India along with 20 other countries on Friday signed an agreement to become founding members of the China-backed Asian Infrastructure Investment Bank (AIIB) to aid the infrastructure development in the Asian region and reduce the dependence on Western-dominated World Bank and IMF.
Usha Titus, Joint Secretary, Economic Affairs division of the Ministry of Finance, signed the MoU on behalf of India at a special ceremony here at the Great Hall of the People.
China's Vice Finance Minister Jin Liqun, who was also the former Vice-President of the Asian Development Bank, has been appointed as the Secretary General of AIIB.
The Bank, to be headquartered in Beijing, is expected to be operational by next year.
The MoU specifies that the authorised capital of AIIB is USD 100 billion and the initial subscribed capital is expected to be around USD 50 billion.
The paid-in ratio will be 20 per cent.
Voting rights are to be decided after consultations among the members over fixing the bench marks which were expected to be combination of GDP and Purchasing Power Parity (PPP).
Based on this formula, India will be second largest share holder of the bank after China.
Elaborating on decision to participate in AIIB, Titus said India's view is that the new bank provides rich resource capital base for infrastructure financing, which is good for the regional development.
It will help to bridge the infrastructure deficit by playing a complimentary role along with other financial institutions like ADP and IMF and work for good governance, she told PTI.
Chinese Foreign Ministry spokesperson Hua Chua Chunying on Thursday welcomed India's participation in new bank.
China regards India's support as a major boost to the bank's formation which was largely seen as an effort to enlarge funding for the Asian countries reducing the dependence on ADB and other Western-dominated global financial institutions like World Bank and IMF.
China was keen about India's participation and an invitation in this regard was extended by Chinese President Xi Jinping during his first meeting with Prime Minister Narendra Modi on the sidelines of BRICS summit in Brazil in July.
The AIIB is in addition to the BRICS (Brazil, Russia, India, China and South Africa) Development Bank formed this year, which will be based in Shanghai. It is set to commence its operations with an Indian as its President.
Besides India and China, other AIIB members are Vietnam, Uzbekistan, Thailand, Sri Lanka, Singapore, Qatar, Oman, the Philippines, Pakistan, Nepal, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Lao PDR, Malaysia, Mongolia and Myanmar.
Japan, which along with the US plays a major role in the ADB, is conspicuous by its absence.
After the signature ceremony, officials of the member countries called on President Xi who had formally proposed the formation of the bank last year.
Terming the formation of the bank as a "very significant endeavour", Xi told the delegates that the signing of the MoU is an "expression by the member countries to take concrete actions to go forward".
"In China we have a folk saying. If you would like to get rich, build roads first, and I believe that is a very vivid description of the very importance of infrastructure to economic development," he said.
"The very purpose of setting up the AIIB is to promote infrastructure development among Asian countries, to promote greater infrastructure connectivity and also enhance practical economic cooperation among all Asian countries," he said.
"We believe doing this will go a long way to promoting economic growth in Asia, as well as to contribute to economic prosperity and stability of the whole world," Xi said.
Stating that tallest mountains can be moved with unity, he said in Asia "we have very diverse culture and not every country is in the same phase of economic development".
"I believe the setting up of the AIIB is another expression of the same spirit, and for the AIIB itself I believe we need to uphold open multilateralism and we welcome the participation in the AIIB by all countries either from within or outside of this region who are interested in promoting such economic cooperation," he said.
Allaying perception that that AIIB is competitor to ADB, he said, "I believe the setting up of the AIIB will be an enrichment of the existing multi-lateral institutions."
"We have also to learn from the World Bank and the ADB and other existing multi-lateral development institutions in their good practices and useful experiences," he said.
"We would like to set up a very interactive and very meaningful exchange among all the multi-lateral financial platforms and for the AIIB we would like to have it become an inclusive, highly-effective and well-connected economic cooperation platform to boost economic cooperation in Asia and also to contribute to world economic prosperity," he said.
Elaborating further, Titus said the issues of the structure, voting rights and all other issues would be decided in subsequent meetings to be held in the next few months to finalise a framework in consultations with other members.
A chief negotiator will formulate articles of agreement after consultations among the member countries, she said.
About the difference between BRICS Development Bank and AIIB, she said both will strive to finance the infrastructure.
While BRICS bank will help financing countries other the member countries, the AIIB will focus on funding the countries in the Asian region.
According to a joint study by the Asian Development Bank and Asian Development Bank Institute, the infrastructure finance gap in Asia alone is somewhere in the range of USD eight trillion for the next decade.
In India itself current requirement for infrastructure development was estimated to be over USD one trillion.
ADB President Takehiko Nakao, who was in Beijing, said he did not think the AIIB was a threat to the ADB's role.