The World Bank said on Friday it had withdrawn $300 million of funding for a new capital in Andhra Pradesh after the central government dropped support for the project.
The Beijing-backed Asian Infrastructure Investment Bank (AIIB), that was due to finance $200 million of the project, then said it was reviewing its involvement.
The construction of the city, known as Amaravati, is the brainchild of the state’s former chief minister, N Chandrababu Naidu, who lost power in elections in May.
The two banks were due to provide the lion’s share of the $715 million cost of critical funding for transport, sanitation and water supply.
The World Bank’s withdrawal was reported by Indian media on Thursday but the federal government’s involvement in that decision has not been previously disclosed, nor had the AIIB’s plans for a review.
Prime minister Narendra Modi laid the foundation stone for the project in 2015, but he and Naidu fell out after Naidu’s party broke from Modi’s ruling coalition last year.
The government of India has withdrawn its request to the World Bank for financing the proposed Amaravati Sustainable Infrastructure and Institutional Development Project, Sudip Mozumder, a New Delhi-based spokesman for the bank, told Reuters.
The World Bank’s Board of Executive Directors has been informed that the proposed project is no longer under preparation following the government’s decision.
AIIB spokeswoman Laurel Ostfield told Reuters in Beijing that it was aware the World Bank has dropped the project from its investment pipeline.
Our investment committee will be discussing our involvement in the project early next week, he said.
Dr P Lakshmi Narasimham, the commissioner of the Andhra Pradesh Capital Region Development Authority, the state body overseeing construction of the city, declined to comment on the implications of the funding withdrawal.
The Amaravati project, built on greenfield land on the banks of the sacred Krishna River, has been beset by accusations from activist groups of corruption and environmental damage. The state government has denied the accusations.
Andhra Pradesh was split in two in 2014, with the new state of Telangana containing the historic capital, Hyderabad, though both states agreed to share it for 10 years.
For a change, good sense has prevailed upon the bank to withdraw from the disastrous programme, Sreedhar R, the director of the Environics Trust, one of the activist groups that has been critical of the project, said in a statement.
This also vindicates our stance that (AIIB) which is a co-financier in the project, can no longer hide behind the World Bank which it has been doing.