India and Russia To Connect Supply Chains Via Iran’s INSTC
India’s state-owned Container Corporation of India (Concor) and Russian Railways Logistics Joint Stock Company (RZD) have signed a Memorandum of Understanding to transport cargo between India and Russia – based on a single invoice – via the International North-South Transport Corridor (INSTC), a 7,200-km multi-modal transportation network project cutting right across Central Asia, starting in Iran, ending in Astrakhan, Russia and with spurs leading east to Afghanistan and Central Asia.
“Within three months, traders from India and Russia could move goods between the two countries through Iran,” Concor’s Chairman V. Kalyana Rama said last week.
The INSTC is a trilateral project jointly initiated by Russia, Iran and India in 2002. It provides a new strategic transit-transportation route bypassing Pakistan, which has proven a difficult country to deal with for Indian exporters looking north and west. India instead has built up container and port facilities on its Western coast, and has connected these to the Iranian port of Chabahar. India has also expanded northwards and built a new route connecting four major cities in Afghanistan in 2016.
India has already tested this by shipping a consignment of wheat from Port Kandla in Gujarat to Afghanistan, via Chabahar.
The US was keen to promote an alternative route to Afghanistan, also bypassing Pakistan, so India was accorded a waiver for the Chabahar project from the US sanctions against Iran.
The sudden signing of the Russian-Indian MoU, just weeks after President Donald Trump’s recent historic visit to India, suggests that deepening Indo-US strategic ties may have emboldened New Delhi to move forward in activating the INSTC to connect with Russia through Iran and into Central Asia.
Trade via the INSTC will benefit exporters and importers in both India and Russia by lowering transit time and cost of transportation compared to the existing route via the Suez Canal. It will cut down the shipping time from the current 40 days to between 25-28 days.
India and Russia are committed to expanding bilateral trade, looking at increasing this to US$30 billion in annual trade volume by 2025, up from the current US$11 billion, which has been largely based on arms sales to India. The two countries are also working on an ambitious agreement for the long-term import of crude oil from Russia’s Far East region.
Indian Prime Minister Narendra Modi visited Vladivostok last year to sign a Memorandum of Intent for opening a maritime route to Chennai, on India’s eastern seaboard. The 10,000-kilometer sea route could enable cargo transfers in 24 days, in comparison to the over 40 days it currently takes to ship goods from India to Russia’s Far East.
Activation of the INSTC would also unlock huge opportunities for landlocked Central Asian countries to trade in both directions. Russia is reportedly facilitating a free trade agreement between India and the Eurasian Economic Union (EAEU), which consists of Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan.
Access to the EAEU states could offer entry to a market of over 173 million people to Indian companies, particularly producers of generic medicines, tea, canned vegetables, grapes and raisins, rice, coffee and coffee extracts, spices, herbs, and essences. The EAEU has also signed free trade agreements with Serbia and Singapore and is working on improved trade cooperation with the ASEAN, meaning that they too could benefit from the INSTC. The Iran-EAEU FTA has also been a success, with Iran-EAEU trade up 27% in 2019.
New global supply chains are emerging, both as a result of perceived over-dependence and the risk and political unreliability of trade with the United States, as well as new infrastructure builds with the desire to reconnect, in Iran and India’s case, with trade routes lost after partition. The INSTC ticks a lot of boxes for becoming an important Belt & Road route.
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Silk Road Briefing is written by Dezan Shira & Associates. The firm provides strategic analysis, legal, tax and operational advisory services across Eurasia and has done since 1992. We maintain 28 offices throughout the region and assist foreign governments and MNC’s develop regional strategies in addition to foreign investment advice for investors throughout Asia. Please contact us at firstname.lastname@example.org or visit us at www.dezshira.com