BRICS Bank should grant loans based on projects' commercial & economic viability to ensure credibility of institutions remains high: Dr C. Rangarajan

Additional institutions needed to meet growing infrastructure demands of developing economies

The new development bank of the group of BRICS countries has to ensure that credibility of the institution remains high, as such the assessment should be proper and commercial viability of projects should be a major criterion while giving the loans, said Dr C. Rangarajan, chairman, Madras School of Economics, former chairman of the Prime Minister Economic Advisory Council (PMEAC) and former governor of the Reserve Bank of India (RBI) at an ASSOCHAM event.

It should be a bank of projects and not a bank of policies, it should ensure that the loans granted are commercially and economically viable and that will enable the new institution to be able to raise adequate funds from the market and utilise it to for the purpose of lending to the various institutions, said Dr Rangarajan while releasing a study titled 'BRICS Development Bank - Prospects & Challenges,' conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

We should welcome the setting up of the new development bank as it would fill an important vacuum, there is the need for additional institutions to provide infrastructure finance but the new institution will be able to play its role only if it establishes its credibility in the market, added Dr Rangarajan.

Stressing upon the need for additional institutions to meet the growing infrastructure needs of developing economies, he said BRICS Development Bank will be a supplemental institution to complement the existing efforts of multilateral and regional financial institutions.

He said that though the multilateral institutions like the IBRD (International Bank for Reconstruction and Development), ADB (Asian Development Bank), World Bank, IMF (International Monetary Fund) and others have played an important role in providing assistance to India but we need lot more of such institutes.

As far as World Bank is concerned India is almost reaching the limit in terms of the total amount of credit that can be given, therefore, there are more than one reason for the need for new institutions, said Dr Rangarajan.

He further said that in another 25 years, share of present developing economies in the global economy will be equal to share of developed economies because developed economies will at best grow at two per cent whereas minimum rate at which developing economies will grow will be five per cent.

Therefore, the share in the global output will change and unless the existing institutions respond to this and change the structure to reflect the changing times then I think there will always be a cry for new institutions to come up.

He also said that the management structure of multilateral financial institutions like the IMF or the World Bank and even the regional development banks does not clearly reflect the changing structure of the global economy as BRICS nations have just 11 per cent share in voting power in IMF however, their share in global economy is almost 20 per cent and in terms of PPP (purchasing power parity) their share is 27 per cent.

Therefore there is a need for additional institutions to meet the growing infrastructure needs of the developing economies, he added.

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