has to be strengthened. This attitude was also visible in Modi's meeting with the Chinese president, where they both recognised that the world would take notice if the two worked together.

In this, Modi has displayed a streak of continuity that has marked Indian foreign policy for over two decades. Two principles which can be said to define this approach are multi-alignment and hedging.

Replacing non alignment in letter, while retaining it in spirit, multi-alignment is code for diversifying relations, not getting embroiled in big power conflicts and engaging with issues on its merit, building alliances on positive platforms across a range of issues, ensuring multi-polarity and not letting go of strategic autonomy. The bank reflects all of that.

Hedging comes in with the larger China-US-India dynamic, for no policy maker in Delhi can forget 1962 and the border conflict. Which is why PV Narasimha Rao sought rapprochement with US post the Cold War and simultaneously negotiated principles for a tranquil border with China; Atal Bihari Vajpayee initiated the Next Steps in Strategic Partnership with US while arriving at a pact where China conceded Sikkim was a part of India even as India reiterated Tibet was a part of China; Manmohan Singh did not let border skirmishes come in the way and deepened trade ties with Beijing even as he signed a historic nuclear pact with US.

Modi will - it appears - do the same, managing a careful dance in this trilateral equation to hedge bets. He has already sought concrete deliverables from Washington and will try to bring back the bilateral relationship on track even as he deepens economic ties with Beijing and seeks a resolution to the border conflict.

The continuity is testament to the soundness of broader Indian foreign policy tradition - the momentum is testament to Modi's willingness to take on the baton in quick time.

First Published: Jul 16, 2014 11:07 IST