If the annual BRICS summit meeting, which just ended in Fortaleza, Brazil, assumed an unprecedented level of interest in India, three reasons could be attributed to it.
First and foremost, India has a new government which took office in late May. The new Prime Minister, Narendra Modi is not exactly a stranger to international diplomacy and foreign policy, but during the election campaign for the 2014 parliamentary poll, he almost exclusively focused on domestic issues, and other than making a few stray remarks of an impromptu nature by way of grandstanding at a highly competitive moment in India’s electoral politics regarding India’s relations with China and Pakistan, he didn’t give any clue to his mind on the profound issues affecting the country’s foreign policy at the present juncture fraught with fluidity in the international system and the world order.
Unsurprisingly, there was expectation that Modi would use the BRICS summit to articulate on the problems of peace and international security and plant some signposts as to the course his government will navigate on the diplomatic front through the coming 5-year period. After all, the BRICS, whose genesis lay in the developmental aspirations of the emerging countries, has lately waded into the torrential streams of regional and international politics and voiced opinions on issues such as terrorism, Afghanistan, Syria, Iran nuclear problem and so on.
Indeed, Modi himself raised high expectations in this regard, as in his departure statement he conveyed an impression that he saw the BRICS summit as «an opportunity to discuss… how we can contribute to international efforts to address regional crises, address security threats and restore a climate of peace and stability in the world».
However, in the event, Modi’s address at the BRICS summit turned out to be probably one of the most ‘apolitical’ presentations and it steered clear of any substantive content as regards the prevailing highly complicated international situation. Modi trained his mind all but entirely on the BRICS processes in terms of promoting economic and social development. Of course, the Indian prime minister made a few concrete suggestions in the speech but they too were unrelated to politics and dealt with such interesting ideas as the establishment of a BRICS Young Scientists’ Forum, of Massive Open Online Courses, and a BRICS University.
Therefore, an impression becomes unavoidable that Delhi wishes to view the BRICS processes in non-political terms. How is it to be explained? One reason could be that the ‘unipolar predicament’ of the Indian elites, which is a legacy of the post-Cold War Indian mindset, and the Washington Consensus, which the previous government adhered to, still linger on, although they have become archaic in the rapidly evolving multipolar world order and the world is moving on.
Indeed, Modi is scheduled to visit Washington in late September at the invitation of President Barack Obama and all indications are that an upswing in the US-Indian ties is on cards. In fact, the US Defence Secretary Chuck Hagel is coming to India next week, signaling a renewed thrust by the Obama administration in the field of military cooperation with India. At such a juncture of balancing acts, it is probably unsurprising if the policymakers in the new government estimated that nothing should be said or done that may even remotely hold the danger of causing discomfort to Washington.
Even if Modi is highly unlikely to be someone entrapped in a morbid fear complex, his advisors might have decided to protect him nonetheless and calculated that the safest course would be to keep the head beneath the parapet at Fortaleza instead of tilting at the citadels of Western capitalism from the trenches of the BRICS. In a marked departure from past practice, the prime minister’s entourage didn’t include any journalists other than the official media agencies.
A second point of interest devolved upon the fact that the Fortaleza summit signified that the BRICS, finally, is taking wings. The New Development Bank, which will begin with capitalization of $50 billion, and the BRICS Contingent Reserve Arrangement, which will begin with $100 billion funding, have become a reality and there can be no two opinions that the foundations of a new global financial architecture are being laid.
The idea of creating the BRICS bank came about as recently as 2013 against the backdrop of the disquieting signs that investors might be pulling money away from emerging economies, hurting their currencies, amidst the expectations that the United States would scale back its economic stimulus program. The bank will be able to start lending in 2016. Apart from the BRICS countries, other UN members may also participate in the bank’s development, but their total share will not exceed 45 percent.
Even though the BRICS bank at its inception may seem a small rival to the World Bank (which has capital of $223 billion) or the IMF, it could easily get major new funding from China and Russia and could go on to rival the World Bank in a near future already. But the crucial difference here will be that while the World Bank is getting printed money from the US, the BRICS bank will be getting real capital savings!
Again, an exciting possibility arises – for Beijing, in particular – whereby future US trade deficits do not necessarily get rolled back into US treasuries, but can be put into the BRICS bank, which means deploying Chinese financial power on a global scale. Thus, the BRICS bank becomes a telling evidence of the shift that is under way in the global economy towards the developing world.
The contingent fund, on the other hand, has been dubbed as a ‘mini IMF’ and is designed to serve as an emergency coffer for BRICS if a member suffers from capital flight or the risk of currency depreciation. Currency swap operations within the fund could be used as a precautionary measure or as an aid to deal with an economic crisis post factum.
To quote Russia’s Finance Minister Anton Siluanov, «We [BRICS countries] have reached an agreement that in the current conditions of capital volatility, it is important for our countries to have this buffer, a so-called ‘mini IMF’ – a financial organization which could react quickly to capital outflow, providing liquidity in hard currency, in particular in US dollars». Here again, it is a moot point whether the New Development Bank and the CRA mirror the World Bank and the IMF but the perception even in the West is that there is an implicit challenge shaping up to the US posed by the BRICS’ desire to shift away from the dollar – although none of the member states openly articulates the challenge.
Eswar Prasad, a senior fellow at the Brookings Institution and a professor at Cornell University, has been quoted by the China Daily newspaper as saying that the BRICS bank would be an important symbol of the rising stature of the major emerging market economies, which now have the clout and resources to play a significant role in international finance. Prasad said, «By combining their sources to invest in their own developmental needs, the BRICS are also hoping to initiate a challenge to existing global monetary arrangements and signal their frustrations with the lack of progress on reforming the governance of international financial institutions… This substantive action would be a key step that turns statements and rhetoric about cooperation among these countries into reality».
In the normal course, the US is a member of, and a major donor to, each major multilateral development bank in the world. The BRICS bank is going to be a glaring exception in this respect. Quintessentially, it is an anti-dollar alliance that aims at weaning the world community off overreliance on the dollars – the phenomenon known as ‘overdollaring’, which means, for example, the prevalent process of making the US dollar operate in international trade in oil or other commodities via instruments such as the Export-Import Bank, global bank settlements, etc. China is already the prime mover on this front and by 2015 roughly 30% of China’s cross-border trade will be settled in the renminbi.
Where does India figure in the new paradigm? The previous government led by Manmohan Singh might have done a favor to the Modi government by already settling the issue of the location of the development bank in Shanghai, and left it to the foreign policy bureaucracy to somehow manage to keep the decision under wraps.
The detractors of the BRICS within India, mostly drawn from the pro-American lobby, were caught by surprise when it came to be known that the BRICS bank is a closed issue and that it was too late to raise dust over its location, etc. These lobbyists would have hoped that the right-wing Modi government took a stridently anti-China stance and staked claim to headquarter the bank in Delhi, but nothing of the sort happened. In reality, though, India scored a big gain by getting China to accept the principle that unlike in the Western-dominated financial institutions, the members will have equal voting rights.
All in all, it is possible to say that the Modi government decided to inherit the BRICS brief from the Manmohan Singh government and has not felt the need to tamper with it – at least, not yet. This becomes yet another template of the continuity that can be expected in the Indian foreign policies under the leadership of Modi.