By: Megha Mittal, Research Analyst, GSDN
It’s an international corridor for transport from north to south, the corridor that stretches 7200 kilometers multimodal trade routes between India and Russia, connecting to Europe through Iran to Azerbaijan and Central Asia. This corridor was initiated by an agreement in between India, Russia, and Iran in 2000, and has already opened to the full participation of several other members, thus, it has proven out to be increasing in its significance on regional and global trade. Unlike the maritime route, which traversed through the Suez Canal, this offered a shortening and effective alternative route for freight transportation by rail, road, and water transport-the INSTC route.
Geopolitically and economically, the present Eurasia is the outcome of hundreds of years of trade, connection, and strategic competitions. As for geopolitical attributes, Central Asia has been the major historical scene, crossing places between Europe and Asia with rivalries among great powers because of where exchanges occur. In the modern context, owing to the natural resources embedded in Central Asia and the opportunity for connecting this region with the rest of the world, the vast majority of existing world powers such as China, Russia, and the United States have been queuing for possible positions or footholds to gain influence. India too has historical economic and geopolitical relations with Central Asia, which date back to the Silk Route era, when trade routes linked what is now Northern India with Persia, Central Asia, and possibly points further afield.
Today, the engagement for India in Central Asia is bound to be affected by geographical and political barriers as the region is landlocked and lies outside direct access from India to Central Asia through territory of Pakistan. It understands well the strategic necessity for alternative connectivity routes and thus has put its efforts in his direction in aims such as the International North-South Transport Corridor (INSTC) for broadening India’s economic footprint and strategic interests in the region. As a comprehensive, multimodal transport corridor between India and Russia and Europe through Iran and Central Asia, the INSTC has integrated itself fast into Indian regional strategy.
Role of INSTC in Enhancing Indo-Central Asia Ties
Connectivity, in its essence, is an inevitable pillar of regional cooperation and integration. The International North-South Transport Corridor (INSTC), to be based on a multi-modal transport system, is extremely important in linking India, Central Asia, Russia, and beyond. Enabled initially by an agreement in 2001 among India, Russia and Iran, the corridor has slowly developed to become an increasingly strategic reason for several other countries to join in.
In fact, it brings India close to a very promising alternative route to Central Asia, besides avoiding travel by Pakistan. The corridor joins India’s Mumbai and Kandla, with Bandar Abbas and Chabahar in Iran, connecting for almost all types of trade flows-surface, rail, and seas. Later-on, the goods from Iran are transported by sea, to the Caspian Sea to Russia and to Europe. This explains cost and time spent on it, which has decreased by around 50% or more than the previous route through the Suez Canal.
The INSTC may be the biggest enabling factor for expanding trade and economic linkages for India with Central Asia. Indian traders had traditionally used these land routes to trade in commodities; however, with newer geopolitical realities, they need to think of alternatives. Corridor means for carrying Indian goods from pharma, textiles, and machinery to the Central Asian market. On the other hand, for India, it still needs hydrocarbons that are present in large quantities in Central Asia, primarily oil and natural gas. The corridor thus promises to make for more regional efficiency and attractiveness with the addition of new partners like Azerbaijan, Kazakhstan, and Turkey.
Apart from the economic benefits, the INSTC is also strategically relevant to India’s foreign policy toward Central Asia. By increasing economic dependence on this part of the region, India may counteract a significant thrust of the Eurasian influence wielded by China because of the BRI. Also, the promotion of INSTC’s own part, namely Chabahar port, will ensure a connect for India’s connectivity into Afghanistan, thus ensuring less reliance on transit routes through Pakistan.
India’s Export Potential in INSTC Member Countries
According to 30 to 40% of average reduction in transit time and cost savings of about 30%, the INSTC now brings a national opportunity for India to expand its exports with eligible countries like Russia, Central Asia, Iran, and other member countries. The Indo-Russian trade is already exceeding US$ 50 billion and is expected to increase more with the needed acceleration provided by INSTC in the commercial exchanges in sectors where India has a competitive advantage in 2023.
Pharmaceutical products and healthcare commodities form among the most important exports. In 2022/23, pharmaceutical exports from India to Russia included only slightly less than that of $591 million. The increasing demand for affordable generics and medical devices found in Central Asia and Iran thus makes it very possible for the INSTC to act as a significant channel for India’s medical industry.
The engineering and machinery sector, which exported US$ 2.4 billion worth of goods to Russia in 2023, would benefit equally. Faster and more reliable logistics would enable the smooth functioning of the supply chain for automobile components, electrical equipment, and heavy machinery. Another sector with vast potential for export opportunities is IT and digital services, with the demand from Russia and Central Asian countries for Indian software solutions, fintech, and cybersecurity continued to grow.
India is already exporting US$ 567 million worth of tea, coffee, and spices to Russia and US$ 330 million of basmati rice to Iran for agricultural and food processing. The INSTC can increase agricultural exports by reducing spoilage and transit time hence strengthening India’s position as a key food supplier. In the textiles and apparel sector, another major sector, exports were pegged at USD 548 million to Russia and USD 204 million to Iran in 2022, while the corridor can serve to strengthen India’s competitiveness in these markets.
Challenges in the Operationalization of INSTC
The International North-South Transport Corridor (INSTC), which holds much strategic promise, has a number of barriers toward its uninterrupted realization. Infrastructure is one significant constraint, especially when it comes to the railway and road infrastructure in Central Asia as well as in the Caucasus. Somewhat well developed, although inefficient because of the delay of connectivity into the rail networks and between these with the transshipment facilities, are the transport networks across Iran, Russia, and India. Moreover, the Bandar Abbas and Chabahar ports in Iran need further expansion to catalyze heavier trade volumes.
Customs and regulatory issues are additional problems posed to trade flow. The varying tariff structures, complex customs procedures, and different documentation are lengthy bureaucratic delays in trade facilitation. In this, the absence of a Free Trade Agreement (FTA) between India and the Eurasian Economic Union (EAEU) works against competitiveness for India in these markets.
Financial issues with sanctions mainly on Iran and Russia create challenges to trade. Limited direct banking channels; alternative payment systems; and currency fluctuations, all contribute to the perceived risk to businesses.
A further impediment presents itself in the exotic realm of risks-the challenge posed by geopolitical factors. US-Iran tensions and sporadic conflicts between Azerbaijan and Armenia have created uncertainties along major transit routes. At the same time, the Russia-Ukraine war threatens other INSTC routes. In this context, China, with its Belt and Road Initiative (BRI), is constructing competing trade routes such as the Middle Corridor, thus siphoning off traffic from INSTC.
To tackle the situation the countries on the INSTC will have to work towards improving infrastructural development, regulatory harmonization, and advanced financial management. The active participation of India in enhancing logistics and trade facilitation will be helpful for realizing the entire potential of the corridor.
Conclusion
The multi-spherical International North South Transport Corridor (INSTC) is indeed a commendable advancement in global trade, providing India with an important link connecting Russia with Central Asia and Europe. Development of the corridor is a way of bypassing Pakistan and minimizing the utility of the Suez Canal. Consequently, not only can this reinforce India’s economic outreach, but also add to its geopolitical clout in Eurasia. Depending on how the INSTC program attempts to overcome obstacles arising from infrastructural constraints, financial bottlenecks, and regulatory complications, the project could totally reshape regional trade structures with the kind of fastness and cost-effectiveness which is otherwise not available via existing routes.
Export sectors such as pharmaceuticals, engineering goods, agriculture, and textiles will vary with potential benefits, courtesy of improved access to member states of INSTC. However, the total benefit realization via the corridor will need an integrated approach to put in place appropriate infrastructure, rule-based trade regulations, and financial arrangements. Agreement on such solutions would be necessary through regional cooperation, investments, and coordinated policy effort.
Global economic and geopolitical changes reshaping Eurasian connectivity today would render INSTC an important strategic asset for India, furthering India’s outreach as a major player in the region. By tackling operational impediments and improving trade facilitation, India can guarantee that INSTC develops into a fully functional, resilient, and competitive corridor propelling deeper economic integration and long-term regional stability.
