Amid Tensions With China, India Proceeding With AIIB-funded Projects

Recent China-India relations are not a rollercoaster or swing but a slide: There is no denying they are worsening. The main question is if the downward trajectory can be altered – and if not, then what is the current pace of the decline and what aspects of ties are being affected (and, of course, what will be the final outcome). Until the Ladakh tensions of 2020 it appeared that economic relations were being kept separate from politics by both parties. New Delhi and Beijing do not want the storm waves of their political differences and border disputes to spill over into the pleasant green pastures of bilateral trade and investment. Since last year, even this separation has come into question, as New Delhi appears to be ready to reply to border tensions with countermeasures in the economic domain.

But what needs to be carefully studied is a degree to which this last process is taking place and the extent to which India can react in such a way at all. Chinese imports into India are of tremendous scale and so far New Delhi has done little to reduce this dependence. Another field is investment, where in 2020 some forms of involvement by Chinese firms in India have been halted or cancelled, albeit only a few. 

In September 2019, I argued in The Diplomat that one such aspect of relations that remains separate and apparently unhindered by politics is India’s involvement in the Asian Infrastructure Investment Bank (AIIB). India remains the biggest recipient of the total value of loans from the financial institution (notwithstanding the fact that these loans, considered separately, are usually small). The bank is not Chinese, but rather a global multilateral institution; it must, however, be stressed that it was created under the auspices of Beijing and that China still plays the biggest role in it. China’s shares stand at 30.76 percent (which means 26.57 percent of the votes), and no other shareholder comes close to this.

The multilateral character of the AIIB appears to be the main point for retaining the India’s membership and status. As an anonymous Indian government official told the Mint in July 2020 (when tensions were still brewing): “We are not taking money from China but from the multilateral development bank. I don’t see any structural change in our engagement with AIIB because of our tensions with China.” Moreover, AIIB loans are usually just one of a few sources to fund each relevant project, and often not even the largest portion (the others being, for instance, Indian government funds or World Bank loans). For the sake of this commentary, therefore, I researched if the projects fueled by these loans in India had been halted in the 2020-2021 period, and if there is any evidence that this was in any way connected to the aftermath of the border clashes. The short answer appears to be “no.”

As of now, the list of loan-backed projects covers 42 items, 24 of which are projects for which loans have been approved, while the decisions on the remaining 18 are pending. For some of the former, approval took place in 2020-2021, the border tensions notwithstanding. I did not come across evidence of any project being halted due to government intervention, let alone because of the border tensions.

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Moreover, it appears that at least part of India’s governing elite has no problems in admitting that they are applying for AIIB loans. In 2020, the Indian government thanked the AIIB and the Asian Development Bank (ADB) for “timely financial support” in providing a new loan to fight the effects of the COVID-19 pandemic. In February 2021, the chief minister of the state of Tamil Nadu mentioned two upcoming construction projects as candidates for AIIB loans in his interim budget speech: a loan for the Chennai Peripheral Ring Road project “will be signed shortly,” he declared, while a loan for Grand Anicut Canal System is “anticipated” (and the latter project indeed figures on the bank website as proposed).

One could speculate if this is a result of India’s federal structure combined with political differences. Many of the loans support construction projects realized in specific states, in which case the state governments have a big say in planning and executing such undertakings, as opposed to projects spanning more than one state. Thus, we perhaps could have expected that after 2020 the centrally ruling Bharatiya Janata Party (BJP) would be less inclined to accept AIIB-funded projects in the states in which it is also dominant. In turn, the regional parties which happen to rule in certain states and are opposed to the BJP would not necessarily feel a similar political pressure to withhold such projects (as they are not responsible for the country’s foreign policy). Indeed, as of now most of the states where AIIB-backed projects are being undertaken are under the rule of opposition parties, such as Tamil Nadu, Kerala, Maharashtra, Andhra Pradesh, and West Bengal. This is the case for 20 out of 29 state-specific projects.

Yet this is too thin a layer of facts to hold the weight of broader political conclusions. First, some of the approved and proposed projects are also being  realized in BJP-ruled states, such as Gujarat or Assam. Second, the project processing time is obviously long and in some cases the projects had been proposed when a particular state was under BJP rule, even though that has changed over the course of recent years while the project was being considered or realized (this is the case of Rajasthan and Maharashtra). Third, in at least some of the cases the loan deal has been signed by the central government’s Ministry of Finance (this happened with regard to a project in Assam). Thus, it does not seem that there is any vehement political opposition to AIIB-funded projects from any influential Indian party.

Below is a table that lists projects apparently in progress as of now. Each project title is a hyperlink to the description on the AIIB’s website. The table clearly shows that there have been projects approved in 2020-2021, while some of the earlier approved projects were progressing in the same period.