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Banking on BRICS development bank?
Tue, 22 Jul Pre-Open

The formation of New Development Bank (NDB) by the BRICS nations has been a hot topic of discussion these days. Since last few years the BRICS nations have come together primarily to work mutually with a common goal of bringing strategic shift in their countries. But this year's meeting seems to have taken some concrete actions. The BRICS leaders have after a long wait decided to establish the new development bank.

The institution will help to finance the infrastructure projects in the emerging markets and other economies. A reserve of US$ 100 m has also been set up to help the short term liquidity issues in various countries. The operations of NDB are expected to start from 2016.

Setting up of NDB has been in response to inadequate funds from traditional sources of bank funding. An inter-country bank such as a BRICS bank is expected to help channelize funds from surplus countries to ones who are in need. Further, the infra financing needs are long term in nature. As such, it is expected to fulfill the need of a special institution which could be tailor made and has sufficient liquidity at its disposal.

While, the idea of setting up the new bank looks simple, it will be complicated to act upon we believe. For proper functioning of the bank, each nation will have to comprehend the needs and requirements of the other member countries. This calls for creating a well governed structure by the member countries.

The development of NBD is expected to fund infrastructure projects in these developing markets, which in turn will accelerate growth in the emerging countries. However, there are various internal difficulties within every member of BRICS economy. The biggest challenge for these nations is the lack of well-defined polices in place.

While the global economies are facing growth challenges on one hand, another bigger challenge for the BRICS economy is to have well-defined polices with certain implementation plan. Unless these countries undertake large scale reforms in their respective economies, the benefits of the development bank look just whimsical.

There are many such challenges for the success of BRICS bank to happen. And thus at this juncture it would be too early to comment on the benefits that India's infrastructure sector will get with the setting up of the NDB.

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