New Delhi’s approach to multilateral relations needs clarity

The partnership was a result of New Delhi’s old approach of separating the border dispute from other parts of India-China relations, with the belief that these other parts, including economic relations, would create the conditions for resolving more complex issues. While the Galwan clashes should put this notion to rest, records prior to 2020 clearly showed a mercantilist Chinese approach, with non-tariff barriers being imposed against Indian products by Beijing and a resulting trade deficit . It was this situation that made it easy for India to retaliate after Galwan by banning Chinese apps and banning Chinese foreign direct investment, even as the bilateral trade deficit continued to grow.

However, India continues to participate in multilateral banks such as the AIIB and the BRICS New Development Bank (NDB), where China is a major or dominant player. India is funded many projects through these banks, but its involvement in them is perhaps less about economics, but more about sending geopolitical signals to the West about India’s ‘strategic autonomy’. This is why despite strong opposition to China’s Belt and Road Initiative (BRI), of which the AIIB is a part as far as Beijing is concerned, New Delhi decided to join the bank in 2016. The Indian contention at the time was that the AIIB was expected to follow international standards and practices. According to open records, the AIIB does this – for example, it suspended operations in Russia after the invasion of Ukraine. It has also worked closely with the World Bank and the Asian Development Bank, multilateral banks with which it was expected to compete. However, we must understand that as far as China is concerned, the image of an institution that looks like a regular multilateral bank is very useful, as it serves to divert attention from its more important and larger policy banks which operate in China. are not. In accordance with international standards or norms, and which are also the primary channel for China’s BRI projects.

And yet, even a showcase bank has been structured to promote Chinese influence. Articles of Agreement of AIIB (bit.ly/44hoSaX) suggests that China holds an equivalent of a veto on important issues such as admitting or suspending members. China is the lender’s largest shareholder with over 26% stake, while India is a close second with around 8%. In addition, the AIIB has been led since its inception by Jin Liqun, China’s former vice minister of finance, and both the AIIB and the NDB are headquartered in China – the latter in Shanghai. Share ownership and location may be functions of China’s willingness and ability to share a greater portion of the burden, but it also involves CCP influence and the risks of exposure of their communications and private data, neither of which should surprise Indian officials. Should not be the experience of China. Therefore, the Canadian official’s allegations have room for credibility, even though the Chinese have dismissed the incident as a “tempest in a teapot”.

As for the NDB, it is not only tainted by the presence of Russia as a major member, but its governance, access to capital markets and loan disbursement are all becoming areas of concern.

The AIIB and NDB have not enabled China to adopt more transparent international lending practices or better governance. Even though arguments about the Chinese debt trap can sometimes be exaggerated and distract from the responsibility of the host country, note that increased financial engagement with China creates additional economic risks for cash-strapped countries Ask Sri Lanka or Pakistan. Thus, given that India does not exert any effective influence over Chinese behaviour, it is also at a disadvantage from the point of view of geopolitical signaling. For example, when scandals like the latest one at AIIB happen, India only suffers loss of reputation by cooperation. On the other hand, China exploits the cover provided by multilateral institutions like AIIB and NDB to further its agenda through its other policy banks and instruments. It is worth asking whether India’s multilateral economic engagement with China has made smaller countries less cautious about Chinese loans and grants.

If India aims to make global economic governance fairer and more effective, its own experience shows that the Chinese party-state is hardly an ideal partner. In the AIIB paradox, there is an opportunity for India to break its silence on the matter and come out.

More than that, New Delhi has already achieved much through institutions such as the World Bank, from which India is the largest recipient of loans. Given its current geopolitical clout and encouragement from the West, it should be able to find better ways to achieve global institutional reforms rather than relying on China.

Jabin T. Jacob is Associate Professor in the Department of International Relations and Governance Studies and Director of the Center for Himalayan Studies, Shiv Nadar Institution of Eminence.

Updated: June 26, 2023, 10:45 PM IST