November 23, 2017
Following an approval of the Union Cabinet, led by PM Modi, the Indian Government will apply for a membership at the development investment bank
An EBRD membership will improve India’s international associations and further help the Indian private sector to access additional business opportunities
While it’s not known how much India will invest in an EBRD membership, the minimum contribution required for a membership is 100 shares, or €1 million
EBRD has steadily expanded its operations to non-European states such as Mongolia, Egypt, Turkey and Lebanon taking the total membership to 66 shareholders
The Cabinet of Indian Union Ministers, chaired by Prime Minister Shri Narendra Modi, on November 23rd approved a plan to join the European Bank for Reconstruction and Development (EBRD). Following this, the Department of Economic Affairs under the Ministry of Finance will initiate the necessary steps to acquire the EBRD membership. With the support for EBRD membership, India has further augmented its reputation as an active member of the global community and as a supporter of global, multilateral institutional networks.
With this membership, India is probably the only country outside the developed world to have acquired a membership in most of the world’s leading multilateral financial institutions and institutes of global governance. While there is still no clarity on the amount India will invest in EBRD towards acquiring the membership, the minimum contribution required for obtaining the membership is 100 shares, or 1 million. While the Cabinet approval is in-principle clearance for joining the institution, the financial commitment is yet to be decided.
The membership, apart from enhancing India’s international profile and improving its geo-economic interests, will allow access to EBRD’s other member countries and its in-house sectoral knowledge, especially on green energy technologies. The membership will also allow India to expand its areas of cooperation with EBRD for co-financing projects in areas of information technology, energy, manufacturing and services.
EBRD was set up in the aftermath of the post-Cold War reorganisation of states in Eastern Europe. The objective was to introduce economic reforms and help members adjust to market-based economic principles, which included promotion of private and entrepreneurial initiatives. The transition to an open economy required EBRD to be involved in banking sector reforms, freeing of administered pricing mechanisms, initiating the privatisation process and assisting with the creation of a legal framework for property rights.
Over the years, EBRD has expanded the geography of its operations to non-European countries like Mongolia, Egypt, Turkey, Jordan, Tunisia, Morocco and Lebanon. Founded in 1991, the institution currently has 66 countries as shareholders from five continents besides the the European Union and the European Investment Bank. The organisation invested€9.4 billion in 2016.
Given EBRD’s focus on private sector, India’s membership is expected to result in private sector players gaining access to the institution’s technical expertise and sectoral knowledge, as well as opportunities in other member countries. The subsequent improvement in competitive strength will provide the Indian private sector with improved procurement prospects and consultancy breaks. Consequently, the membership will assist in augmenting India’s investment climate. Specifically, it would also help a wide range of Indian companies become eligible for investment from potential joint venture partners elsewhere in the world.
India’s membership of EBRD—under which the country will provide, rather than receive, financing–signals the country’s growing economic heft and expanding international influence. Apart from EBRD, India is a shareholder in many other multilateral financial institutions: the World Bank Group, Asian Development Bank, International Monetary Fund, International Fund for Agricultural Development, Global Environment Facility, African Development Bank Group, New Development Bank (popularly known as BRICS Bank) and the Asian Infrastructure and Investment Bank (AIIB).
These memberships help consolidate India’s presence in the development finance landscape. For example, India was one of the early members of AfDB, given the country’s historical trade, maritime, social and cultural ties with the continent. A measure of India’s position in the multilateral institution was evident when AfDB decided to hold its 2017 annual meeting in Ahmedabad, Gujarat. The meetings resulted in a string of agreements, including 13 African countries deciding to source agricultural machinery from India.
India’s and the other BRICS members have an equal shareholding in NDB. India is also the second-largest shareholder in AIIB, after China. Both these institutions plan to finance development initiatives in emerging economies through an alternative and sustainable model that is different from the one adopted by the western institutions, like the World Bank Group.