ASIAN INFRASTRUCTURE INVESTMENT BANK – INTERNATIONAL
What's in the news?
● Canada’s
decision to “immediately halt” its involvement in the Asian Infrastructure
Investment Bank (AIIB) has brought the spotlight to the inner workings of the
Beijing-based multilateral development bank.
Key takeaways:
● Recently,
Canada has conducted an expeditious review of its involvement in the bank
following the sudden resignation of a Canadian executive who led the bank’s
global public relations team and said the bank was being “dominated” by members
of China’s ruling Communist Party.
Significance of AIIB with relevance to India:
1.
Development finance:
● The
AIIB is an example of constructive
cooperation among emerging economies to increase the space available for
infrastructure financing.
● For
AIIB, India is the largest borrower,
accounting for 25 percent of the total lending by it so far. Out of
USD 28 billion total lending, USD 7
billion have been lending to India.
2.
Asian centric lending:
● The
Asian Infrastructure Investment Bank along with the New Development Bank have
emerged as an alternative to the Western
dominated world bank and IMF in development finances. This will improve the
regional development finance based on the needs.
3. Providing Complimentary role:
● It
will help to bridge the infrastructure
deficit by playing a complementary role along with other financial
institutions like ADB and IMF.
● EG:
The Delhi-Meerut Regional Rapid Transit System is a high-speed rail that will
reduce travel time from three to four hours to within one hour. This is being
co-financed with the Asian Development Bank.
4.
Healthcare infrastructure:
● A
loan of USD 500 million sanctioned in 2020 was towards building a resilient
health system that can effectively treat COVID-19 patients and prevent its
spread.
● Another
USD 750 million loan was approved in June to help the government strengthen its
battle against the adverse impact of COVID-19 on poor and vulnerable
households.
● These
two loans are under AIIB’s COVID-19
Crisis Recovery Facility (CRF).
5.
Energy related projects:
● Investments
in the power transmission and energy related projects are very poor in India.
Loans from multilateral development banks like AIIB improves Power transmission
and energy related infrastructure across the country.
● EG:
Power transmission line project in Assam which is around $300 million.
Role of multilateral development banks in India's
development:
|
Multilateral
Development Banks (MDBs) refer to international financial institutions that
provide development and other assistance to nations of the world like the
World Bank, IMF, BRICS Development Bank, Asian Development Bank. |
1.
Long term sustainable funding:
● Multilateral
development banks are providing long
term soft loans with low interest rates in capital intensive infrastructure
projects, which don't get any or minimal financial support from the
government.
2.
Addressing complex global issues:
● Loans
from the multilateral development banks are always given to address emerging
global issues like climate change, clean energy, and critical technologies.
● India
gets loans for its metro projects and energy & power transmission related
projects. These sectors always get poor credit support within the country.
3.
Socio-economic empowerment:
● Funds
for various projects have raised the life and livelihood of India's poor people
and led to the overall Socio-economic development of the country.
● EG:
The Asian Development Bank (ADB) and the Government of India today signed a
$96.3-million loan agreement to provide safe drinking water and improve water
supply and sanitation services in the state of Himachal Pradesh.
● Due
to these sustainable loan facilities, people living below the poverty line in
India had reduced from 700 million to 230 million.
4.
Fight against COVID-19:
● Multilateral
development banks had given an hour in need of financial support to India in its
fight against COVID-19.
● EG:
The Government of India and the World Bank today signed a $400 million project
to support India’s efforts at providing social assistance to the poor and
vulnerable households, severely impacted by the COVID-19 pandemic.
5.
Stare specific loans:
● Multilateral
development banks provide state specific loans to address key issues in a
particular state.
● After
the 2018 flood in Kerala, the world bank has issued around 3 USD billion to
improve disaster resilience and climate change related initiatives in the
state.
6. Connectivity
and Infrastructure development:
● Loans
from the multilateral development banks are crucial for the development of
connectivity projects like loans for the metro rail system.
● EG:
The Indian government and the Asian Development Bank (ADB) on Tuesday signed a
loan agreement of $1.22 billion to improve the connectivity of key economic
areas in several states in India.
Issues associated with it from the perspective of
India:
1.
Threat to India's sovereignty:
● AIIB
has approved projects in the China Pakistan economic corridor running from
Xinjiang through Pakistan-occupied Kashmir (PoK), which affects India's
territorial sovereignty.
● As
of April 2023, around 30% of the total funding was given to China's ambitious
Belt and Road Initiative, as this was the main security threat to India.
2.
Ambiguity in approval of projects:
● India
is more concerned about the opaque process in project approval related to
projects which are a threat to India.
● Recently,
Canada has withdrawn from AIIB because of its opaque working style in approving
projects.
3.
Dominance of China:
● China
uses this multilateral development bank for its foreign policy. Its influence
is in the process of project approval of its friendly nations.
● AIIB
may be a Chinese attempt to influence the emerging structure of regional trade
and investment relations.
4.
Structural issues:
● As
per the AIIB rules, the president of the bank always comes from China, this
affects the credibility of the bank as a multilateral development bank.
● Highest
voting share to China (around 30%) and China uses its voting share to control
the project approval process.
○ In
contrast, in the New Development Bank, all the five countries share equal voting
rights.
WAY FORWARD:
1.
Regional office in other countries:
● Given
the important role played by India in the bank, it is recommended that AIIB
should consider opening a regional office in India. This will help the
functioning of the Bank in a more efficient way.
2.
Widening the project areas:
● AIIB
needs to scale-up investments in key priority areas including clean energy and
energy efficiency, disaster resilient infrastructure, social infrastructure
like education, health.
3.
Technical support to countries:
● AIIB,
beyond its financial support, should work towards expanding the scope of its
midstream and upstream engagement activities such as increased technical
assistance to help clients translate strategies into investment plans.
4.
Private resource mobilization:
● The
Bank should not only play a catalytic role in mobilizing diverse private sector
resources but also explore mechanisms to augment its own resources, including
through early action on the recommendations of G20’s Expert Panel’s Report on
the MDB’s Capital Adequacy Framework (CAF).
Go back to basics:
Asian Infrastructure Investment Bank:
● AIIB
began operations in 2016 with 57
founding Members (37 regional and 20 non regional).
● By
the end of 2023, it has approved 105
Members representing approximately 79 percent of the global population and
65 percent of global GDP.
● India is a founding
member of AIIB with the second-highest voting
share.
● India
holds 7.74 percent equity in the multilateral bank, next only to China (29.9
percent).
● The
bank is a multilateral development lender whose mission is financing the 'Infrastructure for Tomorrow' with
sustainability at its core.
Composition and structure:
● Banks
are run by a governing body consisting of the president and a vice president.
● All
the power of a bank rests with the board
of directors, the highest decision-making body under the articles of
incorporation.
● Bank
staff are elected by AIIB shareholders for a five-year term and are headed by a president who can be re-elected
once.
● The
president is supported by five vice presidents in charge of policy and
strategy, investment operations, finance and management, as well as senior
management including the corporate secretariat and legal advisors.