Watering down loans from development banks hardly seems the way to deal with China. But that is exactly what India seems to be doing, for the moment.

If reports are anything to go by, India has quietly reduced its borrowing under a loan from the Asian Development Bank (ADB) for projects in 2010. The original loan amount of $2.7 billion has been reduced to $1.6 billion. This has been done at India’s insistence.

One of the “victims” of this reduction will be Arunachal Pradesh, the state whose inclusion in the loan programme had riled China. China’s opposition to including Arunachal Pradesh in ADB-funded projects had led to a tough response from India. This opposition was overcome last year, after a strong diplomatic push by India, when the India Country Partnership Strategy (2009-12) was adopted at ADB. This came after months of Chinese opposition to the plan as it included a $60 million watershed development project in the north-eastern state.

Now, those gains have been frittered away. A report in the Business Standard on Wednesday pointed out that this had been done to “defuse tension” between India and China.

This will not be seen as reducing tension by Beijing, but as a cave-in.

In recent years, India has done nothing that should attract China’s ire. But that has not prevented that country from raising objections on flimsy grounds, from Prime Minister Manmohan Singh’s visit to Arunachal Pradesh to that of the Dalai Lama. India hasn’t forcefully rebutted these. This is hardly the way to protect prized and strategic real estate and the citizens who live there.

There are other concerns centred on that region as well. There has been a spate of reports on Chinese efforts at dam-building and other construction activity in the upper reaches of rivers that flow through our north-eastern states. This is a long-term threat, one that can destroy the economic viability of that region. An adequate response to this exceptional threat is, again, missing.

China covets Arunachal Pradesh as it is an economically viable region in an otherwise bleak area. Its engineering of river waters under its course is akin to scorched-earth tactics: If it can’t get what it wants, it won’t hesitate to destroy that. We are yet to wake up to that peril.

The ADB loan affair: an attempt at building peace with China or a cave-in? Tell us at views@livemint.com