The BRICS Bank, as agreed upon by Prime Minister Narendra Modi and his four colleagues in Brazil, is less of a disaster than it could have been. But it is still very unlikely to do any good - and more than likely to do very bad things indeed.
First, the 'good' news. Normally, I am not particularly impressed by symbolic gestures such as where a bank's headquarters are located. Still, given that it feels like the central point of the BRICS bank is to be a symbolic gesture about the inequities of the current global economic order, one shouldn't ignore the symbolism altogether. India has conceded that Shanghai will be where the bank is located, although most reports say that it was an open question at the beginning of the summit.
It is a pity the government gave in on this. (It did so while blaming its predecessor, a pretty shameful evasion of the truth.) Still, the government did at least manage to ensure that the first president of the bank will be Indian. Had this been a permanent concession - the way the head of the World Bank is always American - it might have been able to balance the problem of location. But it isn't.
Unquestionably good news, however, is that the bank will raise equal amounts of capital from all five BRICS members, and give them equal votes. There was concern earlier, including from the Business Standard editorially, about the dominance of the Chinese over the bank if there were unequal capital contributions and voting followed the same pattern. It is entirely to Mr Modi's credit that India has managed to ensure this open Chinese control hasn't happened.
Chinese influence will still be great - they will have the location; they already run a giant development bank, so they have the know-how; and if they end up subsidising the cost of entry for Brazil and South Africa, as was earlier suggested, then they will have informal control.
Sadly, however, the Bank remains a terrible idea otherwise - both economically and strategically.
Economically, just look at the cost. It will cost a cash-strapped government $10 billion. This is not small. It is the entire (and ambitious) disinvestment target for 2014-15, for example. Even if we're talking a multi-year target, it is still the amount that would come in if the government took its stake in every public-sector bank down to 75 per cent. It is the price of the Rafale fighter the Indian Air Force wants. It is the amount Railway Minister Sadanand Gowda wants for a bullet train between Mumbai and Ahmedabad. It is more than six - yes six - times the amount the government spent on its main health scheme last year.
India is not flush with funds. Some of the projects I just mentioned - dear to those of varying political persuasions - may have to be cut for want of funding. But, across the spectrum, people will agree that each one of those projects is more important than paying for a bank that might well lend largely outside India.
So, India will put in a lot of money - with very little reason to assume it will come back to India. A bad deal. For financing infrastructure within India, there are no short-cuts: you have to fix governance and regulatory issues, and create a bond market.
Strategically, this is a colossal blunder. It seems few have asked themselves: what, precisely, does China want this so much? Remember, it already has a China Development Bank. Why not just up its capital by $10 billion?
The answer is two-fold. First, there's Jim O'Neill's theory, that the BRICS Bank is a 'low-risk rehearsal' for the global leadership role at the IMF, the World Bank and the UN that China expects to shortly play. The second is more worrying: that China intends to leverage its influence over the bank - born of the advantages of location and size - to use the financing to serve Chinese interests in Africa, for example. As this newspaper argued last year: 'Indian taxpayers will wind up seeing their taxes serve the national interests of China, not of India. China's footprint in Africa has seen ample use of financing by Beijing of local infrastructure in ways set up to benefit Chinese companies.'
The editorial went on to point out that 'nor will such lending have the necessary squeamishness that the Bretton Woods institutions have now developed about riding roughshod over local objections to infrastructure projects.' This is crucial. It is crucial because India's sole advantage over China in Africa remains the belief among many that China is in it only for the resources and to enrich a local oligarchy, with no concern for grassroots objections. Through the BRICS Bank, Beijing can continue to act as the China Development Bank did - while partially disguising China's intentions by using the good opinions which India and South Africa are held in sub-Saharan Africa.
In other words, there's little going for the BRICS Bank other than the little whiny post-colonial voice that still lives within all of us, the one which readily insists that anything that the US and the West have power in is worse for India than something the Chinese run. The problem is that setting up the BRICS Bank merely reduces the power of any argument we would want to make about substantial reform to the IMF and the World Bank.
And, in any case, what that internal whiny voice counsels is stupid - and, in the long run, suicidal. Remember how China blocks the Asian Development Bank from funding projects in our Northeast? As Devesh Kapur observed: 'Until the new millennium, control of the key IFIs where India had primary interests was clear: the Japanese controlled the ADB, the US the World Bank, and its strategic relationship with the US and Japan in particular. Now their control of these institutions appears to be less detrimental to India's interests - especially since the only plausible replacement, China, appears even less likely to act in India's interests.' The Modi government has reversed this strategic movement towards engaging with existing multilateralism.
So why do the BRICS Bank anyway? Disregard basic claims that it will drive money to projects. As this newspaper pointed out when the idea was first floated in the New Delhi summit some years ago: 'With huge underutilised funds lying with existing multilateral financial institutions, the problem faced by projects in developing or BRICS countries is not availability of funds.' So the need for it is overstated. At best, therefore, we can hope to just lose a few billion dollars. At worst, India has been conned by China into giving Shanghai $10 billion - to start off with - to pursue Chinese interests in the developing world.