At a time when the global suspicion about Beijing’s global ambitions is rising, China-backed initiatives such as the BRI and more recently the Asian Infrastructure Investment Bank (AIIB) is being viewed with caution. Set up in 2016, the AIIB which has a total membership of 97 countries – the most recent being the Cote d’Ivorie, Guinea, Tunisia and Uruguay – this China-backed institution is a multilateral investment bank which Beijing says is designed to be an addition to existing institutions such as the World Bank, International Monetary Fund and the Asian Development Bank (ADB). What is interesting to note here is that despite such assurances neither the U.S. nor Japan have become members of the AIIB till date.
‘India is benefitting from the AIIB’
Speaking at the Indian Council of World Affairs, Additional Secretary V Srinivas pointed out that India needed to back the AIIB as it was hugely benefitting from it. ‘India has been the bank’s biggest beneficiary with a permanent seat on the Board of Directors and has a quarter of the approved projects by the institution with it,’ said Srinivas. He added that such projects had impacted connectivity in the country especially with regard to the Golden Quadrilateral, and several districts located 10 kilometres from the National Highway. Such endeavours, Srinivas believed, complemented the rural roads program under the Pradhan Mantri Gram Sadak Yojana and would help alleviate poverty.
Responding to a query as to whether India needed to be concerned about potential AIIB projects being funded in sensitive areas of the country, Srinivas said that India’s large voting share in the AIIB – it has 7.65 per cent – would not allow such projects to take place. ‘In any case, China alone does not make the decision on which projects to fund.’
‘AIIB is different from BRI’
Despite Srinivas’ contention that the AIIB had benefitted India, suspicions about the institution remain. Would it not be similar to the BRI whereby Chinese hegemony could prevail? ‘The BRI mandates that Chinese companies are going to take up works. We can see this in the case of the Hambantota port in Sri Lanka where China has taken up projects there. We see also see that in the case of the BRI, China is financing projects in poorer countries so there have been great concerns over debt sustainability. In sum, the BRI is a China-led initiative while the AIIB is a more multilateral one. Here, China has to play by the global rules of lending in terms of contract management dispute policies and lending rates etc.’ said Srinivas.
Is Japan feeling ‘threatened’ by the AIIB?
The AIIB has so far been an economic success story. Statistics show that AIIB investments in projects increased from $1.69 million end 2016 to $4.2 billion end 2017 to $7.5 billion end 2018, a rise of 343 percent. The organisation’s rapid success is believed to have especially unnerved neighbouring Japan who has so far been harshly critical of the AIIB. Analysts claim that Japan now believes that its hegemony in Asia is now being threatened and the recent announcement by Prime Minister Shinzo Abe of a $110 billion plan to fund the ADB – Asian Development Bank – suggests that this could well be the case. Japan’s bid to popularise loans in Asia through the ADB through reduced time for approval of projects from three years to 18 months and its bid to relax norms suggest that the geo-political rivalry between Beijing and Tokyo within Asia was likely to continue.
Japan’s concerns are not shared by India and many experts seem to agree that investment projects funded by the AIIB are necessary to fuel India’s growth story. Amitabh Kundu, Distinguished Fellow at the Research and Information System, (RIS) who has conducted talks with AIIB officials on potential projects in India, cautions that the country needs to become more judicious about where its concerns lie. ‘India needs to become more specific as to what are the key sectors are which require investment and accordingly direct AIIB investment to them. This may prove to be a challenge as though this investment is essential to us in these sectors they are not an immediately profitable venture.’
‘India must identify key investment areas’
Kundu pointed out that India needed special investment in areas such as Bihar, Jharkhand, UP and the Northeast, regions which were not immediately profitable. He stated that the country needed to look at increased investment in greenfield projects and be mindful of maintenance and upgradation of infrastructure in existing projects.
‘There are challenges here. India does not have many immediate bankable projects and returns will be slow which makes funding a challenge for any lender. Second, maintenance and upgradation of infrastructure will be an ongoing endeavour and hence we need to be clear about the dollar rate at which we are taking the AIIB-backed project on and make sure the payment does not change with the fluctuation of the dollar. Finally, we need to look at our economy and see. In terms of infrastructural development, India has a huge public sector investment but very little private sector investment. Can the AIIB create an atmosphere whereby private investment is encouraged in this area?’