International North South Transport Corridor (INSTC)

In News

• Recently, Iran starts the transfer of Russian goods to India by using the International North-South Transport Corridor (INSTC).

International North South Transport Corridor (INSTC)

• Origin: 
  • The foundation of the North-South transport corridor was laid on September 12, 2000, in accordance with an intergovernmental agreement signed between Russia, Iran, and India. 
• Aim: 
  • To reduce the carriage cost between India and Russia by about 30% and bring down the transit time from 40 days by more than half.
• Components:
  • Northern and Western Europe –– the Russian Federation; 
  • Caucasus –– Persian Gulf (Western route); 
  • Central Asia –– Persian Gulf (Eastern Route); 
  • Caspian Sea – -Iran Persian Gulf (Central Route).
• Connectivity & Length:
  • The INSTC is a 7200 km-long multimodal transportation network encompassing sea, road, and rail routes. 
  • It links the Indian Ocean to the Caspian Sea via the Persian Gulf onwards into Russia and Northern Europe 
  • It offers the shortest connectivity route between India and Russia.
• Ratification:
  • This agreement was ratified by 13 countries (Azerbaijan, Belarus, Bulgaria, Armenia, India, Iran, Kazakhstan, Kyrgyzstan, Oman, Russia, Tajikistan, Turkey, Ukraine). 

Image Courtesy: thewire

Significance

• Faster and Cheaper Route: INSTC boasts of the shortest trade route connecting India with Russia. It will slash the transit time to an average of 23 days for Europe-bound shipments from the 45-60 days taken by the Suez Canal route.
• Long-term Alternative: INSTC, in the longer run, would be an alternative to the Suez Canal and Mediterranean dominated by some powers and the Bosporus Strait.
• Increased Trade Volume: The INSTC will improve knowledge and information sharing mechanisms. Thus, the trade among the member nations of INSTC will  increase multifold.
• Creation of Regional Supply Chains: The creation of diverse supply chains across Eurasia might surely alter the stereotype of East as the producer and West as the consumer.
• Creation of backward and forward linkages: 
  • The member nations along the INSTC will get the opportunity to transform themselves into specialised transit and manufacturing hubs through infrastructural development. This will also simulate local industry, manufacturing, and trade along the way, thus transforming this transport corridor to a developmental corridor. 
  • It will also help in creating further employment and growth opportunities, leading to betterment in the overall economy of the bloc.

Benefits for India

• Better Economic Engagement: For India, it provides a shorter trade route with Iran, Russia, and beyond to Europe, creating scope for increased economic engagement.
• Increased Market Access: Cheaper cost of transport will lead to increased competitiveness of Indian exports, opening access to unfulfilled markets.
• Boost to Indo-Russian Trade: Besides reducing time taken for trade between India and Russia, INSTC is considered a viable option for Indo-Russian trade amid current geo-political challenges. 
• Supply of energy as a commodity: With India being the fifth largest energy consumer in the world, improved connectivity and trade prospects with the energy rich member nations cannot be overlooked. Also, another prospect of an oil pipeline development along INSTC cannot be ruled out.
• “Connect Central Asia” Policy: When looked at in sync with the Ashgabat Agreement, the INSTC could be the key to India’s “Connect Central Asia’’ policy.

Challenges

• Finance and Strategic Planning: Although the INSTC can open massive opportunities for all the stakeholders, the actualization of all its potential advantages will require a lot more in terms of finance, cooperation, political will, as well as strategic planning. 
• Security Threats: It also lacks private sector funding mainly because of certain security threats like spread of the Islamic State (IS) in the region, domestic political instabilities etc. 
• Differential Tariffs: The issue of differential tariffs and customs in the region is also a major challenge. Although many countries in the region are in talks for harmonisation of duties along the corridor.
• Pakistan-Afghanistan-Uzbekistan (PAKAFUZ) Railway: The International North-South Transport Corridor (INSTC) will become redundant with respect to its Central Asian outreach efforts if plans for a Pakistan-Afghanistan-Uzbekistan (PAKAFUZ) railway, as the northern branch of CPEC, takes off. 

Way Ahead

• Future Potential: The future creation of industrial parks and SEZs to develop specific sectors, such as pharmaceuticals and agriculture, would add commercial and substantive value to this connectivity corridor. This can bring about a transformative development in the region through economic advancement.
• Cross border e-commerce: As internet connectivity strengthens across INSTC member countries and the overall corridor region, cross border e-commerce is one key sector that stands to gain the most.
• Counter China: India might be compelled to recalibrate its strategy to counter “Chinese influence” in the neighbourhood region.

Source: ET