Enhancing trade connectivity: Why India views INSTC as key

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Defence Minister Rajnath Singh and his Iranian counterpart Brigadier General Mohammad Reza Gharaei Ashtiyani discussed the advancement of the International North-South Transport Corridor (INSTC) on Thursday.

INSTC is a multi-modal transport project that spans over 7,200 kilometres and aims to ease the transportation of cargo among Afghanistan, Armenia, Azerbaijan, Russia, Central Asia, Europe, as well as India and Iran.

In December 2016, India agreed to use the INSTC which was established in 2000 and ratified in 2002 by India, Iran, and Russia, but sanctions on Iran had previously hindered its use.

The multimodal route begins in Mumbai, India and goes to Bandar Abbas and Bandar-e-Anzali in Iran, then crosses the Caspian Sea to reach Astrakhan, Moscow, and St. Petersburg in Russia.

According to a report by ORF, India has looked into alternative means of connecting with Central Asia, which is rich in hydrocarbons and has strategic importance. It has invested in the Chabahar Port located in the Iranian province of Sistan-Balochistan and also signed an intergovernmental agreement for the INSTC.

When the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018 and imposed stricter sanctions on Iran, it caused several issues for India’s infrastructure projects.

These problems included a lack of investment, bureaucratic delays, and disputes between different regions.

The Joint Comprehensive Plan of Action (JCPOA) was signed in July 2015 by Iran and several world powers, including the US. Following the easing of sanctions, the International North-South Transport Corridor (INSTC) gained momentum and by 2018, approximately 11 million tonnes of goods had been transported through the corridor.

In July 2022, the first shipment using the INSTC arrived at Jawaharlal Nehru Port in Mumbai, having originated from Russia’s Astrakhan Port.

INSTC consists of sea routes, rail links, and road connections that connect Mumbai in India to Saint Petersburg in Russia, passing through Chabahar. The INSTC is projected to reduce transit time by 40%, shortening it from 45-60 days to 25-30 days. Additionally, it is expected to decrease freight costs by 30% in comparison to the Suez Canal route.

However, the main challenges faced by INSTC are that the majority of projects associated with the INSTC, with the exception of the Azerbaijan and KTI railway lines, the Chabahar Port, and the Ashgabat Agreement transport corridor, have not received financial support from major international financial institutions such as the World Bank, ADB, European Investment Bank, or Islamic Development Bank.

This is mainly due to the unilateral sanctions imposed by the United States on Iran, which has led to concerns about possible “secondary sanctions.”

The harsher sanctions imposed on Iran after the US’s withdrawal from the JCPOA resulted in many global companies withdrawing from infrastructure projects in Iran.

Earlier at the 22nd meeting of the Council of Heads of State of the Shanghai Cooperation Organisation (SCO) held in September 2022, Prime Minister Narendra Modi called on member nations to focus on developing dependable, robust, and diversified supply chains in the region. He emphasized the need for improved connectivity and the right to unrestricted transit across all SCO member nations.

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