At BRICS, India must bank on the New Development Bank 

Why in News?

India should prioritise the New Development Bank (NDB) within BRICS to advance development cooperation despite geopolitical differences. Expanding its capital, membership and local-currency financing could deliver tangible benefits while preserving India’s strategic autonomy. 

What is the New Development Bank?

• Nature: A multilateral development bank established by Brazil, Russia, India, China and South Africa.
• Origin: Agreement signed at the Fortaleza BRICS Summit in 2014; the Bank became operational in 2015.
• Headquarters: Shanghai, China.
• Mandate: Finance infrastructure and sustainable development in BRICS and other emerging-market and developing economies.
• Initial capital: $100 billion authorised capital; $50 billion initially subscribed, comprising $10 billion paid-in and $40 billion callable capital.
• Governance: Founders initially subscribed equally; voting power is linked to subscribed shares. Their collective voting power cannot fall below 55%. 

Membership is not restricted to BRICS. The official list currently includes ten members: the five founders plus Bangladesh, UAE, Egypt, Algeria and Uzbekistan.

Why should India prioritise the NDB?

• Cooperation despite geopolitical divergence: Infrastructure financing offers common ground when BRICS members disagree on relations with the West and the dollar’s international role.
• Tangible benefits for India: NDB approved $9.53 billion across 32 Indian projects by 2025, including support for metro systems and the Delhi-Ghaziabad-Meerut RRTS corridor. 
• Greater development-finance choice: It supplements existing multilateral lenders and gives emerging economies a larger role in setting financing priorities.
• Climate and infrastructure investment: Its 2022-26 strategy targets 40% of financing for climate-related projects, alongside transport, clean energy, water and urban infrastructure. 

Associated Constraints:   

• Limited scale: NDB’s portfolio comprises 139 projects and approximately $43 billion is approved for financing, which is modest relative to developing countries’ infrastructure needs. However, there exists a substantial gap between approvals and disbursements. 
• Capital constraints: Higher paid-in capital could support greater lending, but founders have unequal fiscal capacity and competing domestic priorities.
• Geopolitical exposure: NDB placed new transactions in Russia on hold in 2022, demonstrating the constraints imposed by sanctions-related risks and international funding requirements. 
• Funding concentration: Heavy reliance on dollar funding and renminbi-based local-currency operations limits diversification.
• Execution challenges: Faster lending requires stronger project preparation, procurement and implementation, not merely larger announcements.

Why does local-currency financing matter?

• NDB’s 2022-26 strategy targets 30% of total financing commitments in member countries’ local currencies. 
• Example: A metro project earns fares in rupees. A dollar loan becomes costlier to service when the rupee depreciates; a rupee loan reduces this currency mismatch.
• Local-currency lending can therefore:
  • Reduce borrowers’ foreign-exchange exposure and hedging needs.
  • Develop domestic bond markets.
  • Diversify funding sources without requiring a common BRICS currency.

However, it does not automatically ensure cheaper credit: domestic interest rates, market liquidity and funding costs remain important.

India’s priorities: 

In 2026, NDB outlined a proposed ₹25,000-crore rupee bond programme over five years to support local-currency infrastructure financing. 

India should pursue:

• Rupee bond issuance: Establish regular, competitively priced borrowing to finance projects with rupee revenues.
• Balanced expansion: Bring in additional creditworthy shareholders while maintaining sound governance.
• Faster disbursement: Strengthen project preparation and monitor implementation milestones.
• Currency diversification: Expand rupee and other member-currency operations alongside renminbi financing.
• Co-financing: Work with other development banks and private investors to increase capacity while preserving environmental and social safeguards.

For India, the NDB offers a practical way to make BRICS relevant through infrastructure and sustainable development. Its success should be measured by projects delivered and financial resilience, while protecting the Bank from geopolitical polarisation.

UPSC PYQ 2016

Q. Consider the following statements:

1. The New Development Bank has been set up by APEC.

2. The headquarters of the New Development Bank is in Shanghai.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (b)