India will be hosting the third annual meeting of the Asian Infrastructure Investment Bank (AIIB) at Mumbai, in June this year. This is a significant occasion for various reasons. These include India’s emergence as the largest recipient of the AIIB’s funding till now and its willingness to work closely with an institution, where China has contributed the largest capital. India’s deep engagement with the AIIB points to the latter’s enabling institutional features, which the other China-led connectivity project —the Belt and Road Initiative (BRI)—lacks. With respect to loans sanctioned till now, and those in pipeline, India has been the biggest beneficiary of AIIB (see graph1). Out of the 24 projects assisted by the AIIB till now, India tops the list with five, followed by Bangladesh, Indonesia and Oman, with three each. India’s five projects account for total AIIB assistance of around $1.1 billion. This is nearly double of Azerbaijan, which has obtained AIIB funding of $600 million, and more than double the assistance received by Indonesia and Pakistan—$441.5 million and $400 million, respectively—till now. In terms of AIIB projects in the pipeline too, India is poised to receive the highest financial support of around $1.2 billion, much more than other major applicants like Turkey, Indonesia and Sri Lanka (see graph 2). Some might wonder how India has emerged the largest beneficiary of the AIIB—a China-led development finance institution—which, according to many, is also an instrument for establishing a China-led global order like the BRI.
The curiosity would be much higher, given that India has been a staunch critic of the BRI and its purported objective of spreading China’s geo-strategic influence far and wide by funding infrastructure development. The answer to the puzzle is in the way the AIIB is functioning. It has been working closely with other global and regional development finance institutions in funding projects in various countries. India’s five approved projects reflect the approach. In all these five projects for which loans have been approved till now—Bangalore metro rail, Tamil Nadu transmission systems strengthening, Gujarat rural roads project, India Infrastructure Fund and Andhra Pradesh 24×7 Power for All—the AIIB is part of a group of financiers. It is working with Indian government agencies, including state governments, and other development finance institutions like the World Bank, the ADB and the European Investment Bank in implementing the projects. As a result, the projects hardly have the scope of being characterised as purely ‘China funded’, and AIIB being labelled likewise. It is noticeable that the AIIB is not even the lead financier in any of the projects that it is funding in India till now. This further erodes the possibility of its funding being described as a tool for entrenching the geostrategic influence of the Chinese state.
The AIIB’s involvement as a co-financier, rather than being a lead-financier, is also visible in the rest of the projects it is funding outside India. The Titas natural gas project in Bangladesh, the dam operational improvement project in Indonesia, the Tarbela hydropower extension project in Pakistan, or the Myingan power plant project in Myanmar, are all examples of infrastructure development with AIIB as co-financier. AIIB’s proclivity to be a co-financier in major development projects has advantages, in addition to dispelling of the notion of it being ‘China driven’. Involvement of multiple stakeholders has helped in diversifying risks in the projects it is funding. From a developer’s perspective, multiple financing agencies are always welcome as they assure sustenance of funding. This is increasingly becoming a concern for the BRI. China’s mounting internal debt, which is now more than 250% of its GDP, is casting shadows on the prospects of Chinese enterprises being able to sustain future investment in the BRI projects. Doubts are also increasing due to tighter state control of investments by Chinese state-owned enterprises (SOEs). The SOEs are the main overseas investors in the BRI projects.
Several of them hold large non-performing loans and are increasingly being subjected to greater scrutiny. These issues do not exist for the AIIB projects that have multiple financiers. Furthermore, involvement of multiple financiers also helps in keeping cost of servicing debts more competitive. It also enables non-institutional borrowers, such as state or local country governments, to mobilise funds more easily from debt markets, given that investors perceive these projects to be creditworthy and return-yielding because of the presence of World Bank or AIIB. The AIIB’s expanding foothold in India’s infrastructure development draws attention to the rich dividends being fetched by its plurilateral character and willingness to work with multiple agencies and institutions. The forthcoming annual meeting at India will be further testimony to the importance of these characteristics as opposed to the BRI. It will affirm that regional economic development agendas can be implemented by multiple countries notwithstanding their political differences, provided they work within a politically neutral institution with strong emphasis on development. In this respect, the AIIB’s success with India poses significant challenges for the credibility of BRI.