Union cabinet approves setting up of BRICS bank

New York: The Union cabinet on Wednesday approved the establishment of the $100 billion New Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS “contingent reserve arrangement” (CRA) on a day the Russian Duma also ratified the proposals.

In line with the government’s focus on clean energy, the cabinet also approved the setting up of 15,000 megawatts (MW) of grid-connected solar photovoltaic power projects under the National Solar Mission through NTPC Vidyut Vyapar Nigam Ltd.

At the sixth BRICS summit in Fortaleza, Brazil, in July last year, the leaders of Brazil, Russia, India, China and South Africa agreed to mobilize resources for infrastructure and sustainable development projects in their countries and other emerging economies through the NDB.

According to the original proposal, each country will have equal shareholding in NDB with an individual contribution of $10 billion. While the bank will be based in Shanghai, India will be entitled to hold the first presidency of the institution.

The NDB’s creation has been seen as the first formal challenge to existing multilateral institutions such as the World Bank and the IMF.

Developing economies have been unhappy with the progress of reforms at the multilateral institutions. IMF has so far been unable to implement the 2010 agreement for governance and quota reform at the Fund which was scheduled to be completed by the 2012 annual meetings because it has not been ratified by the US.

India has often voiced concern over the depleting financial resources of the World Bank.

The establishment of the NDB will help India and other signatory countries to raise and avail of resources for their infrastructure and sustainable development projects. The CRA will provide short-term liquidity support to the members through currency swaps in any balance of payments crises.

“The BRICS CRA will help India and other signatory countries to forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability,” the cabinet statement added.

Central banks of member countries will have to finalize an Inter-Central Bank Agreement containing the operational details of swap transactions before the pact can be operational.

The setting up of the 15,000MW of solar power projects will be done in three lots—3,000MW bundled with unallocated thermal power and “fixed, levellized tariffs”, 5,000MW with some support from government and the balance 7,000MW without any financial aid from government.

Land already identified in Andhra Pradesh will be used for setting up 1,000MW capacity out of the 3,000MW under the bundling scheme. The balance 2,000MW capacity will be allotted to other interested states.

“It is estimated that implementation of tranche-l of the scheme will entail a total investment of over Rs.18,000 crore, all of which will be met by project developers, mainly private,” the cabinet said.

It said a working capital fund “with an estimated corpus of Rs.2,300 crore to cover three months payment for bundled capacity of 3,000MW of solar capacity will be set up to ensure bankability of PPAs (power purchase agreements) and timely payment to developers”.

The cabinet also approved the creation of two additional benches of the Authority for Advance Rulings (Income Tax), in a move that will reduce long drawn litigations and provide foreign investors certainty in tax dealings. The two benches, in New Delhi and Mumbai, will also enable resident tax payers to seek advance rulings.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.