Nearly five years after China’s first Belt and Road Forum for International Cooperation in May 2017, India is yet to join the BRI. But even as New Delhi is reluctant to join—unsettled by China’s expanding political influence in South Asia—it continues to enthusiastically participate in a key China-backed institution: the Asian Infrastructure and Investment Bank (AIIB). China launched the AIIB in 2013 in order to bolster and facilitate the BRI across Asia. Beijing possesses 30 percent of voting shares in the bank, resulting in effective veto power over any funding decisions that require a supermajority. Yet not only is India, which considers China to be its biggest geopolitical threat, a founding member of the bank, but it also constitutes its largest borrower, relying on AIIB loans for COVID-19 aid and to fund multiple domestic infrastructure projects. So why does India, which has taken concrete steps to counter Chinese economic and political influence in its neighborhood, continue to spurn the BRI while simultaneously partaking in another similarly infrastructure-focused, Chinese-led financing initiative?
India’s continued enthusiasm for the AIIB is driven by three key factors: AIIB’s origin, India’s concrete need for infrastructure financing to fulfill the Modi administration’s domestic development and regional security objectives, and its desire to signal leadership in the region’s economic development.
India, the AIIB, and the BRI
The AIIB is a multilateral development bank (MDB). Unlike other MDBs, such as the Japan-led Asian Development Bank or the World Bank, which lend to many sectors beyond infrastructure and connectivity, all of the AIIB’s financing is directed towards infrastructure development. While it does not have the same mandate as the BRI, which comprises a wide variety of infrastructure and connectivity projects, the two are linked. The AIIB was specifically established to support the BRI, and today, approximately one-third of AIIB loans fund BRI projects. Although India is yet to join a single BRI project, it enthusiastically supports the AIIB. As of 2021, the AIIB approved 147 projects in India, totaling $28.9 billion in loans. India holds the second-highest voting share after China, and its former Reserve Bank governor currently serves as AIIB’s vice president.
Balancing Leadership, Development and Security
India’s comfort with the AIIB may derive from its origin story: China sought New Delhi’s input in creating the multilateral bank, which made Indian officials feel involved in its development rather than pressured to acknowledge its looming existence. Being invited to participate in a “consultative process,” as Subrahmanyam Jaishankar, India’s Minister of External Affairs stated in 2016, allowed for “open-mindedness.” He explained the difference between the AIIB and the BRI as a choice between “connectivity through consultative processes or more unilateral decisions.” By giving India input into the creation of AIIB, Beijing seemed at the time to validate India’s desire to signal regional leadership.
Additionally, the AIIB’s goals align closely with the Indian government’s development objectives. In its 2021 Union Budget, India allocated $32 billion to develop transportation infrastructure. The administration has continued to add numerous projects to its ambitious National Infrastructure Pipeline, a government scheme that includes 9,335 projects totaling $1.8 trillion. Prime Minister Modi’s administration has repeatedly asserted its commitment to expanding and revamping infrastructure across the country, and the announcement of India’s 2022-2023 Fiscal Year Budget reinforced infrastructure development as India’s top priority, including building highways, railways, and other transportation. The AIIB funds several domestic projects within India, including roads, metro corridors, canal systems, and high-speed railways.
Finally, AIIB funding helps India with its regional security goals. As China’s ambitions have grown—with recent BRI projects totaling several billions of dollars in South Asia—India worries about China’s growing sphere of influence in South Asia, which could impinge upon Indian sovereignty. Thus, India hopes to offer financial assistance and alternative projects to its neighbors, such as almost $3 billion in currency swaps, loan deferments, and credit lines to Sri Lanka since January and a $15.8 million grant to construct radar systems in the Maldives. Participating in AIIB also reflects India’s rejection of siding wholly with the United States in the geo-economic sphere, and supports its leadership ambitions in regional institutions devoted to the development of the South Asian subcontinent.
Lessons for the United States
While Washington and New Delhi are aligned on rebuffing the BRI, they diverge on the AIIB. But the United States needs to understand that India’s eager involvement in the AIIB reflects its need for infrastructure financing as well as its aspiration to play a leading role in regional connectivity initiatives. China’s geographic proximity and regional involvement in India’s neighborhood necessitates a different type of coexistence than the United States seeks to have with China.
The United States advocates for closer U.S.-India cooperation in the security sphere but it does not yet provide similar bilateral financial opportunities for infrastructure development. Nor does the United States offers India participation or leadership in an economic institution that rivals either the AIIB or the BRI in South Asia. If the United States wants India to move away from the AIIB, and shift power away from China, it should prioritize institutional economic engagement with India and empowering India’s own regional influence.
Zoe Jordan is a Research Associate for India, Pakistan, and South Asia at the Council on Foreign Relations. Sonali Deliwala is an Intern for India, Pakistan, and South Asia at the Council on Foreign Relations.