Thursday, December 18, 2014

Role and Importance of Asian Infrastructure Investment Bank(AIIB) for India and other Countries

Ques.2 Discuss the role and importance of Asian Infrastructure Investment Bank in the global context and its effects, pros and cons on Infrastructure financing in India and Asia.

Ans. AIIB with its headquarters in Beijing comprises of China, India and 20 other countries as share holders in it.

The 2 most important reasons for the birth of ATTB are as follows –

#To meet the immediate demand of infrastructure financing in Asia.

#China and India trying to counter the dominance of Bretton Wood twins (World Bank and International Monetary Fund) and Asian Development Bank by a solid mixture of BRICS bank and ATTB.

According to a Asian Development Bank report till 2020 every year ASIA needs infrastructure investments of the there of $ 800 billion. US dominated World Bank and Europe dominated IMF do not lend too much for Asian infrastructure projects. Japan and US dominated ADB does not lend more than $ 10 billion for infrastructure projects in Asia, so in this scenario ATTB may be the solution.  One more major effect that the AIIB can exert is that major Shareholders of AIIB such as China and India in proportion of their voting powers can enhance the value of their domestic currencies in the Dollar dominated global market by giving loans in their domestic currency increasing its presence and value in the market. Already at the formation stage most probably due to the opposition from the US, South Korea and Australia have not signed MoU on AIIB. AIIB also has the potential of becoming a major economy power bloc by providing countries of Asia a very viable and affordable borrowing option which can reduce the influence of World Bank and IMF in Asian economies and this is not an ideal scenario for the US and Eurozone as Asia is the pivot of trade and industry in years to come.

Positive effects on India –

(a) If India is able to hold a good share holding in AIIB then by lending in Rupee it can improve the value of Rupee in the international market leading to improvement in exports and imports.

(b) Now projects in India will have some options at their hand for borrowing like ADB, BRICS Bank and AIIB. So the lending rates would be low owing to increase competition.

(c) Many friendly countries of India are present in AIIB share holders group. So by using the combined economic clout India can stall funding for projects that are not conductive to strategic and security interests of India.

(d) 12th FYP document India says that India needs $1 trillion of infrastructure investment. AIIB has the potential to fullfil a part of this demand.

Negative effects on India –

(a) It the gap between share holding of India and China is more beyond a limit in China’s favour than it can severely compromise India’s negotiation power.

(b) India Joining AIIB can be seen in Western economy particularly USA as a move not beneficial and even hurtful to them.

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