7O years of India-Russia: The International North-South Transport Corridor

3 Years agoIndia is Guest Country at the St Petersburg International Economic Forum (SPIEF) from June 1-3, 2017. In the run- up to SPIEF, we take a closer look at a potential game-changer: the International North-South Transport Corridor.

This year, as India and Russia mark 70 years of diplomatic ties, India is Guest Country at the St Petersburg International Economic Forum (SPIEF) from June 1-3, 2017. In the run- up to SPIEF, we take a closer look at the North-South Transport Corridor.

The ambitious International North-South Transport Corridor (INSTC), a 7,200 km- long land and sea-based multi-modal transport was founded by India, Russia and Iran in a pursuit of a common goal: revival of the ancient transport routes and building missing links. Partly operational at present, the INSTC connects the Indian Ocean and Persian Gulf to the Caspian Sea, thus providing for a shorter transit passage between Russia and India via Iran. The agreement establishing the INSTC was signed in September 2000, and came into force in 2002. In later years, 11 other countries joined the project: Armenia, Azerbaijan, Belarus, Bulgaria (observer status), Kazakhstan, Kyrgyzstan, Oman, Syria, Tajikistan, Turkey and Ukraine.1

What makes the INSTC relevant from the India-Russia standpoint is the stimulus it will provide to bilateral trade and investments between the two countries. It is well- known that bilateral trade and investments frequently occupy the center stage of Indo- Russia dialogue. The ‘Druzhba-Dosti’ statement, released in December 2014, after Vladimir Putin’s visit to New Delhi set the target for bilateral trade for 2020 at USD 30 billion and the target for mutual investments at USD 15 billion each way by 2025. Given that India and Russia have no common borders as such, the INSTC project will provide more incentives for mutual investments.2

The joint Russian-Indian statement after the two sides met at the BRICS Summit 2016, stated: “Recognizing the critical importance of interconnectivity, when it comes to increasing bilateral trade, both sides welcome the growing attention being paid to the implementation of the INSTC, which can become a key factor in the deepening of economic integration in the region.”3

The Foreign Trade Policy of India (2015-20) highlights the importance of the transport corridor to expand India’s trade and investment links in Central Asia. India currently depends on trade routes through China and Europe to reach Russia and other European nations – which are expensive and take longer. The INSTC by contrast is cost-effective, shorter and, importantly, well-secured. Of strategic and economic relevance to India, the INSTC could help provide Indian exports a competitive advantage.

A study by the Federation of Freight Forwarders' Associations in India showed that INSTC would be 30% cheaper and 40% shorter than existing routes.4 A shipment on the dedicated transport corridor would take an average of 23 days, with freight costs of around USD 2,300 to USD 3,500 for a dry container and USD 4,600 to USD 6,800 for a reefer container.5 This is extremely swift in comparison to the 45-60 days it takes for the goods to reach Europe through the Suez Canal.6 Per the first freight test run conducted in October 2016, movement from Mumbai to St. Petersburg via INSTC took only three weeks as compared to the six weeks it would require via the sea.

Indian ports will be the first transit point for freight transport outside of India, and once the INSTC is operationalised, capacity utilisation of ports on the Western coast could see an increase - providing another incentive for development of shipping and more logistical infrastructure.

1 https://in.rbth.com/blogs/the_outsiders_insight/2016/12/12/long-awaited-north-south-corridor-close-to-launch_655489
2 https://in.rbth.com/economics/2017/03/02/how-russia-and-india-can-solve-their-bilateral-investments-dilemma_712151
3 https://in.rbth.com/blogs/the_outsiders_insight/2016/12/12/long-awaited-north-south-corridor-close-to-launch_655489
4 http://commerce.gov.in/writereaddata/uploadedfile/MOC_635986655921421162_INSTC_Conference_Report_Final.pdf
5 http://dgft.gov.in/exim/2000/policy/FTP_Statement.pdf
6 http://www.globalconstructionreview.com/markets/how-islamic-republic-set-become-land-br8i8d8ge/

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