The move if accepted by the five-country grouping of Brazil, Russia, India, China and South Africa could be seen as yet another major foreign policy accomplishment by Prime Minister Narendra Modi after the praise he earned for inviting the leaders of SAARC member countries for his swearing-in ceremony.
The development bank is likely to be officially launched during the July 15-17 BRICS Summit at Fortaleza in Brazil. The visit to Brazil is likely to be Modi's first foreign trip as the Prime Minister. The countries are yet to come to a consensus on three main aspects: funding, headquarters and the first president, finance ministry sources told FE.
We are keen on the headquarters and the first president, but nothing has been finalised now. Negotiations are going on, an official said. The sources said barring Brazil, all the other member countries want the first presidentship (for a five-year term) and headquarters of the bank to be theirs. As agreed earlier, the negotiations have to follow a consensus based approach to all aspects of the bank, including management, location, the capital, its operations and related processes.
Regarding the capitalisation of the bank, the sources said India and Brazil are for each member country contributing equally to the corpus, though some other countries want to have a different structure and higher capital.
The negotiations are also on the initial corpus, either $50 billion or $100 billion, and whether countries that are not members of the grouping can pitch in at a later stage.
China is learnt to be pitching for a higher corpus. Since the funding of the bank will be from the taxpayers' money, the national budget of each member country will have to make allocation for the banks capital. After the launch, the bank will take a year or two to start operations.
At the fifth BRICS Summit in March 2013 in Durban (South Africa), the leaders of the member countries agreed that setting up the development bank was feasible and viable. The leaders, in a statement, said, developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock.
The leaders said, therefore, new bank should have substantial initial capital so that it can effectively finance infrastructure and sustainable development projects in BRICS as well as other emerging and developing countries. The new bank will supplement the existing efforts of multilateral and regional financial institutions for global growth and development, they said.
They had noted that emerging economies are keen to develop their versions of the World Bank and the International Monetary Fund against the backdrop of mounting criticism of the BRICS and increasing capital outflow from developing markets. In earlier summits, the BRICS nations had also called for reforms in the IMF and World Bank including in selecting the heads and also in the ways in which development issues are dealt with.