India and INSTC: A Critical Appraisal

Project Stakeholders and Catchment Area

The International North South Transport Corridor is a multimodal infrastructure project between India, Iran, Afghanistan, Azerbaijan and Russia via rail, road and ship. Initiated by Iran, India and Russia in September 2000 at Saint Petersburg, this trilateral project’s agreement was signed on 16th May 2002. This joint initiative was subsequently joined by Azerbaijan in 2005. These four countries lie in the same corridor in geographical terms, and have been hopeful towards building the corridor to secure common economic interests. Over the years, the project membership has increased by ten more states- Belarus, Ukraine, Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkey, Armenia, Syrian Arab Republic and Oman have also become the participants of the project while Bulgaria maintains the position of an observer state.

This long land and sea-based network project, is 7200 km long and connects the port of Mumbai in South and Astrakhan, Moscow and Baku in the North. The project aims to reduce costs and travel time for the freight transport of goods across the borders. It would increase the trade ties between the participant countries and would increase the cooperation between the nation states on trade and transport policies as well as on laws of transport of both passenger and goods.

This project has been hailed as a complementary project of the East-West transport corridors spearheaded by China under One Belt One Road or Belt and Road Initiative (OBOR/BRI). The INSTC project has been overshadowed by the Chinese OBOR project when it comes to the global infrastructure discourse. Even though the BRI project officially began in 2013, it has made fast progress which has caught the public attention. But unlike the BRI project, INSTC is a multilateral project with multiple stakeholders involved in it. It cannot be denied that there have been several setbacks and delay in the INSTC project but it has gained momentum in past few years.

Project Development –A Realistic Audit

The international realm is extremely dynamic and volatile. The nation states have realised that interdependence on one nation is not a practical thing to do. This has led to the need to develop new chains of supply. This has invigorated the international system with new projects of connectivity. INSTC is one such ambitious project which is considered to be parallel to BRI project. Even if INSTC has been under the shadow of BRI Project, it has made considerable advancements. The transport corridor will be functional for both the government and private sector. The travel on this route would be two times faster via the sea, which requires passage through the Suez Canal and the Strait of Gibraltar, before the English Channel and ending somewhere on the northern coast of Europe. The INSTC project conjoins various other infrastructural projects along the route which connects the countries with each other. 

Iran holds an extremely important place in the INSTC project, both because of the resources at its disposal, and its strategic location. It acts as the node which connects India, and even Russia up to some extent to the other Central Asian countries who have participated in the project. In order to establish connectivity with the Central Asian countries and even the Asian countries has become important for Iran. It needs to have trade partners other than Western powers, with whom it can trade and skirt sanctions imposed by the US and the European nations. US sanctions have had a huge impact on its economy and Iran has learnt its lesson from the whole debacle. Its need to diversify its trade and has led to Iran participating in multilateral infrastructure projects to improve its connectivity, and thereby increase trade relationships and generate revenue.

In this light, Iran's railway revolution makes a lot of sense. Iran since 2015 has invested heavily in building its railways. While the railway projects may seem small, they are of vital importance. One such railway project is the Astara-Astara railway line under the ambit of INSTC, which connects Astara in Iran with Astara in Azerbaijan. The speed of rail matters more than the lowest cost of shipping for trade. For example, the delivery fresh perishable produces like fruits and vegetables can survive a 20-day trip from Mumbai to Moscow, but would rot if the spent 40 days in a container at sea. This 10km railway line is an integral part of the INSTC project as it connects India and Russia via Iran. Iran stands to benefit from this new railway line as it can transport the double the export of the oil. In the long term, this would increase. Hence, combined with an already robust truck trade, India-Russia business transiting through Iran, this project would generate both the needed tax revenues and jobs for the struggling Iranian economy.

While the Astara-Astara railway line has been completed and was inaugurated in 2018 but the Astara-Rasht railroad line is yet to be completed. Azerbaijan and Iran have decided to build this railroad between Rasht capital of Iran's Gilan Province and the border city of Astara in Azerbaijan under INSTC. Azerbaijan has already pledged to invest $60 billion dollars and the project has begun.

The North South Transitional Corridor is a 667 km long railway line connecting Turkmenistan and Kazakhstan with Iran and Persian Gulf. This corridor was inaugurated in 2014 and is functional. Iran also inaugurated the Astara port in 2013. This port is of vital important as it is the fastest way to transport products from Russia, Azerbaijan, Kazakhstan and Turkmenistan to India.

India and Iran had a long-standing agreement to develop Chabahar port. It is no secret that Chabahar port is of significant importance to India, Afghanistan and Iran for various reasons. Chabahar has the ability to cargo ships bigger than 100,000 tonnes. There have been many delays in the project because of funding issues but the industry analysts plan to integrate Chabahar with the INSTC project. If that be the case, then it is a very lucrative for all the countries, especially for India which has been trying to establish deeper trade relations with the European countries via INSTC. Chabahar has given India an access to the Central Asian countries. The Zaranj - Delaram highway is one such connectivity project which connects Chabahar with Afghanistan. 

INSTC project shows the growing geostatic and security cooperation between the nations. India has been forced to fix its ineffectual relationship with Russia and Modi government has leveraged its ties with Russia to increase its clout in Central Asia. India's renewed focus has collided with the Central Asia's efforts for internal regional integration. In this manner, INSTC has been an important aspect which has increased the cooperation between the Central Asian countries by giving their partnership a platform. 

India has also pledged around $500 billion in the project till now. In October - November 2017, India successfully dispatched an inaugural consignment of arounf 15,000 tons of wheat from Kandla in Gujarat to Afghanistan via Chabahar. In February 2018, India and Iran issued a joint statement that noted the inauguration of Chabahar Port Phase 1. The Federation of Freight Forwarders’ Association of India and the Kalinga Motor Sports Club, with the support of the Indian Ministry of External Affairs, the Indian Ministry of Commerce & Industry and other local partners, jointly hosted an INSTC Friendship Motor Rally to promote the INSTC. Starting in New Delhi, the route made its way down to Mumbai, then went over sea to Bandar Abbas, journeyed northwards through Iran and Azerbaijan to St Petersburg, and then from St Petersburg back to Chabahar.

Hailed by many in the media as India’s answer and preferred alternative to China’s Belt and Road Initiative and as part of a new Great Game where India and China are jostling for influence in “the playing field of the original imperial power rivalry in the 19th century: Iran and Central Asia”, INSTC is clearly drawing substantial attention in all of the countries along the corridor and, increasingly, also in the West. The project has received investment from many countries excluding the participants. Iran recently stated that it would be open to Chinese and Pakistani investment in the project, much to India's dismay. India is keen on receiving Japanese investments and it has even reported that Japan International Cooperation Agency (JICA) and various other Japanese banks may be interested in financing the project. Moreover, many multilateral organisations are stepping in support the project in different ways. Asian Development Bank has increased line of credit to Azerbaijan. Also, The French Development Agency is providing financing too.

While the project is ambitious it has certain challenges, which hamper its progress. The present design is limited in terms of territorial reach and scope of scaling business. There has been a huge emphasis on connecting missing link along the identified passage, but it ignored the need to build complementary infrastructure like harbours, ports, township and hotels which would sustain the trade activities. There is lack of joint comprehensive roadmap for sustaining the business ecosystem. The times are becoming digitised where technology is taking a front seat in all sectors, especially now, when the COVID-19 pandemic raging on. Technology diplomacy has enabled the cooperation to be faster and more efficient, and this lacks in the project.

Additionally, INSTC has failed to incorporate the private sector properly. The large companies have also hesitated to participate as they are wary of high risks associated to their return on investment in the developing project. Many private companies also feel that INSTC lacks economic merit for investment as it will only allow limited participation in trade activities. These concerns have been proved valid. In 2002, Iran awarded the Farsi block in the Persian Gulf to an Indian consortium – led by ONGC Videsh Limited (OVL), the overseas arm of India’s Oil and Natural Gas Corporation (ONGC), and comprising also Indian Oil Company (IOC) and Oil India Ltd (OIL) – for exploration. However, given all the regulations that Iran has in place preventing foreign entities from owning oil or gas resources in Iran or project promoters from taking out oil or gas from Iran, the OVL-led consortium had to bear all exploration-related risks, was guaranteed reimbursement only after commercial viability was established and had to develop the field through service contracts. The consortium promised plans and invested more than $5 billion in developing the field. The project however faced many more issues and delays. The ensuing negotiations and the blame game between India and Iran over differences in expected and offered rates of return on investment, who buys the gas (India or Iran), at what rate it should be sold, and how much should Indian firms be involved (upstream, downstream or both) led to Iran turning to Russian firms, and India instructing its state refineries to reduce oil purchases from Iran. The project now stands cancelled as per the recent reports.

With regard to Chabahar port, only 10% of the proposed capacity has been installed. It is not only widely underutilised and this could be an issue given that Iran is getting closer to China and India's growing disinterest in the project. India disinterest may also be a response to the renewed sanctions on Iran by USA. One cannot also ignore the slow progress of the INSTC project. India might also object to Turkey participation in the project especially when Turkey is raising the Kashmir issue.

The ongoing pandemic has had an impact on the progress of the project. But the actors involved in the project can take this an opportunity to overcome the challenges. This development project has immense potential and will revolutionise the trade cooperation if completed. Strengthened and pragmatic approach is needed and countries need to address the challenges and future framework of the project if they want to reap benefits from it.

Pic Courtesy- https://www.textileexcellence.com(The pic is used only for representational purposes)

(The views expressed are the personal opinion of the author)