Economy
New Development Bank
- 19 Aug 2021
- 6 min read
Why in News
Recently, during BRICS (Brazil, Russia, India, China and South Africa) meet, India proposed that NDB’s (New Development Bank) scope be expanded to strengthen Social Infrastructure besides promoting industry.
- Social Infrastructure includes the construction and maintenance of facilities that support social services such as healthcare, education, and housing.
- India is the chair of the BRICS grouping for 2021.
Key Points
- About:
- It is a multilateral development bank jointly founded by the BRICS countries at the 6th BRICS Summit in Fortaleza, Brazil in 2014.
- It was formed to support infrastructure and sustainable development efforts in BRICS and other underserved, emerging economies for faster development through innovation and cutting-edge technology.
- It is headquartered at Shanghai, China.
- In 2018, the NDB received observer status in the United Nations General Assembly, establishing a firm basis for active and fruitful cooperation with the UN.
- Objectives:
- Fostering development of member countries.
- Supporting economic growth.
- Promoting competitiveness and facilitating job creation.
- Building a knowledge sharing platform among developing countries.
- To fulfill its purpose, the Bank supports public or private projects through loans, guarantees, equity participation and other financial instruments.
- Major Projects funded by NDB in India:
- It has committed funding to a number of major infrastructure projects in India, including the Mumbai Metro rail, Delhi-Ghaziabad-Meerut Regional Rapid Transit System and many Renewable Energy projects.
- The NDB has so far approved 14 Indian projects for an amount of nearly USD 4.2 billion.
- In 2020, India announced a 1 billion USD loan pact with NDB to boost rural employment and infrastructure.
- Achievements:
- Innovations:
- The NDB has managed to innovate in some areas, such as lending in local currencies to protect borrowing countries from a stronger dollar, which was one of its founding features.
- Another innovation is that the bank accepts parameters for compliance with environmental and social standards designed by borrowers, respecting its members’ own policies.
- Partnership with other Development Banks:
- It has established partnerships with important development banks, such as Latin American regional development bank CAF, the China-led Asian Infrastructure Investment Bank, and the World Bank group.
- AA+ Credit rating:
- The NDB’s credit rating is AA+, one short of the maximum, which other development banks such as AIIB have. This is despite many of its members, notably Brazil and South Africa, facing tough economic times domestically.
- Emission of Various bonds:
- The bank has successfully emitted a number of bonds — including ‘green bonds’ in 2016 — and has now approved 42 projects in member countries for a total of over USD 12 billion, more than the AIIB's roughly USD 8 billion portfolio.
- Innovations:
- Issues:
- Less disbursal of Loans:
- Though the bank has approved over USD 12 billion in loans, it has disbursed less than USD 1 billion so far, that is a very low figure.
- Political Turmoil:
- Relations between China and India soured, sanctions against Russia made it difficult to lend to Russian companies, and then there was political instability and economic crises in both South Africa and Brazil.
- Continuing to advance the interests of the developing world in a rough political climate proved to be a hard task at which member countries don’t seem to have excelled.
- Issue of Sustainability:
- Though the NDB has recently approved loans for climate change mitigation and adaptation in Brazil and renewable energy in India, it has labelled a number of projects that are environmentally questionable as sustainable, without explaining the criteria it uses.
- One of its sustainable projects is the paving of the Trans-Amazonian highway in Brazil, a highly controversial road that many environmentalists blame for exacerbating deforestation in the world’s largest tropical rainforest.
- Though the NDB has recently approved loans for climate change mitigation and adaptation in Brazil and renewable energy in India, it has labelled a number of projects that are environmentally questionable as sustainable, without explaining the criteria it uses.
- Less disbursal of Loans:
Way Forward
- In the immediate future, there should be an emphasis on building healthcare capacities and national health preparedness for its member nations and other vulnerable countries, with special support towards containment of the spread of Covid-19 and assistance for social and economic recoveries in terms of incomes and jobs.
- From a medium-term perspective, investments for reinforcing urban resilience in mega-cities and densely populated agglomerations for mitigation of adverse impacts of air pollution and adaptation to climate change needs to be the focus.
- In keeping with its current emphasis, a medium to longer-run priority should be on lending support for renewable energy technologies (solar, wind and biomass) to help improve their dissemination in the overall energy mix of the member nations of BRICS and elsewhere. In all of these endeavours, the Bank could attempt to devise mechanisms to elicit public-private partnerships for long-run financial sustainability.
