India plans to set up South Asian bank for Funding infrastructure, trade .

NEW DELHI: India is considering the establishment of a South Asian development bank that will fund infrastructure projects and promote trade in the region.

An official of the commerce department said it has written to the finance ministry in support of such a lender, which it sees playing a critical role in facilitating trade within the eight-member South Asian Association for Regional Cooperation (SAARC).

"The final call lies with the ministry of finance and partner countries," said the official. Saarc comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Sri Lanka, Pakistan and Nepal.

The countries are signatories to the South Asian Free Trade Area (Safta) agreement on goods came that into force on January 1, 2006. This required the developing countries -- India, Pakistan and Sri Lanka -- to lower customs duties down to 20% in the first phase of the two-year period ending in 2007 and to zero by 2016 in phases.The Saarc countries are negotiating to address non-tariff barriers and implement trade-facilitation measures that include the easing of customs procedures.

"Most of the non-tariff barriers are an infrastructure deficiency which needs money. So the trade facilitation is actually a question of finding money. That is what the South Asia Development Bank will facilitate," said the official cited above.The commerce department has suggested that the bank could be set up with whatever the partner countries agree to put in as equity.

"We can start small, but do it fast. The amount doesn't matter, but just start it," the official said. Once the Saarc countries put in their equity, something along the lines of additional non-preferential voting rights can be put in place for those who would like to contribute to the effort, including multilateral agencies such as the Asian Development Bank and the World Bank.

"Once you build that corpus for equity then you can leverage that equity for debt in the international markets," said the official. India's exports to the South Asian region grew 13% in 2012-13 even as its overall exports dipped 1.82%. Inbound shipments from the region rose 6% last fiscal.

There could be two routes towards a South Asian Development Bank or SADB. One

involves the SAARC development fund being converted into such an institution. The other option is to use it for funding the social sector while the bank would finance infrastructure projects. "Both the routes are open to be thought about. That is the path to go about in the future," said the official.

The SAARC Development Fund (SDF) was incorporated with a paid up capital of $300 million to provide financial assistance for social sector, infrastructure and other projects.

India's contribution to the fund was $189 million. A high-level panel headed by Prime Minister Manmohan Singh had in November asked the commerce department to conclude the next round of negotiations on Safta at the earliest even as it sought an impact analysis of India's free trade agreements on all sectors.

In 2012, India had reduced its sensitive list from 868 to 614 products on which tariff concessions won't apply. But it gave duty-free, quota-free access to all items barring just 25 products to least developed countries.

Prime Minister Manmohan Singh said last month that arrangements were in place for a BRICS Development Bank, PTI reported.

Source : economictimes.indiatimes.com