Efforts to enhance energy and connectivity ties dominated the agenda of PM Narendra Modi’s meeting Thursday with his visiting Nepal counterpart PK Dahal Prachanda that saw the two countries sign seven agreements and launch six projects, including inauguration of new railway services. Among the highlights of the summit meeting was a revised transit agreement that will allow Nepal access to India’s inland waterways for the first time. India also acceded to Nepal’s proposal to export power to Bangladesh through Indian territory, while announcing it will ramp up its own power import from Nepal to 10,000 MW in the next 10 years. Nepal currently exports 450 MW to India.
The agreement and projects encompass areas like rail connectivity, power, petroleum pipeline and cross-border financial payments. The PM also said that he and Prachanda agreed projects related to Ramayana circuit should be expedited to strengthen religious and cultural links between the two countries. Prachanda sought non-reciprocal market access to India with more flexible and easy quarantine procedures for Nepal’s agricultural products and simplified Rules of Origin for other products.
Nepal PM Prachanda’s visit to India is important. This is his first foreign visit since he took Nepal’s top job December. Prachanda had made Beijing his first port of call after becoming PM for the first time in 2008. Between then and now, the India-China-Nepal equation has changed radically. On the economic front, India must expedite all pending projects in Nepal and stick to a needs-based development model.
Economic Security-
The US debt ceiling deal spares the world of a shock
Following the passage of a bill by the US House of Representatives, the debt ceiling of the American government has been suspended, averting a disruption in global financial markets. This allows the US to continue borrowing beyond June 5, when its cash balance was projected to run out. However, there are still procedural steps to be completed for the bill to take effect, including clearance by the US Senate and the president's signature.
The implications of the debt ceiling negotiations extend beyond the United States and impact countries like India, given the significance of the US debt market and currency in the global financial system. The majority of the world's foreign reserves, approximately 58%, are held in US dollars, followed by the Euro with a share of around 20%. These reserves are invested in US securities, some of which serve as benchmarks for safe assets. The potential default on interest payments poses an unknown risk, considering the significant investments made by other nations in US debt instruments.
Uncertainty in financial markets typically leads to increased interest rates, negatively impacting economic activity. Currently, there are no viable alternatives to the US, as China, the world's second-largest economy, lacks sufficient trust. In the absence of alternatives, it becomes necessary for India to adapt to the United States economic crisis.
India needs to diversify its Soft Loans For Faster Growth
The New Development Bank(NDB), established by BRICS member states to finance infrastructure and sustainable development projects, already has three non-member states: Bangladesh, the United Arab Emirates, and Egypt.
As far as India’s Line of Credit (LOC) projects are concerned, the country borrows from international financial agencies and subsidises the interest component while advancing the loan to recipients. India will have to explore the possibility of linking all such LOC projects, project exports and even private sector projects to NDB funding. The NDB’s estimated exposure in China’s BRI projects is to the tune of $1.261 billion.
Again, approximately one third of the Asian Infrastructure Investment Bank (AIIB) loans are funding China’s BRI projects as AIIB was specifically established to support the BRI. Incidentally, though India is not part of any of the BRI projects, it supports the AIIB. China owns 30 percent of voting shares and veto powers, which has approved 147 projects in India totalling $28.9 billion. This includes $3 billion currency swaps, loan deferments and line of credit to Colombo, and $15.8 million grant to Maldives for the construction of radar systems. India’s share of financial assistance and alternative projects to immediate and distant neighbours will increase substantially if we are able to find low interest finance partners.
While India should strategise to increase its infrastructure development projects in the neighbourhood, it should utilise the NDB route for funding and gradually delink its own projects from AIIB. Also, unlike in the case of AIIB, it is important to keep any one country from holding major shareholding in NDB and possess veto power.
Although the share of G7 in global GDP on PPP base was far greater compared to that of the BRICS countries, post-pandemic, the BRICS seems to have made a jump. While the share of GDP of G7 nations based on PPP reduced from 50.42% of the world’s GDP in 1982 to 30.39% in 2022, the share of GDP of BRICS nations increased from 10.66% in 1982 to 31.59% in 2022.
The share of India’s GDP in world’s GDP increased from 2.98% in 1982 to 7.21% in 2022.
As one of the fastest growing economies not only among the BRICS countries but also among G20 nations, India has a substantial role to play and manage its economy more seriously and responsibly. India has a pivotal role to play in this regional group which, like South South Cooperation, may surpass regional boundaries and emerge as a global financial agency with greater geopolitical clout.
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