India becomes seventh largest shareholder in World Bank.

India becomes seventh largest shareholder in World Bank.

India will have a larger say in the affairs of the World Bank as it has become the seventh largest shareholder in the multilateral lender with 2.91% voting rights. India has become the seventh largest shareholder in the World Bank after the Washington-based financial aid institution raised the voting share of the South Asian economic powerhouse.

China has overtaken Germany, France and the UK to become the third largest shareholder in the Bank with 4.42% voting rights. Both India and China hitherto enjoyed an identical 2.77% voting rights.

India’s shareholding in the Bank had been declining since 1970s and the trend has been reversed for the first time in a generation.

The changes announced Sunday bring about a 3.13 percentage-point shift in favour of the developing countries giving them just over 47.19 percent of the total votes, while advanced economies' share of the total falls to just under 52.81 percent.

The development committee of the World Bank, which met on 25th April in Washington, decided to increase the financial capacity of the Bank and the role of developing countries in its governance.


There is an overall shift of 3% voting share in favour of developing countries, bringing their total vote share to 47%. The change will give emerging nations more say in how the bank is run and how its funds are disbursed.

Membership of the financial institution gives certain voting rights, which are the same for all countries. But additional votes are granted depending on a country’s financial contribution to the organization.

The development committee agreed to raise the capital base of the Bank through a general capital Increase. This increase is taking place after a gap of over 30 years. There is agreement to raise the authorized capital of the Bank by $58 billion with a paid-in portion at 6% amounting to $3.5 billion.

The Bank is restricted by its Articles to restrict its total outstanding loan commitments to its total authorized capital. As a result of the increase in demand for Bank assistance, it was likely that the Bank would have reached its statutory lending limit. This would have constrained the Bank’s lending capacity and there would have been a decline in Bank assistance to countries.

The increase in its capital base, along with the capital that would flow in as a result of the realignment in shareholding, would allow the Bank to lend an additional $86 billion.

As one of the largest borrowers of the Bank, India would be able to secure additional assistance from the Bank. The enhanced lending capacity would enable India to receive additional assistance to the extent of $7-10 billion.

Member nations also agreed to raise more funds for global aid at the annual spring meeting of the World Bank and the International Monetary Fund (IMF).

The increase in shareholding of developing countries fulfils the development committee’s commitment in Istanbul in October 2009 to generate an increase of at least 3 percentage points in the voting power of developing and transition countries. The governments also approved over $90 billion in extra money for the Bank’s various arms that provide aid and capital to member countries.



Source: Economictimes, sifyfinance.

Thanks,
Nimesh.