The Union cabinet is likely to give a formal approval to a proposal on Wednesday for India to join the China-backed Asian Infrastructure Investment Bank (AIIB), in which it will be the second largest shareholder. The cabinet approval would come just days ahead of an agreement signing ceremony in Beijing on June 29 for the new regional bank’s formation.
As per the shareholding worked out among 57 prospective founding member countries, based on gross domestic product (GDP) and purchasing power parity (PPP), India would be the second largest shareholder with around 8%, after China’s 25%, in AIIB, sources said.
India’s capital share would be around $8 billion in the $100 billion regional multilateral lender, seen as a competitor to another established lender in the region, the Asian Development Bank (ADB). As the paid-in ratio of the capital would be 20%, India would contribute $1.6 billion (around R10,000 crore) over a period of five years, or R2,000 crore a year. The government would seek a supplementary demand for grants for R2,000 crore for its share of capital contribution for this year.
“India would immensely benefit after AIIB starts lending to big ticket infrastructure projects (rail, road, etc.) in the region,” one source said. India, which does not share the best of relations with China, did not want to miss the bus when such a big financial institution for infrastructure development was being set up. Also, given the funding limitations of the World Bank and the ADB, which usually provide around $2 billion annually, it made sense for India to tap the new sources of funding for its massive infrastructure development requirement.
India’s infrastructure investment requirement was pegged at $1 trillion in five years through 2017. Joining AIIB would enable India to access resources for the financing of national and cross-border infrastructure projects from this bank. It is expected to start operations by end-2105.
Analysts expect China, which will have veto power in AIIB — as decision-making requires at least 75% of the votes — to significantly enhance its influence in the region through the new bank.
Under the shareholding worked out among 57 prospective founding member countries, based on GDP and PPP, India would be the second largest shareholder with around 8%, after China’s 25%, in AIIB.
India would contribute R10,000 crore over a period of five years, or R2,000 crore a year.