India joins China-led infra bank

India’s energy, transport and other infrastructure projects will no longer have to look for costlier finance with China-led Asian Infrastructure Investment Bank (AIIB) taking shape on Monday.

The bank  is all set to start operations early next year. The AIIB, a new financial institution is seen as a rival to the World Bank and Asian Development Bank, which until now dominated development finance landscape.

The $100 billion China-led bank will finance infrastructure projects in Asia. India is the second largest shareholder in AIIB after China. There are 57 founding countries, including India, which signed an agreement in Beijing on Monday for the bank to take legal shape.

This comes on the back of another $100 billion India-headed New Development Bank also called BRICS Bank that is commencing work next month. The bank has been created by BRICS (Brazil, Russia, India, China and South Africa) for financing infrastructure projects in developing countries.

Back home, officials expressed the hope that these two banks have given them more option to seek infrastructure financing. India needs about $1.5 trillion in the next decade to finance its  infrastructure.

“Infrastructure investment needs far exceed the amount of finance currently available, the new banks have certainly come as added support,” an official told Deccan Herald.

The BRICS Bank is expected to start lending from next year and India is firming up proposals for an aid from the Shanghai-based lender, whose chairman will be India’s K V Kamath. The bank will focus mainly on infrastructure projects, with authorised lending of up to $34 billion annually. The bank is also expected to provide assistance to countries suffering from global economic volatilities. This is seen as a great help to emerging economies as the US Federal Reserve is expected to hike interest rates.

In Asia, the AIIB means an urgent international response to a massive economic need, experts said. The AIIB becomes more significant in the wake of  ADB having less than $80 billion in capital but according to ADB, Asia’s economic development needs total at $8 trillion in 2010-20.

“We view the AIIB as an important new partner that shares a common goal: ending extreme poverty. The AIIB will join us and other development banks in addressing the huge infrastructure needs that are critical to ending poverty, reducing inequalities, and boosting shared prosperity,” World Bank Group President Jim Yong Kim said in a statement after the signing ceremony.

Although the United States has not joined the bank, President Barack Obama has said the country looked forward to collaborating with the new bank “just like we do with the Asia Development Bank (ADB) and with the World Bank”.