Did India Make The Right Decision by Joining the Asian Infrastructure Investment Bank (AIIB)?

To answer this question, let us do a thought experiment. Let’s imagine we are in 2015 when India had not officially joined the AIIB.

Lack of amenities in urban spaces, poor regional and intra-regional connectivity and negligible infrastructure growth have been some of the prominent challenges faced by the Asian countries, including India. The AIIB is portrayed as an ‘Asian tool’ to solve the mentioned problems which have played an active role in curbing the growth of Asian countries. The AIIB led by China aims at remaking of the global economic order, which has been largely controlled by the US, which further controls the World Bank. If the AIIB were to be a success, it could perhaps power the infrastructure development and stagnant economies of various Asian countries.

However, the larger question concerning India with this Chinese initiative is largely concerned with its geopolitical relations with China, who has been taking great leaps in becoming a global leader and with the opposing US who has been controlling the World Bank. Furthermore, the central concern in becoming a major investor in the AIIB for India lies in the question that if it gets to share the same platform as China does in the global order.

Here are the questions we would have to consider for our thought experiment-

1.       Do the US-led World Bank and Japan-led Asian Development Bank (ADB) have enough financial resources to lend for India’s development needs?

One of the central reasons for the creation of the AIIB has been, as the Chinese government claimed to the President of the World Bank, Jim Yong Kim, the lack of money with Asia for the development of infrastructure investment. In fact, statistics does hold the statement right with neither the Asian Development Bank nor the World Bank being in a position to cater the rising needs of infrastructure investment in Asia. According to the ADB, by the year 2020, Asian countries would require an investment of 8 Trillion US dollars, which cannot be aided by either the ADB or the World Bank. 

Furthermore, the western influence on both the World Bank and ADB has been significant, with the president of the World Bank being chosen by the American President and the ADB being in the grips of Japan and the US. AIIB on the same hand will relieve the Asian sector of infrastructure investment from the hands of western interests, whereby the focus and influence will directly be at the hands of participating Asian countries.

With a high expectation of investment among the Eurasian countries in the AIIB, India can definitely fulfill its needs towards infrastructure investment by joining AIIB, which both ADB and World Bank fail to fulfill.

2.       Would India staying away from this bank help increase Chinese influence globally, especially in South East Asia?

One of the major differences which China has through AIIB compared with other international institutions of finance is the domination that it creates in the global economy. Currently, the World Bank is being dominated by the US and the ADB by the Japanese. Furthermore, the AIIB with China at its apex, would curb the power that the US wields over the global economy. Moreover, with several European countries expressing a desire to join the AIIB further indicates to the reliability and responsibility of China as a collaborator, with a belief in China to dominate the world economy soon.

India on the same hand, being a member of the World Bank and the ADB has a lot to lose in terms of not joining the AIIB.

3.       Given the World Bank’s policy to not fund development projects using coal (citing ecological reasons, though hypocritically, for the World Bank is still heavily funding fossil fuel projects abroad that directly benefit the U.S industry), would joining the Asian Infrastructure Investment Bank make sense?

One of the aims for establishing the AIIB has been to challenge the set notions of the Bretton Woods Institutions, if not supplant it altogether. In the case of India, this would indicate to significant improvement on the energy choices, such as coal, which has been constrained by the rules of the World Bank, which are led by Western interests.

In 2013, the Obama administration took a decision to place restrictions on financing electricity generations with coal abroad. Climate change was the primary reason stated by the US which spurred this action. The World Bank soon followed this development and altered their policy in compliance with the US and further claimed to help only in dire circumstances. The hypocrisy of the argument concerning climate change could be easily debunked, as it is a fact that the US government along with the World Bank has been heavily funding fossil fuel projects in countries that benefit the US.

This policy shift definitely poses a problem for India which has high percentages of coal reserves while ranking 5th in the world. The sudden policy shift would indicate a slowing down of development and manufacturing within India. It is here that AIIB could play a big role as it would receive finance for development based on coal power, which the World Bank no longer supports. The Indian government does intend to work on its renewable energy resources. However, for India, a dependence and increase of coal power cannot be neglected with an aim for an increase in manufacturing and development.

If, on one hand, the ADB has expressed its failure to meet the rising demands of infrastructure investment in Asia, the World Bank has been in the control of the US, which now expresses a desire to stop funding development projects using coal. If India were to not join the AIIB, China has nothing to lose and everything to gain with a foreseeable future of dominance. Adding to that is India’s Look East Policy which would gain a lot if it was to join China in the AIIB in terms of cultivating both strategic and economic relations with the Southeast Asian countries.

4. Will China enjoy a veto power concerning the affairs of the bank, which may be detrimental to Indian interests?

The United States, in particular, pointed to the power that China will wield as the highest investor in the AIIB, especially with the decision to veto resting with them. However, Liu Xiaoxuem, a researcher with the Department of International Economics of the Chinese Academy of Social Sciences, pointed to the hypocrisy that the US displays in the concern with China having a veto. He explains that in order to make a decision, three-quarter support from the members is required, which is not practiced by the UN or the IMF, of which the US enjoys the power.

Furthermore, the Director of Institute of International Strategic Studies, Ye Hailin points that if China wanted to wield the veto power and exercise at its own will, it would not have decided to form the AIIB in the first place.

Adding to that is China reducing its share percentage from 50 to 20 and giving up its controversial (as portrayed by the US) veto power, which further emphasizes the fact that joining AIIB will not be detrimental to the Indian interests.

5. Since India is the second largest investor in the bank, would that give India a great deal of leverage when it comes to the bank?

The two major advantages of India being the second largest investor in the AIIB is the outsize say India will have in the voting of the bank and the priority that will be given to the country in terms of infrastructure development. It can be said without a doubt that the Chinese led AIIB will certainly alter the global economic order, which is currently led by the US along with several other European countries. The advent of AIIB thus indicates to a significant increase in the position that India will share on the global platform. 

Various areas of concern for India will further get an economic boost, such as in the case of Bangladesh-Bhutan-India-Nepal corridor (BBIN) or the India- ASEAN road and rail connectivity. Furthermore, the financial backing which India could not derive from the US-led World Bank and Japan led Asian Development Bank, could be fulfilled by the AIIB, especially for the growth in sectors of infrastructure, energy and railways.


Thus, given this thought experiment, we can say that India made the right decision.

By:
Karmanye Thadani
Knowledge Council

The author would like to thank Girish Nair for his inputs.