The International North-South Transport Corridor (INSTC) and India: potential and impediments

O Corredor Internacional de Transporte Norte-Sul (INSTC) e a Índia: potencial e impedimentos

ABSTRACT

The model corridor stretching from Mumbai (India) to St. Petersburg (Russia) through Iran and Azerbaijan is known as the International North-South Transport Corridor (INSTC). This multi-modal corridor is around 7,200 km long and consists of rail, roads, and waterways. The main objective of the construction of the corridor is to improve connectivity and trade relations between the North and the South. It will play a crucial role in promoting regional cooperation and economic integration. Bilateral relations between the member countries will be developed through the project. India will have easy access to the resource-rich Central Asian nations via this corridor, bypassing Pakistan. It will help India by exporting its products to the North and Central Asian countries, including Russia, and importing hydrocarbons at a lower cost by avoiding the traditional long-time route. In the present geopolitical situation, this venture will also improve India’s strategic relations with the member countries. Although the project at present is suffering from some glitches, it will be a game changer for India’s Eurasia policy in the near future.

KEYWORDS:
INSTC; multi-modal corridor; Central Asian countries; bilateral trade; infrastructure

RESUMO

O corredor modelo que se estende de Mumbai (Índia) a São Petersburgo (Rússia), passando pelo Irã e pelo Azerbaijão, é conhecido como Corredor Internacional de Transporte Norte-Sul (INSTC). Esse corredor multimodal tem cerca de 7.200 km de extensão e é composto por ferrovias, rodovias e hidrovias. O principal objetivo da construção do corredor é melhorar a conectividade e as relações comerciais entre o Norte e o Sul. Desempenhará um papel crucial na promoção da cooperação regional e da integração econômica. As relações bilaterais entre os países-membros serão desenvolvidas através do projeto. A Índia terá acesso fácil às nações ricas em recursos da Ásia Central através deste corredor, contornando o Paquistão. Ajudará a Índia, exportando os seus produtos para os países do Norte e Centro da Ásia, incluindo a Rússia, e importando hidrocarbonetos a um custo mais baixo, evitando a rota tradicional de longa data. Na atual situação geopolítica, este empreendimento também melhorará as relações estratégicas da Índia com os países-membros. Embora o projeto esteja atualmente sofrendo de algumas falhas, será um fator de mudança para a política da Índia para a Eurásia num futuro próximo.

PALAVRAS-CHAVE:
INSTC; corredor multimodal; países da Ásia Central; comércio bilateral; infraestrutura

INTRODUCTION (HISTORICAL BACKGROUND)

After the collapse of the Soviet Union and the subsequent rise of sovereign Republics in Central Asia, India reshaped its relations with the region through diplomatic efforts and visits, financial assistance, and capacity building. But Pakistan, possibly under the influence of China, has persisted in putting obstacles in India’s way of forging solid trade and economic ties with the Central Asian and Eurasian territories (Gulshan Sachdeva, 2013). It has prevented both regions from pursuing their strategic, economic, and cultural objectives by refusing to allow connectivity through its territory. India has therefore looked into alternative ways to build connectivity with the resource-rich and strategically important region of Central Asia. This impulse of making connectivity for strengthening regional integration and bilateral relations and expanding trade and economic cooperation between the North and the South gave birth to the International North-South Transport Corridor, or INSTC.

On September 12, 2000, a trilateral agreement was signed by the Republic of India, the Islamic Republic of Iran, and the Russian Federation at the second International Euro-Asian Conference on Transport in St. Petersburg, Russia, to pledge funding for the current International North-South Transport Corridor project (AEIR, 2023). This corridor is a 7,200-km-long multi-mode transport network consisting of rail, water, and modern highways that connect the northern part of Europe, including the Nordic States, with the Indian Ocean via Central Asia and the Persian Gulf (Vinokurov et al., 2009). The charter of the coordination council of the INSTC was developed after the agreement came into force on May 16, 2002¹. Finally, after a long time, the corridor became operational in January 2018, but it will be fully functional in another few years because some important sections of the corridor still remain to be connected and some others are to be upgraded (Chaudhury, D. R., 2017).

India, Russia, and Iran are the founding members of the project, with Azerbaijan joining the agreement in 2005. These four countries lie geographically along the route of the corridor. Gradually, Oman (December 2004), Armenia (January 2006), Tajikistan (December 2005), Kazakhstan (September 2003), Syria or the Syrian Arab Republic (February 2006), Belarus (January 2004), Kyrgyzstan (2012), Turkey (2012), and Ukraine (2012) have all signed agreements to join the venture (Mohammad Fayez Farhat, 2018; Chalikyan, N., & Tashjian, Y. 2021). Bulgaria (April 2006) is the observer state of the INSTC. Recently, the Baltic countries, like Latvia and Estonia, have expressed their willingness to participate in the corridor. India expresses interest in extending INSTC membership to countries like Afghanistan. The eastern states, such as Myanmar, Thailand, Cambodia, Laos, and Vietnam, are to be linked with India through the India-Myanmar-Thailand Highway Project and the East-West Economic Corridor. This opens the possibility of the future expansion of the INSTC to South-East Asia.

The corridor aims to increase the trade volume between the member countries and regions by increasing connectivity and lowering conveyance costs because it is “30 percent cheaper and 40 percent shorter than the current customary route” (FFFAI, 2014; Dayal, R., 2019). The bilateral trade and strategic relations among India and Russia, Central Asian countries, and potentially the Baltic, Nordic, and Arctic regions will gain momentum through this project. The project will also provide an alternative connectivity route through the Suez Canal to Europe and through Baltic ports to the countries in the Eurasian region. In the context of the Russia-Ukraine war and associated Western sanctions, launching the sanction-free INSTC (Ebrahim Fallahi, 2022) is a crucial step toward trade expansion with India, Iran, Turkey, and other nations in South Asia and the Persian Gulf, especially for the EAEU and Central Asian nations. This increases the relevance of this route. But the project, after it comes into existence, faces several obstacles and challenges, such as infrastructural shortcomings, non-harmonized international transport standards, uncoordinated transport policies of the member states, the economic crunch, the existence of missing links, etc., which hinder the full functioning of the corridor. This delays the process of materializing the project. In this context, the paper aims to discover the potentials of the INSTC project for the member states, especially India, and to study the challenges the INSTC project is facing.

RESEARCH QUESTIONS

Keeping in mind the basic objectives of the study, the attention of the research will be focused on two main research questions: First, what will be the potential benefits of the INSTC for India in the coming years? Second, what are the key hurdles and troubles to its effective materialization?

To have the answers to these questions, the study aims to unpack three key aspects of the project. First, it assesses the long-term potential effects of the corridor on the economic scenario of its member countries, especially India, in respect of its trade growth by increasing connectivity and reducing conveyance time and cost. Second, the paper gauges the waves of the INSTC on the geopolitical reimbursements of India. Third, it looks at some important issues that hinder the project’s materialization.

DATA SOURCES AND METHODOLOGY

The present work has been carried out by collecting data from secondary sources, including published articles in newspapers, literature, journals, and different official websites. The data relating to the trade volume between India and Russia and India and Central Asian countries have been collected from the Department of Commerce, Ministry of Commerce and Industry,Export Import Data Bank, GOI, 2022, and EDB report: 2022. Likewise, the trade data between the EU and India was sourced from the website of the European Commission through 2022. With time, the data has been kept updated with the inclusion of the latest changes in the project. For the analysis, qualitative techniques have been used.

PROFILE OF THE PROJECT

The INSTC is a multi-model transport network consisting of several short- and long-distance roads, railways, and shipping lanes, as well as many underground networks. The corridor extends from the Mumbai port to St. Petersburg via Iran, which is the heart of the corridor, with Bandar Abbas at its southern port intended to serve as the junction between Central Asia and the Indian Subcontinent. The INSTC has three core routes, which vary in length, mode of transportation, and stage of infrastructure development (Chaudhury, D. R., 2017).

Route 1: It is also known as the Caucasus-Persian Gulf route. It stretches from St. Petersburg to the port of Bandar Abbas (Iran) via Moscow, Baku, Asmara, and Tehran. This 5100-kilometer route is best connected with road networks along the western coast of the Caspian Sea and is considered the fastest and shortest land-based route. The share of the western route in total potential container freight traffic is around 60 percent. This section was operationalized first in June 2021.

Route 2: Route 2, or the central route, is the original route of the INSTC. It starts from St. Petersburg for the Iranian port of Bandar Abbas via Moscow, Astrakan/Ola, and Bandar Anjali/Amirabad/Nowshahr through the waterways of the Caspian Sea and Tehran. The share of this route (4900 km) in total potential container freight traffic is 16 percent.

Route 3: It is the Central Asia-Persian Gulf route of the INSTC, which is around 6100 km long and has a 24 percent share of the total potential container freight traffic in the corridor. It connects St. Petersburg with Bandar Abbas via Astrakan, Makat, Beyneu, Mangystau, Bereket, Inchboroon/Sarakhs, and Tehran. The official opening of the route was done on July 12, 2022, when 39 containers traveling from Russia to India via rail arrived in Iran through the Sarakhs border crossing (Chaudhury, D. R., 2017). India has proposed to connect the Chabahar port of Iran to this route via Zahedan, Sarakhsand Ashgabat.

Finally, the Bandar Abbas port is connected with the Mumbai port (Nhava Sheva) through the Arabian Sea.

Figure 1:
Location of the International North-South Corridor (INSTC)

To realize the full potential and to understand the issues faced by the importers, exporters, logistics providers, and other stakeholders involved in the movement of cargo along the INSTC, the Federation of Freight Forwarders Association in India (FFFAI) conducted two dry runs on the Nhava Sheva-Bandar Abbas-Baku (Azerbaijan) and the Nhava Sheva-Bandar Abbas-Amirabad-Astrakhan route via the Caspian Sea in August 2014 and April 2017 (FFFAI, 2014; Dayal, R., 2019). After the dry runs along routes 1 and 2, the FFFAI has concluded that “the proposed INSTC route via Bandar Abbas, Iran, to Russia and CIS destinations in transit through Iran could be the best route with optimal transit costs for the Indian exporters and importers” (Chaudhury, D. R., 2017). According to the FFFAI test report, this route is “30 percent cheaper and 40 percent shorter than the current traditional route via the Suez Canal” (FFFAI-2014). Besides, RZD Logistics JSC and the Finnish logistics operator Nurminen Logistics Services OY jointly piloted container transportation on the western route in 2021 (Tsots, 2021) and pointed out that “the proposed INSTC corridor could be the shortest, cheapest, and best route for Indian traders.”

CHABAHAR PORT AND THE PROPOSED THIRD ROUTE

The Chabahar port, located on the Makran coast of Sistan and Baluchistan province along the Gulf of Oman in southwest Iran, is the only port in the country having direct access to the Ocean. It is 630 km away from Zahedan, the capital of the Sistan and Baluchistan provinces, and 1,827 km away from Sarakhs, which is located along the eastern route of the INSTC on the Turkmen border (Roy, Meena Singh, 2012). The port consists of two separate ports named Shahid Kalantari and Shahid Beheshti, each of which has five berths². In 2002, a long-standing agreement was inked between India and Iran, and in 2003, the Indian firm India Ports Global Limited agreed to invest in the Shahid Beheshti port to further develop and upgrade it (Ashok K. Behuria et al., 2015). As part of the agreement signed in January 2016, India shapes a 600-meter-long container handling facility and one of the berths³, as well as several enterprises, such as urea and aluminum production facilities in the Chabahar economic zone that is connected to the port and the 630-kilometer Chabahar-Zahedan railway line. A memorandum was also signed for the public sector division of Indian Railways, IRCON International, to finance the planned 900 km Chabahar-Zahedan-Hajigak railway section, which is a part of the INSTC⁴.

The Chabahar port is being developed as a transit route to Afghanistan and Central Asian countries⁵ and has been referred to as the “Golden Gate” to these landlocked nations (Roy, Meena Singh, 2012). To maximize its potential, New Delhi has suggested including Chabahar Port in the INSTC via Sarakhs and Ashgabat. After the completion of the project, the distance from Russia to Mumbai via Sarakhs and Chabahar (5627 km) will be roughly 500 km less than the existing Route 3. The port would give the landlocked nations of Central Asia free access to the sea (Suhasini Haidar, 2021). A trilateral working committee was formed in 2020 to try and reach an agreement on Chabahar Port and other connectivity projects between Uzbekistan, Iran, and India. Uzbekistan wants to reach West Asia and India via Afghanistan, and it has proposed in 2018 to construct a 650-km train route among Herat and Mazar-i-Sharif in Afghanistan. This project is anticipated to connect with the Chabahar-Zahedan train line along the Iran-Afghanistan border. The railway section in southeastern Iran, connecting Zahedan and Khash, is expected to be completed within 2024⁶. This section represents the beginning of the Zahedan-Chabahar route, which will become a part of the INSTC and offer direct rail access to the Chabahar port.

The development of this port will increase its cargo handling capacity from 2.1 million tons (2015) to 86 million tons in the coming years (Basu, Nayanima). Up until August 2022, the terminal handled over 4.8 million metric tons of bulk cargo (Rezaul H. Laskar, 2022). The trade potential among India, the Eurasian Economic Union, and Eurasia can be taken advantage via the Chabahar Port and INSTC. At the same time, it will weaken Beijing’s hegemonic strategy and strengthen New Delhi’s geostrategic and economic engagement with the region.

Figure 2:
Proposed third route of the INSTC

INDIA’S TRADE POTENTIAL ALONG THE INSTC

The Central Asian countries (CARs), including Iran and Russia, have a huge natural resource base (Kotwal & Amol, 2013). These countries have exportable goods like petroleum, natural gas, coal, food stuffs, wood, metals (ferrous and non-ferrous), textiles, nuclear power equipment, mineral fertilizers, defense equipment, inorganic chemicals, etc. The CARs have around 4 percent of the world’s natural gas reserves⁷ and approximately 3 percent of oil reserves (Kiesow, I. &Norling, N., 2007). Kazakhstan and Uzbekistan have huge reserves of uranium. India is in desperate need of such resources, particularly energy resources. It is the third largest consumer of crude oil and petroleum products after the US and China but has very scanty reserves (Roy, Meena Singh, 2015). This compels the country to import 80 percent of its crude oil demand, most of which comes from the volatile Middle East countries, usually Saudi Arabia and Iraq. This demands $119.2 billion in 2021-22 (PAAC-2022). India is also one of the biggest buyers of edible oil, purchasing roughly 70% of its sunflower oil from Russia and 20% from Ukraine⁸. On the other hand, India has a strong service sector economy that clocks the fastest growth in the world. The IT sector of this country is the most prominent and has a large global presence, spanning 200 cities across 86 countries in the world (Singh, M. M.). Also, the CARs have offered a good market for Indian commercial goods, especially tea, pharmaceutical products, organic chemicals, perishable goods, vehicle spare parts, high-value items like industrial printers, 3D printers, robotic assembly accessories, ATMs, and so on. Despite such enormous trade potential and India’s good bilateral relations with the CARs, including Russia, the economic engagement between the two sides is far below the potential. During 2013-14, total trade between these two regions was only $1241.4. This amounts to $1097.5 million in 2021-22. Interestingly, for the first time, India’s exports to CARs superseded its imports. India’s total trade with its oldest trading partner, Russia, is also not satisfactory. Total Indian imports from Russia in 2013-14 were $3894.4 million, and exports to Russia were $2121.0 million, which increased to $9870.0 million and $3254.0 million, respectively, in 2021-22, which are not at all pleasing.

Table 1:
Indian trade ($ million) with CARs and Russia

Year/Nations		2014	2015	2016	2017	2018	2019	2020	2021	2022
CARs	Export	538.0	604.6	362.5	338.3	364.9	442.5	469.3	658.5	678.8
	Import	703.4	775.7	456.9	612.5	1116.5	863.0	2328.2	826.4	419.7
Russia	Export	2121	3396	1588	1937	2113	2389	3017	2655	3254
	Import	3894.4	4249.2	4585.0	5552.3	8573.5	5840.4	7093.0	5485.8	9870.0

• Source: Export Import Data Bank, Department of Commerce, GoI.

Lack of undeviating connectivity was the key hindrance to the low level of trade with the landlocked CARs. Before the introduction of the INSTC, India had to follow the traditional maritime route (16,112 km) stretching from St. Petersburg through the Baltic and North Seas, the Mediterranean Sea, and the Suez Canal to Mumbai via the Arabian Sea for exporting goods from Mumbai to Russia (Moscow), which took 30-45 days to reach and deliver the goods (ERAI, 2020b). After the full functioning of the INSTC, this distance will become around 7200 km, which will take 15-24 days to cover, depending on the choice of route. Delivery along Route 1 will take 17-20 days; along Route 2, 18-24 days; and along the railway passing through Kazakhstan, the delivery time is reduced to 15-18 days (FFFAI, 2014). In June 2021, a test shipment of paper in 32 forty-foot equivalent units takes 18 days to reach the destination at the port of Nhava Sheva (India) from Vuosaari station, Finland, along the INSTC (Tsots, 2021). The container train takes 6 days to reach the Astrakhan station (Azerbaijan). Thereafter, these were unloaded and trucked to the port of Bandar Abbas, and then by sea to the final destination on July 7th, 2022⁹.The corridor reduced the transport cost by $166 per tonne of cargo compared to the existing charge, indicating that the route along the INSTC is shorter and therefore less time-consuming and less expensive (Kiesow, I. & Norling, N., 2007).

Table 2:
Comparison of distance and transit cost of Traditional routes and INSTC routes

Corridor		Routes	Distance	Via	Transit (Days)	USD/TEU
Traditional		NhavaSheva - Moscow via St. Petersburg	8700 nm	Sea	45	3500
		NhavaSheva - Moscow via Kotka	8596 nm	Sea	(45-50)	3900
INSTC	Route 1	NhavaSheva - Bandar Abbas	1265 nm	Sea	5
		Bandar Abbas - Astara	1737 km	Road	4
		Astara - Baku ICD)	283 km		2
		Baku - Moscow	2195 km		6
		Moscow - St. Petersburg	961 km		2
	Total	NhavaSheva - St. Petersburg	5176 km+Sea		(17-20)	2200
	Route 2	NhavaSheva - Bandar Abbas	1265 nm	Sea	5
		Bandar Abbas - Amirabad/Bandar Anzali/Nowshahr	1600 km	Road	13-19
		Amirabad/ Anzali - Astrakhan	1000 nm	Sea
		Astrakhan - Moscow	1401 km	Road
	Total	NhavaSheva - St Petersburg	3001 km+Sea		(18-24)	2200
	Route 3	NhavaSheva -Bandar Abbas	1265 nm	Sea	5	200
		Bandar Abbas-Sarakhs/Inch Broon	1500 km	Rail	11
		Sarakhs/Inch Boroon-Moscow (via Turkmanistanand Kazakstan)	4633 km	Rail
	Total	NhavaSheva -St. Petersburg	6133 km+Sea		(15-18)	DNA

• Source: FFFAI Dry Run Final Report 2014. DNA - Data Not Available.

After the inclusion of the Chabahar port in the INSTC, India will be connected directly with the Central Asian countries, including Afghanistan, Russia, and North-West Eurasia. Its synchronization with existing transport initiatives in the Central Asian (Europe-centric) region, like the Black Sea Economic Cooperation (BSEC), the Ashgabat Agreement (2016, Central Asia-centric), and BRI, will add new dimensions to trade linkages and opportunities in the region. This makes it possible for a network of integrated international east-west and north-south transportation corridors in Eurasia to form the backbone for regional transportation. This, in the coming years, will help to increase the import-export potentials among the member states and promote the active development of the economies of the countries, especially India (Vinokurov & Libman, 2012). Over 6.4 million metric tons of cargo was moved between India and the seven EU nations along the INSTC in 2020, including 2.22 million metric tons from India to the EU and 4.15 million metric tons from the EU to India. The total potential INSTC traffic by 2030 is anticipated to be 14.6-24.7 million metric tonnes, comprising containerized and non-containerized commodities, and the rise in freight traffic is more likely to be in the direction of travel from North to South by 2030, making up to 70 percent of the total container freight traffic (Evgeny Y. Vinokurov et al., 2022; Eurasian Development Bank, 2021). Food grains make up almost 50 percent of the entire consignment. It is expected that the trade relations between India and Russia will improve and be able to meet their goal of $30 billion over the next ten years.

Table 3:
Aggregate potential of INSTC freight traffic by 2030

Product categories	Aggregate potential 2030 (TEU)
Food Products (excluding Grain and Bulk Oil)	69,000 - 164,000
Food Grains	300,000 - 450,000
Metals and Metal Products	54,000 - 113,000
Wood, Wood Products, and Paper	31,000 - 68,000
Machinery and Equipment	27,000 - 60,000
Mineral Fertilizers	16,000 - 34,000
Textiles, Textile Products, and Footwear	15,000 - 24,000
Aggregate potential	510,000 - 913,000 or 14,6 - 24,7 mln tonnes

• Source: Eurasian Development Bank, 2021.

In the present scenario of the Russia-Ukraine war, sanctions over Russia, and the blockade of road transportation along the land border between the EU and two EAEU members, Russia and Belarus, Russia wants to diversify its trading directions to the south through INSTC. This provides a good opportunity for India to form a partnership between the two regions and to increase its trade value. This crisis also gives India the chance to export to Russia some higher-value products, including electrical machinery, spacecraft, and airplanes that were previously imported from the US and Europe.

INCENTIVES TO INDIA’S STRATEGIC IMPORTANCE

India is the world’s most populated country and the third-largest consumer of power resources after the USA and China. It has a vast market also. To meet the demand for its inevitabilities, especially power resources, New Delhi is constantly trying to improve its relations with the resource-rich CARs, which in present times have drawn the attention of major world powers (Sanchita Chatterjee, 2018). So, Central Asia has gained a valuable place in Indian foreign policy affairs for more than two decades (Sandeep Singh & Amanpreet Kaur, 2014). The relations between India and the CARs have expanded after several high-level visits and the country’s joining the Shanghai Cooperation Organization (SCO). Through the “Connect Central Asia” Policy of 2012 and other frameworks, India has been developing its close ties with CARs in trade, energy (hydrocarbons and uranium), defense, counterterrorism, as well as in the technical and cultural spheres¹⁰ (Das, J. P., 2012). India will gain more geopolitical influence by allowing its direct access through the INSTC to resource-rich CARs, which India perceives as an alternative source of energy supply and a huge market for Indian goods. It will benefit strategic and economic diplomacy for all the involved countries, particularly Iran and Russia (Roy Meena Singh, 2015). An increase in bi-lateral trade between Russia and India will strengthen their age-old friendships, which may discourage Moscow from making an alliance with Islamabad or China. It will also provide a window of opportunity for India to engage with the trading blocs, including the Eurasian Economic Union, the Central Asian Union, and the EU. The project will also provide a chance for the internationalization of India’s infrastructural state. India can strengthen its position by gaining access to a short route to Georgia, the Black Sea ports, and the EAEU market. In the near future, India will be able to rope in other interested countries like Singapore, Japan, Myanmar, Thailand, Cambodia, Laos, and Vietnam to be partners in the project, which considers Central Asia as a lucrative market for their products. In this way, this connectivity project will be a “game changer” for India, allowing it to get a position as a prominent player in the Eurasian space, which is strategically very important and where India has historically, and especially in the modern era, remained a marginal player (Zucker, J., 2017).

The INSTC is a crucial part of a network of latitudinal and meridional trade routes, including those that will be constructed as part of the Chinese One Belt One Road (OBOR) initiative. However, there are a growing number of predictions about the possibility of a clash between the INSTC and the BRI, supported by enough evidence and arguments. Both of these megaprojects have a common factor: Russia is an important player in geopolitics. Apart from that, BRI involves itself in the creation of a new corridor, while INSTC attempts to connect existing transport facilities by creating alliances and memoranda of understanding (MoUs). The geopolitical significance of BRI over Central Asia, which India considers its ‘extended strategic neighborhood’, is more than its economic reasons and connectivity, which are the reasons for India’s detachment. India’s credibility is highest among most of these 60-odd countries, which is why Beijing needs India’s participation¹¹. In a multipolar world, India’s attempt is to balance its relations with all the major powers. India has been proactive in maintaining its strategic influence in its vicinity and its extended neighborhoods. The Indira doctrine emphasized and stipulated that all domestic political conflicts in the neighboring states should be resolved with India’s help (Suzelle M. Thomas, 2019). Later Gujral doctrine stressed no reciprocity with neighbors, so the current Prime Minister of India put forth the neighborhood first policy. So far, neighborhood policies have been welcomed, but they have not produced the expected results. In this milieu, the INSTC aims to promote India’s economic cooperation and fortify relations with its “extended neighborhood,” which includes states such as Russia, Iran, and other Central Asian countries.

RUSSIA-UKRAINE WAR AND THE INSTC

Central Asia is significant for Indian geostrategy and geopolitics in the context of its extended neighborhood (Jha, 2017). The creation of a free trade zone (FTZ) between the Eurasian Economic Union (EAEU) and India is an example of India’s effort to expand its economic relations. The central idea behind this FTZ was the INSTC. Following the geopolitical developments caused by the war in Ukraine and the energy relations between New Delhi and Moscow, INSTC has become a platform for multilateral cooperation between India and Russia. Today, geopolitical shifts and the required configuration of freight transport supply chains in Eurasia due to the Ukraine crisis have shifted the EAEU’s pivot to the South, particularly on INSTC. Western sanctions and EU countries blockade road transport along their land border with two EAEU member nations: Russia and Belarus, creating a huge challenge to reconfigure logistics and supply chains. All Eurasian actors are searching for alternative routes when the shipping sector is facing problems of port congestion, shipping delays, and container shortages, resulting in extensive delays and record high freight rates (Millar, 2022). So the launch of INSTC is a key solution for the EAEU and Central Asian countries for trade expansion with India, Iran, Turkey, and the Persian Gulf. If the crisis between the West and Russia continues, this corridor will serve commercial relations between Russia and South Asia by bypassing Western sanctions against Moscow.

In the context of the Russia-Ukraine war and western sanctions on Russia, India has become one of the main buyers of Russian seaborne crude oil. The US, Canada, Australia, the UK, and 27 other countries in the European Union have entered into an agreement to impose a price cap ($60 per barrel) on Russian oil, which contributes nearly half of Russia’s annual revenues (Reuters, December 5, 2022). Oil from Russia needs to be transported to other nations, and for this reason, maritime transportation and insurance services are important. Amid all this, India bought many times more oil from Russia before the war. Its imports have increased from 0.2 percent (25,000 barrels in the pre-war situation) to 35 percent (1600000 barrels per day in February 2023) of its overall crude imports (The Economic Times, March 5, 2023). After the Ukraine crisis, Russia has shown more interest in investing in the development of railway infrastructure in Kazakhstan, Mongolia, and China by 2030 (Kaztag, 2022) and has also decided to invest in two major projects in Iran and Azerbaijan within the INSTC framework. The Ukraine crisis and Russia’s policies towards the East revived INSTC, and the project gained priority in the geopolitical policies of Russia. Amid the Ukraine crisis, the role of INSTC in Russia’s foreign policy and Moscow’s relations with South and Southeast Asian countries will become more prominent. As a result, the geoeconomic and geopolitical role of INSTC as a transit corridor away from the influence of Western countries will be greater than before.

However, the war, to some extent, has altered the region’s geopolitical and economic environment, which has debilitated the progress of INSTC. As a result of the western sanctions on Russia (Melander, Ingrid; Gabriela, Baczynska, 24 February 2022), the principal contributory member of the megaproject, its economy is greatly affected. This impacted Russia’s ability to support and encourage the development of the INSTC’s infrastructure, which in turn impeded the smooth execution of the INSTC, causing delays in investments and infrastructure development. This discourages businesses and investors from committing to long-term initiatives in the region.

THE IMPEDIMENTS

Two decades have passed since the official announcement of the project, yet the INSTC did not get its final shape because the project is suffering from a set of more than 40 infrastructural (missing links and bottlenecks in transport) and non-physical (market access, tariffs, terms, and administrative procedures) impediments (EDB report: 2022). All these slow down the materialization of the megaproject.

INFRASTRUCTURAL BOTTLENECKS

The INSTC is a multi-modal transport corridor consisting of rail, roads, and waterways that passes through a number of States. One of the main issues related to infrastructure is the unfinished railway section, or missing link, that impedes its promise for seamless connectivity. There are two such missing links in the corridor, namely the Rasht-Astara missing link in the Islamic Republic of Iran and the missing link in the southern Armenia-Iran Railway Corridor (Roshaniyer, 2018). Freight in this section is to move by road to continue the journey by train in a later phase. Again, different countries have different gauge systems on their railways, hindering smooth cargo movement. For example, the railway gauge of the Caspian countries (with a 1,520 mm rail system) is different from the gauge system of the Islamic Republic of Iran (with a 1435 mm rail system) (Evgeny Y. et al., 2022). This type of break-of-gauge system is not economically feasible for freight operations. Besides, in the transportation of some other types of freight, like liquid cargo, where bogie exchange or car-to-car transshipment is not always possible for safety reasons, different track gauges remain a significant obstacle. The specifics of the products, like LNG, oil, petroleum, coal, and coke, are subject to infrastructure restrictions or tariff efficiency, making the use of the INSTC very difficult. The present design of the INSTC ignores the need to build infrastructure such as ports, harbors, townships, and hotels alongside that would uphold and endure the trade activities.

For the time being, multinational corporations and private companies have taken a back seat in the project’s development. Various issues, such as the difficulty of freely conducting business within any national territory due to government excesses¹², the low level of existing containerization, the high tariff rate of rail and road transport from Bandar Abbas, local bureaucratic complications, and so on, discourage them from participating in and investing in the project. Consequently, they are reluctant to invest but rather interested only in building their respective portions of the corridor through self-financing and procured loans (Ritika, P., 2017).

In present times, advanced digital technologies play a vital role in the present-day transportation and logistics industry. Modern technologies are simplifying work tasks, fostering innovation, raising the bar for coordination and cooperation between people in close and distant proximity, and even changing the planning, building, and maintenance of infrastructure. Smart energy, cloud computing, 3D printing, humanized big data, clever algorithms, and artificially intelligent robots are a few examples of these technologies. These helps businesses use real-time data (or near-real-time) to improve processes, reduce costs, increase efficiency, and provide better services. The Internet of Things enables a faster and more efficient circulation of products (Kumar, S. et al., 2019). The INSTC has been shaped to implement an inter-regional commercial strategy that motivates their respective domestic production and demand. Nowadays, almost all the INSTC stakeholders and developer states are trying to innovate, accelerate, and collaborate with third parties on new digital technologies¹³. However, there has only been a slight introduction of digitization into this process thus far, and the activities remain conventional.

FINANCIAL CONSTRAINTS

One of the key constraints relating to project infrastructure is the lack of finance and investment for its upkeep. More than 100 investment projects, including roads, railways, border crossing points, seaports, maritime transport, and shipbuilding inland waterways, are either ongoing or scheduled for implementation before 2030, for a total of more than $38 billion USD (EDB report, 2022). The majority of it (21.6 billion) will be used to extend the INSTC road networks and railroad networks. But INSTC has no dedicated financial institutions or instruments to keep up with the pulse of development. It is proceeding in an ad hoc manner without any long-term strategy and is mostly financed by regional institutions like the Eurasian Development Bank (EDB) and the Islamic Development Bank (IDB) or by INSTC member states, especially Russia, Iran, Kazakhstan, and India, who invest directly in their own or their neighbors’ projects (Mher Sahakyan, 2020). Russia and Iran are home to a sizeable percentage (68.3%) of INSTC infrastructure development projects that are either underway or in the planning stages (EDB report, 2022). However, due to sanctions imposed on Russia (for its invasion of Ukraine) and Iran (due to its nuclear program and backing for Hezbollah, Hamas, and Palestine Islamic Jihad), investing in or carrying out projects has become difficult.

GEOPOLITICAL CONSTRAINTS

The operational stability of the INSTC is currently inhibited by a wide range of geopoliticalissues. Stronger sanctions were placed on Iran when the US withdrew from the Joint Comprehensive Plan of Action (JCPOA), which caused a number of global firms to drop connection projects there. For instance, the Iranian state-owned railway corporation and Hyundai Rotem of South Korea parted ways. The German corporation Siemens postponed its railroad plans in Iran in 2018 over fears about sanctions¹⁴. As a result, foreign direct investment into Iran decreased, falling from $5,019 million in 2017 to $2,373 million in 2019 and $1,342 million in 2020¹⁵. In different periods of time (2014, 2016, and 2022), Russia comes under Western restrictions. These create hurdles for Tehran and Moscow to make major investments in infrastructure projects. The electrification of the 495-km Garmsar-Inchboroon train line connecting Turkmenistan and Kazakhstan (financed by Russian Railways for $1.39 billion¹⁶), the Rasht-Astara railway link in Iran, which is expected to be finished in 2025, are all particularly affected by the Russian-Ukrainian war and the ensuing economic sanctions against Moscow.

One of the major concerns in the geopolitical game is Iran, which is the founding member of this project. Iran is situated at the confluence of the INSTC and China’s Silk Road Economic Belt (Ritika, P., 2017). China has always wanted Iran to join the BRI, giving Tehran many opportunities. It has shown interest in the petrochemical investment zone surrounding the newly built Chabahar port. It also wants to take part in the modernization of the port. China is always interested in grabbing any opportunities in Chabahar port if India fails to implement its plans for the successful development of the same so that they can include Iran in the CPEC project. In this situation, Iran is the game changer in the project, and Tehran must make a strategic choice between India’s INSTC and China’s BRI.

Significant political differences between the member states,particularly those in the Middle East and the Caucasus, have become key constraints for the project. There are many ongoing conflicts among INSTC member states, like the Artsakh (Nagorno-Karabakh) conflict between Armenia and Azerbaijan, the conflict between Georgia and Abkhazia and Russia, the Russo-Ukrainian conflict, the Turkish-Syrian conflict, etc. These create roadblocks in the development of infrastructure and the overall development of the project. In spite of being a party to the INSTC agreement, the Republic of Armenia is not interested in getting access to the international market in 2020 by using INSTC infrastructure due to the Nagorno-Karabakh conflict (Matveeva, Anna, 2002). All these could discourage funding for important infrastructure initiatives and impede the overall progress of the corridor.

LOGISTICAL CHALLENGES

There are major logistical obstacles in the way of the prolific functioning of the INSTC. The corridor crosses several nations, each with its own set of laws, customs policies, and infrastructure setup. This causes delays and administrative burdens for shippers and reduces its effectiveness (Vinokurov, E.Y. et al., 2022). The efficiency of the corridor may be impacted by delays in clearance procedures that prevent the timely flow of products. Congestion brought on by port and terminal capacity restrictions, especially during peak hours, may have an effect on the corridor’s operational efficacy. Obstacles caused by multiple border crossings, disparate regulatory systems, uncoordinated logistics, and infrastructure for efficient transfer of goods among different modes of transportation, such as from sea to land or between rail and road, etc., also stand in the way of the successful implementation of INSTC as a logistical challenge. The lack of common border crossing rules among participating nations, as well as the visa issue for long-haul truckers, has also become a concern in terms of cargo convenience (Vinokurov, E. Y. et al., 2022).

INSTITUTIONAL AND ADMINISTRATIVE SHORTCOMINGS

One of the key instruments used to gain access to the international road freight transport market is the permit system. Among the INSTC member states, it is mostly bilateral. Again, large numbers of the Eurasian countries currently have no such agreement with India or many South Asian countries. This, on the one hand, prevents direct road freight transport and, on the other hand, inflates the delivery costs. It also causes problems with third-party liability coverage for cargo and vehicles. The absence of a single multi-modal operator prevents the merger of the various international transport sections into a single logistical mechanism. The uncoordinated customs rules among the member states obscure the process of state border crossing by freight and vehicles. The lack of a one-window mechanism at border crossing points has failed to implement the transit guidelines of the World Customs Organization. This takes a long time (up to 50% of transit time) to complete customs and other formalities at maritime ports and border-crossing points (UNESCAP, 2017). There is a problem related to the coordination of rate policies for railroad freight services as well as vessel maintenance and cargo handling services provided by seaports under this project. In most cases, the transportation of cargo along the INSTC is associated with additional insurance costs. The railway tariffs along this corridor vary differently in different member states. All these hinder attracting new cargo flows.

Different administrative issues, like the lack of marketing policies, the lack of a transport corridor’s managing company, inconsistent transportation laws, insurance coverage, security of cargo transit, the absence of an end-to-end logistical operator and end-to-end ferry schedules, etc., are the constraints in the development of the corridor (UNECE, 2012). The meeting of the Coordination Council of the INSTC is held very irregularly. After the formation of the council, only a very few meetings have been arranged, and there were no meetings in 2007-2017. Not only that, meetings of expert teams established in accordance with the Charter of the Coordination Council to discuss matters related to the operation of customs, ports, etc., have not been convened at all till now. Administrative obstacles may also result from problems with bureaucratic inefficiencies, political and diplomatic strains among the nations, and corruption in certain of the corridor’s member nations.

ENVIRONMENTAL ISSUES

Despite its potential to improve regional trade and economic cooperation, environmental worries accompany the INSTC. The corridor may have an impact on biodiversity, which is a significant environmental concern. As a part of the infrastructure for the project, several new highways, railroads, tunnels, and bridges are being constructed. This may cause deforestation, species displacement, habitat disruption, and changes to regional ecosystems. The possibility of increasing air and noise pollution as a result of increased vehicle activity along the corridor is one major cause for concern. Using trucks, trains, and ships, among other forms of transportation, can result in increased emissions of greenhouse gases and particulate matter, which worsen the state of the air. Particularly in urban regions and environmentally sensitive zones, increased traffic and the flow of commodities via the INSTC can exacerbate air and noise pollution. In this way, the INSTC could be a contributing factor to climate change. Marine habitats may also at risk from the possibility of oil spills and other events involving hazardous materials during maritime transportation. Moreover, the INSTC travels through areas that are vulnerable to earthquakes and natural disasters, which could have long-term effects on nearby communities and ecosystems.

CONCLUSION

The INSTC has good potential to shape the framework of a strong connectivity network from the Indian Ocean to Baltic Sea and to improve bilateral relations among the member states. For India, this corridor will be a game-changing project. It also has the potential to counterbalance the Chinese influence in Central Asia and beyond. The INSTC is of significant economic and strategic value to India, given China’s expanding regional ambitions through its One Belt, One Road program. In the future, the project has the potential to incorporate other corridor stretches in the countries of the Caucasus, South-Eastern Asia, and Northern Europe. The corridor could be extended to include the Baltic, Arctic, and Nordic regions. India can do well to rope in other interested parties like Japan, Myanmar, Thailand, Cambodia, Laos, Vietnam, etc. to join in the project, which also perceives Central Asia as a lucrative market for their products. Japan has shown interest in the Chabahar port and expressed serious concern over proposals to improve connectivity among Iran, Afghanistan, and Central Asia.

However, the geopolitical turmoil in the area, along with other different impediments, has a serious and depressing impact on its development. The ongoing Russia-Ukraine war has added a new dimension to this volatile ambiance. To fully realize the economic potential of this vital transportation corridor, resolving these challenges is crucial, which requires persistent diplomatic efforts, streamlined regulatory frameworks, significant investments, and effective cooperation among the participating governments.

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• 1
  “The North-South Corridor: Prospects of multilateral trade in Eurasia”. Russia & India Report, 14 March 2012. Retrieved on July 15, 2015.
• 2
  “Ports Information - Chabahar” . Seas Ark S.A. Retrieved 30 June 2016.
• 3
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• 4
  “The takeaway from Tehran” . The Hindu. Retrieved 26 May 2016. Memorandums of understanding on provision of services by Indian Railways, including financing to the tune of $1.6 billion, for the Chabahar-Zahedan railway line.
• 5
  “On a railroad from Russia to Iran” . The Hindu, 13 July 2016.
• 6
  See https://www.railfreight.com/corridors/2022/11/14/iran-inaugurates-critical-instc-railway-section/
• 7
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• 8
  See https://intueriglobal.com/international-north-south-transit-corridor-instc-impact-analysis/
• 9
  “Russia launches trade with India via eastern branch of INSTC involving Central Asian States, IBEF”.
• 10
  Yogesh Gupta, The Tribune, https://www.tribuneindia.com/news/comment/central-asia-of-strategic-import-for-india-355185.
• 11
  Interaction with a Keen China Watcher and Political Commentator, Sri Seshadri Chari, during August 30-31, 2018 at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education (MAHE).
• 12
  Business Standard, January 20, 2013. Mode of access: https://www.business-standard.com/article/economy-policy/foreign-arms-endors-contestunexplained-blacklists-112032600091_1.html.
• 13
  Russia’s Middle Class Opens Door to Private Healthcare Providers //Financial Times, 21 February, 2018. Mode of access: https://www.ft.com/content/672684ea-1649-11e8-9376-4a6390addb44.
• 14
  Radio Farda, Looming Sanctions Jeopardize Expansion of Iran’s Rail Network.
• 15
  World Investment report, “UNITED NATIONS CONFERENCE ON TRADE AND DEVELOP­MENT”, United Nations Publications, New York, 2021, https://unctad.org/system/files/official-document/wir2021_en.pdf.
• 16
  Contessi, “In the Shadow of the Belt and Road”.

• 17
  JEL Classification: F02.

Publication Dates

• Publication in this collection
  22 July 2024
• Date of issue
  2024

History

• Received
  29 May 2023
• Accepted
  22 Jan 2024