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200 Words10 Marks
Q.India has recently signed to become a founding member of New Development Bank (NDB) and also the Asian Infrastructure Investment Bank (AIIB). How will the role of the two Banks be different? Discuss the strategic significance of these two Banks for India.
UPSC Mains 2014•International Relations
Model Answer
View this Question In PYQ RealmSyllabus Point
- Important International Institutions, agencies and fora - their Structure, Mandate.
Approach
- Introduction (Definition) (30-40 words): Introduce NDB (established by BRICS) and AIIB (initiated by China) as emerging multilateral development banks where India is a founding member.
Body (170-180 words)
- Provide a comparative analysis of the differences between NDB and AIIB.
- Discuss the strategic significance of NDB for India.
- Discuss the strategic significance of AIIB for India.
- Outline a strategic way forward.
- Conclusion (30-40 words): Conclude by highlighting how both institutions complement India's developmental and geopolitical ambitions.
Introduction
India's active participation as a founding member of the New Development Bank (NDB) (established in 2014 by BRICS) and the Asian Infrastructure Investment Bank (AIIB) (initiated in 2015) marks a significant shift in global financial governance, offering India alternative avenues for infrastructure financing.
Body
Differences Between NDB and AIIB:
| Aspect | New Development Bank (NDB) | Asian Infrastructure Investment Bank (AIIB) |
|---|---|---|
| Founding Members | BRICS nations (Brazil, Russia, India, China, South Africa) | 57 initial members, led primarily by China |
| Primary Objective | Financing infrastructure and sustainable development in BRICS and emerging economies | Promoting infrastructure investment and connectivity primarily across Asia |
| Membership Scope | Primarily focused on BRICS, but open to other UN members | Broad global membership, with a strong focus on Asian countries |
| Voting Power | Equal voting power for all founding members (no veto) | Weighted voting based on economic size (China holds ~26% voting power) |
| Operational Reach | Global, with projects across emerging economies | Primarily focused on regional connectivity in Asia |
Strategic Significance of NDB for India:
- Democratic Governance and Equality: Unlike the IMF or World Bank, NDB operates on an equal-voting-share model, ensuring India has a strong, uncompromised voice in decision-making.
- Funding Sustainable Infrastructure: NDB is a major source of funding for India's green energy and urban transit projects.
- Example: NDB has approved over $3 billion in funding for Indian projects, including renewable energy and major metro rail corridors.
- Strengthening South-South Cooperation: It reinforces India's partnerships with other major emerging economies, promoting a collective non-Western developmental agenda.
Strategic Significance of AIIB for India:
- Addressing the Infrastructure Deficit: AIIB provides access to low-cost, long-term capital to fund India's massive infrastructure requirements (estimated at $1.4 trillion by 2025).
- Example: AIIB has financed major projects in India, including the Delhi-Meerut Regional Rapid Transit System (RRTS).
- Counterbalancing China's Influence: As the second-largest shareholder in AIIB, India's active presence ensures that the bank is not used solely as an instrument of Chinese geopolitical leverage.
- Enhancing Regional Connectivity: Aligns with India's 'Act East' policy by supporting cross-border infrastructure and trade corridors in South and Southeast Asia.
Way Forward:
- Maintain Vigilance: India must ensure that project approvals in AIIB remain transparent and are not politically driven by China.
- Maximize Project Pipeline: Streamline domestic approval processes to expedite the utilization of funds from both banks for high-priority green energy and transport projects.
Conclusion
Both NDB and AIIB play highly complementary roles in India's growth story. While NDB offers a democratic platform for South-South cooperation, AIIB provides the massive scale of capital needed to transform India's physical infrastructure, helping reduce dependency on traditional Western-dominated financial institutions.
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