AIIB was first mooted by Chinese President Xi Jinping in 2013 as an international financial institution to fund rapidly growing infrastructure needs in Asian countries. The infrastructure investment need is huge and was estimated to be US $ 750 billion annually during 2010-2020.

Initially, the founding members of AIIB were 21. The number increased to 57 in March 2015. Initially, the supporters of the bank were limited mainly to developing countries. The countries agreeing to join the bank were ASEAN countries, Kazakhstan, and other Central Asian countries, Saudi Arabia and some Middle East countries and India. The joining spree accelerated in Europe with Britain surprisingly announcing its intention to become the founding member of the bank. Other major EU countries, viz, Germany, France and Italy showed intentions to join as founding members of the bank. Only USA and Japan refrained from joining, even though Japan is under domestic pressure to join the fray. Most of the European majors, who intended to join, wanted to avoid trade conflict with China – the second biggest economy in the world. Beijing warned Germany and France that unless they joined the bank, they would not only be in disadvantageous position in doing business with China, but would also be facing step-motherly treatment in bank’s loan projects.

What can India gain from the newly established infrastructure bank?. India is under dire needs for infrastructure investment. India needs US$ 1 trillion investment in infrastructure during the 12 the Five Year Plan. In 2010, India signed agreement with USA to launch US$ 10 billion dedicated Infrastructure Debt Fund. But, that was not enough.

Power availability is the important infrastructure, whose investment need is paramount. Over sixty-five percent of electricity generation depends upon coal-based energy. Unfortunately, the funding by World Bank, IMF and ADB were not adequate. This was because these funding institutions were averse to the coal based power generation, which is detrimental to clean energy. Since 2012, World Bank did not sign any memorandum of understanding for coal fired electricity projects with its member countries. ADB was selective in supporting coal based energy projects.

India is the second biggest contributor to AIIB, accounting for about 10 per cent. In this perspective, the impact of AIIB will be significant since India will have more weight in its choices for getting funds for financing the energy related infrastructure projects.

For India, there are three attributes which leverage the legacy of AIIB over ADB. First, India is the second biggest contributor to AIIB, whereas in ADB, India’s rank is fourth in terms of contribution to the capital. In this perspective, India will have more say in AIIB than in ADB. Second, power is the most important infrastructure bottleneck in the country and it needs huge investment. Since coal is the prime energy source and solar or nuclear are inadequate to replace coal, AIIB will be more preferred for funding the power infrastructure projects in the country.

Third, India is also the second biggest contributor to BRICS’s National Development Bank (NDB), in co-partnering with China, Brazil, Russia and South Africa. The main aim of NDB is to fund infrastructure needs of BRICS countries. NDM plus AIIB will pose a creditable challenge to Bretton Wood institutes - World Bank and IMF. Bracketing NDM with AIIB, India is expected to have more clout in Asian Bretton Woods in regulating the funds for its infrastructure needs. Mr K.V. Kamath of India will be the first Chairman of NDB.

Both Japan and China showed eagerness to invest in Indian infrastructure after Mr Narendra Modi became the Prime Minister. China pledged US $ 20 billion investment in Indian infrastructure development in the next five years. It offered its technical cooperation for high speed trains, bullet trains and development of Indian railway. To make Modi’s dream of “Make in India” a success, China committed to set up industrial parks in India.

Japanese Prime Minster Shinzo Abe had high hopes for spurt in Japan – India economic relation after Mr Modi became the Prime Minister. He committed US $ 35 billion for different infrastructure projects within 5 years to support Modi’s dream for “Make in India’. Japan’s vie for Modi‘s heart began with China’s assertiveness to dominate in Asia. Visits of Japan’s Imperial couple Emperor Akihito and Empress Michiko (November 30 – December 5, 2013) after five decades symbolizes Japanese bent towards India. The visits unleashed a paradigm shift of Japan towards India.

Given the India’s position, vis-a-vis Japan and China, India needs a strong foreign policy to balance between the two countries, who aspire for a political dominance in Asia. Both are important for the success of Make in India program and development of infrastructure. Japanese bilateral aid were needed in developing India’s infrastructure, like Delhi Metro and DMIC and Chinese investment is imperative after it became world’s third biggest foreign investor.

Given the higher stakes in AIIB and NDB, which will place India in a better position than in ADB, a new challenge will be thrown to the Modi government to take a position when both Japan and China bid for Indian projects. Concerns loom over AIIB and ADB aided projects , when biddings will be made by Japan and China. (IPA Service)