Project to build a new state capital for Andhra Pradesh was expected to cost over Rs 1 lakh crore

Highlights China-led AIIB joins World Bank in dropping loans for Amaravati project

AIIB and World Bank were together due to provide more than $700 million

Dropped loans trigger corruption debate between YSR Congress and TDP

A proposed loan worth $200 million for Andhra Pradesh's new capital - Amaravati - was today dropped by China-backed Asian Infrastructure Investment Bank.

"The Asian Infrastructure Investment Bank (AIIB) is no longer considering the Amaravati Sustainable Infrastructure and Institutional Development Project for funding," a spokesperson told Reuters in an emailed statement.

The withdrawal comes less than a week after the World Bank pulled out as well.

A World Bank spokesperson earlier told NDTV that the bank's Board of Executive Directors had been informed the proposed project was no longer under preparation following the government's decision.

The World Bank had reportedly sought permission to conduct an independent investigation into complaints of irregularities like forced land acquisition. Concerns had also been raised over sanctioning of buildings on the floodplains of the Krishna River, which would divert water from farmlands and forests and displace some 20,000 families.

In its risk assessment report, the World Bank had labelled the project "Category A", signifying it could have "significant adverse environmental impacts".

However, the government was reluctant to allow an investigation by an outside agency and instead withdrew its application.

The AIIB and the World Bank were together due to provide more than $700 million.

Visualised by former Andhra chief minister N Chandrababu Naidu, who lost power in assembly polls held earlier this year, the project has led to heated debates between the ruling YSRCP of Chief Minister Jagan Reddy and Mr Naidu's Telugu Desam Party (TDP).

Mr Naidu has maintained there is nothing corrupt or irregular in the construction of what he called a "self-financing project".

"It is YSRCP which had created obstacles for capital construction. The loan was rejected due to the wrong complaints filed by them. They provoked the farmers and even wrote letters to the premier bank against the project," he said in the Assembly.

Finance Minister Buggana Rajendranath, speaking in the assembly yesterday, said corruption allegations made by farmers and environmental activists had been ignored by the TDP government, and that led to the World Bank withdrawing its loan.

Civil society groups like the National Alliance of People's Movements (NAPM) and the Working Group on International Financial Institutions welcomed the withdrawal of the World Bank's proposal, saying there had been many violations.