What does India get out of its membership in AIIB?

The 71st UNESCAP Commission session held in Bangkok, Thailand earlier in 2015, was attended and addressed by India’s Minister of Commerce and Industry, Mrs. Nirmala Sitharaman. She boldly declared, in order to close the crucial gaps in infrastructure, that India would require an approximate US$ 1 Trillion. India would need that massive investment in “the next few years” and would require “innovative solutions,” she continued. Fast-forwarding to January 2016, India was elected to a seat on the Board of Directors of the China-led Asian Infrastructure Investment Bank (AIIB). The bank is constructed with the mission to “jointly address the daunting infrastructure needs in Asia.” India, part of this venture as the second largest shareholder, committing around US$ 8 Billion is not merely a convenient coincidence but a concerted effort to become a significant player in the shifting world order.

 

Just by its mere membership and the difficult-to-overlook massive contribution, India is now inextricably at a point of advantage in accomplishing three goals. One, building its own infrastructure being the most obvious. Two, shifting to a more global role in a more tangible way, that is part of a continued active foreign policy of the Indian PM, Mr. Narendra Modi. Lastly, AIIB is the common ground on which India can carefully sustain and build on its recent improvement in relations with China.

 

According to the World Economic Forum’s Global Competitiveness Index, India’s infrastructure score has actually worsened over the last year. From the 2014-15 report, India now ranks 87th out of 144 countries. Indian Finance Minister, Mr. Arun Jaitley, has also mentioned the government’s push for a 9% growth in 2016. However, even to sustain the current 7.3% GDP growth, India needs to quickly and efficiently invest in and develop its infrastructure. Bloomberg reported that India will have to finance infrastructure projects based on loans. While it is attempting to approve major projects (roads, ports, power etc), expecting further interest rate cuts, and establishing “a fund to spur infrastructure lending and permitting dedicated tax-free bonds,” India’s expected debt is to reach $750 billion by 2017. Hence, India’s $ 8 Billion contribution will become the quid pro quo of a promise of increased investment for its own domestic growth agenda.

 

Secondly, looking beyond to the requirements of Asian nations, India will play an active role as a regional and global leader, which compliments Mr. Modi’s foreign policy since the beginning of his term in 2014. Asia’s infrastructural gaps are not very different from India’s own gaps. The 2010-2020 estimate for Asia’s needs are totalling up to $8 Trillion. Countries like the Philippines, Vietnam, and Thailand are transforming quickly and have multiple infrastructure projects that are just a fraction ot the overall need. A report by the Asian Development Bank (ADB), quoted by Forbes mentioned that --

 

“developing Asian countries have an infrastructure demand of about $8 trillion over the ten years to 2020, including $2.5 trillion for roads and railroads, $4.1 trillion for power plants and transmission, and $1.1 trillion for telecommunications, and $0.4 trillion for water and sanitation investments.”

 

India is ready to lend its support to close that gap within the region and in turn is actualizing its leadership in Asian affairs. Becoming a key player in AIIB incontrovertibly places India in a position of strength and by pairing up with China, it is leading the shift of the economic order of the 21st century to Asia. AIIB, with $100 Billion in seed money, is in direct competition with other International financial organizations like ADB, International Monetary Fund (IMF), and the World Bank. In fact, AIIB is not only meant to provide this support to Asian nations but is also aimed to “break the monopoly” of the existing economic order. By providing an alternative, it will drive IMF and World Bank “to function more normatively, democratically, and efficiently, in order to promote the reform of international financial system as well as democratisation of international relations.” In accordance with AIIB’s official agreement to work in “close collaboration with other multilateral and bilateral development institutions,” IMF and WB are supporting the creation of AIIB. While the United States and Japan remain key global actors, they have not yet signed on to its agreement. Evidently, the role of AIIB is not limited to its economic resources, but extends to influence the political world order as well. Reiterating India’s role in the development of AIIB, catapults India into a position of bringing in much needed change in the way finance is provided to the developing world.

 

Thirdly, India’s support and pairing with China, is certainly a positive direction in the relations between the two countries. Both countries are of the opinion that the Bretton Woods Agreement does not work in favor of the developing world and ignores the growth of countries like China and India. Both Xi and Modi have criticized the gridlocks of Bretton Woods. India and China have already shown significant improvement in their relations with both leaders visiting each other’s countries within the first year of Mr. Modi in office. This new relationship is only strengthened by the close collaboration for the creation of AIIB. This was further evidenced by the visit of Mr. Jin Liqun, President of AIIB, almost a week before the inaugural meeting of Board of Directors on January 18th. This visit just went to show how much China values its growing connectivity with its southern neighbor. However, India must tread carefully through this new tangible relationship with China, as it finds itself in a new position of strength. It must continue to have a friendly relationship with Japan and be confident in its non-involvement in political matters that pertain to China-Japan conflicts. Also, while this relationship is being created, India must continue to foster a healthy relationship with the United States. For the longest time, the US wanted to treat India as a natural ally in order to counter the growth of China. However, India’s opportunistic and regional role by working with China needs to be careful and not in contention with its positive relationship with the United States. The facts that India and China have been in a war and continue to have border issues cannot be ignored, but both Modi and Xi have come to a resolve that “those differences should not be allowed to come in the way of continued development of bilateral relations.