New Delhi’s approach to multilateral ties needs clarity

Source: The post is based on the article “New Delhi’s approach to multilateral ties needs clarity” published in “Mint” on 27th June 2023.

Syllabus: GS 2 – Important International institutions, agencies, and fora.

News: The recent resignation of the Canadian director for global communications at the AIIB (Asian Infrastructure Investment Bank), alleging influence by the CCP (Chinese Communist Party), has led the Canadian government to freeze ties and initiate an investigation. This situation prompts India to reconsider its involvement in Chinese-led economic organizations given their governance structure and China’s mercantilist approach to trade.

Why India participated in Chinese-led economic organizations?

India’s involvement in Chinese-led economic organizations was driven by a previous approach which aimed to separate the boundary dispute from other aspects of the India-China relationship.

India hoped that economic ties could make it easier to resolve more complex issues. However, the Galwan clashes and China’s mercantilist approach have challenged this belief.

India’s participation in such institutions, including the AIIB and NDB (BRICS New Development Bank), has been driven by conveying geopolitical signals to the West about India’s ‘strategic autonomy’ rather than purely economic benefits.

Arguing that the AIIB was expected to follow international standards and practices, India decided to join it in 2016 despite its strong opposition to China’s BRI (Belt and Road Initiative) of which the AIIB is a part.

Why should India rethink its approach to Chinese-led economic organizations?

The AIIB serves to divert attention from China’s more significant policy banks, which operate outside of international standards and play a central role in funding BRI projects.

AIIB is structured to promote Chinese influence. The AIIB’s Articles of Agreement suggest that China, as the largest shareholder, holds the equivalent of a veto over important issues such as admitting or suspending members.

Further, the AIIB has been headed from the start by a former Chinese finance vice-minister, and both the AIIB and NDB are headquartered in China. This comes with the risks of CCP influence and exposure of bank’s communications and data.

The AIIB and NDB have not succeeded in encouraging China to adopt more transparent international lending practices or improve governance. Furthermore, heightened financial engagement with China appears to introduce additional economic risks for financially vulnerable countries, as evidenced by the experiences of Sri Lanka and Pakistan.

Thus, given that India exercises no effective influence on Chinese behaviour, it ends up on the losing side even from the perspective of geopolitical signalling.

What should India do?

The current scandal in the AIIB gives India an opportunity to head for the exit. India has already achieved significant benefits through institutions like the World Bank, where it stands as the largest recipient of loans.

Considering its current geopolitical influence and the attention it receives from Western nations, India should explore alternative avenues to drive global institutional reforms, rather than relying on China.