AIIB warned to tread carefully before turning its key on India’s mega-infrastructure development plans

The Asian Infrastructure Investment Bank (AIIB) must “tread very carefully” before approving a new $200m deal with India next month for fear of turning the key on some highly-controversial projects now being stalled by local community opposition. A new report today by Center for Financial Accountability India and Bank Information Center Europe, says the AIIB’s proposed new client – the Indian government’s showpiece National Investment and Infrastructure Fund (NIIF) – is anxious to kick-start a series of infrastructure projects including roads, power plants, ports and railways by “indirect lending” to unknown investors underneath it.

“Around the world, we have seen how extremely risky this model of ‘hands-off’ lending through financial intermediaries can be. Without stronger safeguards and transparency, the AIIB will simply lose sight of its original investment and the damage it could cause,” said BIC Europe Campaigns Director and co-author Kate Geary.

“The AIIB must tread very carefully here because it is still accountable for any project that harms local communities in India or damages the environment – regardless of how much distance the AIIB might claim to have from it,” Geary said.

“The triple-A credit rated AIIB will allow the NIIF to hang a big “open for business” sign outside its front door,” said CFA researcher and co-author Anuradha Munshi. The NIIF has struggled to attract outside investment since it began in 2015, though since Oct 2017 the UK, Abu Dhabi and Dubai have invested $4b. India hopes the AIIB’s involvement will signal a green light for other investors.

“However, we are concerned that in its eagerness to get started on the Indian government’s multi-billion-dollar plan for infrastructure development, NIIF could open up a number of destructive projects, including coal, that have long been stalled by local community opposition,” Munshi said.

The Indian government gave NIIF a specific mandate to kick-start infrastructure projects that have been stalled, including those which local communities are resisting because of land disputes, forest clearances and fears about pollution and environmental destruction.

“One of our worst fears is that with the AIIB’s blessing, NIIF could unleash India’s rush toward coal ‘by the back door’, when in fact NIIF could and should be the catalyst for clean and sustainable energy options, in consultation with local communities,” Munshi said.

The AIIB will consider approving the NIIF deal at its board meeting next month (April). It would be the bank’s fourth financial intermediary deal. India is the AIIB’s largest client, with more than $1 billion in exposure, and the bank’s second largest shareholder after China. In June, Mumbai will play host to the AIIB’s AGM.

The NIIF’s chief executive officer, Sujoy Bose, was previously a director at the World Bank’s private sector arm, the International Finance Corporation (IFC). After much criticism over its FI lending to projects which caused displacement, rights abuses and environmental harm, the IFC has recently cut its high-risk lending to intermediaries.

“It is vital that the AIIB learns the hard lessons from IFC’s misteps, and avoids the collateral damage caused by hands-off lending,” Geary said.

Report authors/press contacts

Anuradha Munshi, Center for Financial Accountability India

Kate Geary, Bank Information Center Europe