INSTC: India-Russia’s Trade to Get a Major Boost

The 7,200 km International North South Transport Corridor (INSTC) is a multi-mode transport network linking Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia. Throughout this network, freight between India, Russia, Iran, Europe and Central Asia will move through sea, rail, and road. This route is very different from much longer and costlier Suez Canal that India used earlier to transport goods to Russia. This new route will help connect India with Russia within 16-21 days at competitive freight rates leading to development of trade on the INSTC.

The INSTC is a joint initiative launched by India, Iran, and Russia in September, 2000 to facilitate shipments and logistics. The agreement came into effect in May, 2002 after being ratified by all three signatory states.

The initiative did not receive much favor during the early years. The development was slow and not much progress was seen between 2005 and 2012. However, it has gained momentum over the last few years and is now developing at a much faster pace, with several milestones achieved including building some corridors and two dry runs.

I. INTUC: An Introduction

The 7,200 km International North South Transport Corridor (INSTC) is a multi-mode transport network linking Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia. Throughout this network, freight between India, Russia, Iran, Europe and Central Asia will move through sea, rail, and road. This route is very different from much longer and costlier Suez Canal that India used earlier to transport goods to Russia. This new route will help connect India with Russia within 16-21 days at competitive freight rates leading to development of trade on the INSTC.

The INSTC is a joint initiative launched by India, Iran, and Russia in September, 2000 to facilitate shipments and logistics. The agreement came into effect in May, 2002 after being ratified by all three signatory states.

The initiative did not receive much favor during the early years. The development was slow and not much progress was seen between 2005 and 2012. However, it has gained momentum over the last few years and is now developing at a much faster pace, with several milestones achieved including building some corridors and two dry runs.

Map 1: INSTC Routes

II. Major objectives

The primary objective of the NSTC project is to reduce costs compared to the use of Suez Canal route [1]. Specific objectives of the INSTC include:

• To increase the effectiveness of transport ties in order to transport goods and passengers along the international ‘North-South’ Transport corridor.
• To promote access to international markets through rail, road, sea, river and air transportation of the parties to the Agreement.
• To provide assistance in increasing the volume of international transportation of passengers and goods.
• To provide security of travel, safety of goods as well as the environmental protection according to the international standard.
• To harmonize policies as well as legal and legislative basis in the field of transport in order to implement this agreement.
• To create equal and non-discriminatory conditions for all types of transport service providers from all the parties.

III. INSTC’s Member countries

Currently, there are 13 official members, including three founding members, who have agreed to become part of the initiative (see Box 1).

Box 1: INTUC Member Countries

IV. Transport routes and modes

Two primary routes (Route 1 and Route 2) are proposed to connect INSTC’s member countries. While the first one connects India to Azerbaijan via Iran; the second route connects India and Russia via Iran.

Route 1

• Nhava Sheva, India —> Bandar Abbas, Iran — by Sea
• Bandar Abbas, Iran —> Astara, Iran (Astara is on Iran-Azerbaijan border and also touches Caspian Sea) — by Road
• Astara (Iran) —> Baku, Azerbaijan — by Road

Route 2

• Nhava Sheva, India —> Bandar Abbas, Iran — by Sea
• Bandar Abbas, Iran —> Amirabad, Iran — by Road
• Amirabad, Iran —> Astrakhan, Russia — by Sea

Each of the two Routes (Route 1 and Route 2) connects only three countries, which was originally intended when the agreement was signed. Considering that ten other countries have joined over the period, these routes could integrate with multiple other sub-routes across member countries, connecting through roads and rail networks.

V. Advantages of the INSTC project

The INSTC is also expected to reduce the cost and time (see Table 1) and address security concerns of the existing trade route via Suez Canal. Further, it could help India and Russia boost up their bilateral trade and help to reach their target of USD 30 billion over the next 10 years from the current trade of less than USD 7 billion in 2016. At the moment these two major trade partners are witnessing a declining in bilateral trade.

With India being 4th largest energy consumer, INSTC provides huge prospects as it would reduce transit costs for India. India's investment in Chabbar port project, which is proposed to be integrated with the INSTC, and the possible comprehensive partnership with Eurasian Economic Union are additional features that will benefit India. Moreover, INSTC is widely argued as best possible option to counter China's 'One Belt' initiative.

VI. INSTC Progress in member countries

Azerbaijan road and rail routes: Rasht-Astara section of rail route was completed in 2016. Some technical problems to link Azerbaijan remain, and this is being resolved.

Chabahar INSTC integration: There is a long term plan to integrate Chabahar port into the INSTC, as Chabahar has high capacity of expanding from the current 2,5 million to 12,5 million tons annually.

Kazakhstan-Turkmenistan-Iran railway link operationalized: The 677 km Kazakhstan — Turkmenistan — Iran railway link, was completed and operationalized in 2014.

Armenia-Iran Railway Concession (Southern Armenia Railway or North-South Railway Corridor) : No progress has been made, as the project remains only on paper and has not got any financing because of reported lack of economic viability.

Astara port inaugurated: Iran inaugurated the port of Astara located southwest of the Caspian Sea in March 2013.

Iranrud Trans-Iranian canal: The Russian and Iranian governments are discussing the project. It is likely to be commissioned by 2020.

VII. Dry Run/Trial Run: Major findings

A Dry Run to understand major issues and challenges across INSTC routes was conducted in 2014. It pointed to an alternate route using Azerbaijan's capital, Baku, as a transit point between Iran and Russia. Trial Run was conducted in August 2016 running through both Iran and Azerbaijan. It was identified that goods could be shipped to the southern Iranian port of Bandar Abbas and from here goods could be transported to Russia through Azerbaijan using trains and trucks, avoiding the need to be shipped across the Caspian Sea as planned initially.

Baku is being developed as a transport hub. The Azerbaijani and Iranian rail networks are in the final stages of being linked together after an agreement that was recently signed by the leaders of Iran, Russia and Azerbaijan to establish a transport corridor linking the three countries. Further in March 2017, the three countries agreed to cut tariffs to encourage trans-border trade via the INSTC.

With India linking up with Myanmar and Thailand with the development of the Trilateral Highway, it is likely that a longer transport belt that would connect Southeast Asia to Europe through the INSTC will be connected. The development of INSTC in the western direction should be noted as well. The German railway company Deutsche Bahn has expressed interest in using the INSTC to deliver goods from Europe, though Azerbaijan, to Iran. In January, 2017 Estonian Foreign Minister also expressed his interest in joining the INSTC and negotiations have already begun.

Effectively, there are several existing, planned and under-construction routes, some of which link up to the original INSTC, that are forming a network across the Eurasian landscape.

Issues and constraints in operationalizing INSTC

Findings from the first Dry Run are yet to be publicized, even though it is critically important for the stakeholders to know. However, some anecdotal evidences and experts’ opinions suggest that a number of bottlenecks remain to be addressed. Some of these include:

• the lack of a strong mechanism to address the operational issues on ground;
• problems related to customs procedure and documentation;
• issues related to the funding of various infrastructure projects;
• low level of container trade on the INSTC (it can be noted that due to the low level of trade; containers often come back empty, increasing the cost of container movement on this route);
• lack of common border crossing rules among the member countries;
• problems related to the insurance and data exchange between the member states;
• gradient problem restricting speed;
• higher tariffs by rail vis-à-vis road transport for movement from Bandar Abbas to Amirabad;
• wagon shortage and load restrictions for transit traffic in Iran;
• problem of break of gauge; and,
• security fears emanating from Afghanistan.

All these could adversely impact the development of the India–Iran–Afghanistan–Central Asia route.

VIII. Current status and potential for Indian engineering exports across INSTC corridors

The INSTC a very important for India trade-wise, and its importance might significantly increase in years to come. In 2016, India exported engineering goods, to members of INSTC, (including Bulgaria which is having an observer status) worth USD 3,567 million. This is though a significant decline compared to export of over USD4, 857 million in 2014 (Table 2).

At the country level, there are only three countries, namely Oman, Syria, and Iran whose share of Indian engineering exceeds two percent. In other three countries, India’s share is quite low, below two percent.

Table 2: India's Export to the Members of International North-South Transport Corridor (INSTC)
(Value in thousand USD)

Country	Product label	India's exports			Member country’s global imports			Share of India in country's total imports (%)
		2014	2015	2016	2014	2015	2016	2014	2015	2016
Russian Federation	All products	2,217,473	1,611,893	1,813,884	286,648,777	182,781,965	182,257,214	0.8	0.9	1.0
	Engineering Products (HS Code 72 to 94)	753,597	469,296	571,377	160,092,507	95,968,903	93,749,368	0.5	0.5	0.6
Iran, Islamic Republic of	All products	4,404,314	3,126,869	2,412,535	72,774,998	55,313,741	46,128,546	6.1	5.7	5.2
	Engineering Products (HS Code 72 to 94)	1,186,085	923,867	494,600	36,520,574	27,088,564	23,107,934	3.2	3.4	2.1
Belarus	All products	51,090	34,251	41,860	40,502,360	30,291,493	27,463,712	0.1	0.1	0.2
	Engineering Products (HS Code 72 to 94)	15,725	8,044	5,276	14,244,358	9,846,966	8,944,500	0.1	0.1	0.1
Republic of Kazakhstan	All products	237,906	168,372	125,026	41,295,456	30,567,159	25,174,779	0.6	0.6	0.5
	Engineering Products (HS Code 72 to 94)	25,176	23,540	28,533	23,209,942	17,029,949	13,112,140	0.1	0.1	0.2
Republic of Tajikistan	All products	60,004	31,348	19,714	5,018,086	3,584,671	3,242,204	1.2	0.9	0.6
	Engineering Products (HS Code 72 to 94)	6,544	2,519	2,946	1,463,651	1,258,583	1,108,315	0.4	0.2	0.3
Sultanate of Oman	All products	2,426,020	2,051,996	2,577,624	29,303,100	29,007,335	23,260,012	8.3	7.1	11.1
	Engineering Products (HS Code 72 to 94)	861,857	524,053	602,014	16,309,455	14,814,718	11,634,792	5.3	3.5	5.2
Republic of Armenia	All products	95,889	37,063	31,640	4,159,517	3,256,965	3,230,134	2.3	1.1	1.0
	Engineering Products (HS Code 72 to 94)	12,905	4,054	6,908	1,168,183	943,049	903,997	1.1	0.4	0.8
Republic of Azerbaijan	All products	112,074	59,578	31,627	9,178,588	9,211,126	7,156,696	1.2	0.6	0.4
	Engineering Products (HS Code 72 to 94)	5,534	9,896	12,889	5,107,314	5,453,265	3,870,796	0.1	0.2	0.3
Syrian Arab Republic	All products	217,056	138,255	124,923	7,247,613	5,314,454	4,304,327	3.0	2.6	2.9
	Engineering Products (HS Code 72 to 94)	65,289	26,380	23,899	2,098,208	1,474,188	1,054,168	3.1	1.8	2.3
Republic of Ukraine	All products	406,028	251,600	291,053	54,381,409	37,516,153	38,282,525	0.7	0.7	0.8
	Engineering Products (HS Code 72 to 94)	129,038	49,267	56,620	15,687,110	10,647,106	14,212,594	0.8	0.5	0.4
Republic of Turkey	All products	5,603,062	4,435,912	4,473,283	242,177,117	207,206,509	198,601,934	2.3	2.1	2.3
	Engineering Products (HS Code 72 to 94)	1,664,423	1,507,864	1,621,002	103,129,329	98,491,636	100,083,669	1.6	1.5	1.6
Republic of Kyrgyzstan	All products	36,036	29,861	26,620	5,734,704	4,068,084	3,844,473	0.6	0.7	0.7
	Engineering Products (HS Code 72 to 94)	1,564	1,666	990	2,073,369	1,351,151	1,191,630	0.1	0.1	0.1
Republic of Bulgaria (Observer status)	All products	231,447	183,317	226,822	34,740,042	29,265,116	28,875,195	0.7	0.6	0.8
	Engineering Products (HS Code 72 to 94)	129,532	63,953	140,002	13,025,459	11,304,526	11,641,913	1.0	0.6	1.2
India's total export to INTUC members	All products	15,860,493	11,991,943	12,071,585	833,161,767	627,384,771	591,821,751	1.9	1.9	2.0
	Engineering Products (HS Code 72 to 94)	4,857,269	3,614,399	3,567,056	394,129,459	295,672,604	284,615,816	1.2	1.2	1.3

Source: ITC Trade Map

India’s share in imports of engineering products from these countries is worrying low, as engineering goods worth USD 285 billion were imported by these countries in 2016. This is, however, not the limit as total engineering imports by these countries was much higher in 2014 and 2015 reaching USD 394 billion and USD 296 billion respectively. Looking at engineering import data of these countries, one can argue that there is a huge potential. Even a target of five percent could potentially provide a huge boost to Indian engineering exports, amounting to over USD 25 billion, an eightfold increase over the current export.

The INSTC certainly presents an opportunity to India to boost its engineering exports to member countries and beyond.

IX. Distribution of India’s engineering exports across INSTC member countries

At the moment most of India’s trade is concentrated in four countries within INSTC. Turkey accounts for over 45 percent of India’s total engineering exports to the INSTC member countries. It is followed by Oman (17%) and Russia (16%). Iran is another country which accounts for more than 10 percent share in India’s intra-INSTC engineering export. These together account for more than 92 percent of India’s total export of engineering products across the INSTC corridors (Figure 1).

Figure 1: Share of INSTC's member countries in India's engineering

X. Major items of export from India to INSTC member countries

Table 3: India’s major engineering exported to members of INSTC countries

Countries	Engineering products exported by India (2016)
Iran	Machinery, Iron Steel, Electrical Machinery, Vehicles, Articles of Iron Steel, Copper articles, Aluminum articles, Optical Medical Instruments, Machine Tools, Hand Tools.
Russia	Machinery, Aircraft Spacecrafts parts, Electrical Machinery, Vehicles, Iron Steel, Optical Medical Instruments, Articles of Iron Steel, Hand Tools, Machine Tools, Articles of Base Metals.
Armenia	Machinery, Iron Steel, Electrical Machinery, Optical Medical Instruments, Copper articles, Aluminum articles, Vehicles, Iron Steel, Hand Tools, Machine Tools.
Azerbaijan	Machinery, Optical Medical Instruments, Electrical Machinery, Articles of Iron Steel, Vehicles, Hand Tools, Machine Tools, Articles of Base Metals, Copper articles, Nickel articles.
Belarus	Articles of Iron Steel, Machinery, Optical Medical Instruments, Hand Tools, Machine Tools, Iron Steel, Electrical Machinery, Copper articles, Aluminum articles, Nickel articles.
Bulgaria	Aircraft Spacecrafts parts, Aluminum articles, Optical Medical Instruments, Machinery, Articles of Iron Steel, Vehicles, Hand Tools, Machine Tools, Copper articles, Railway parts.
Kazakhstan	Optical Medical Instruments, Machinery, Electrical Machinery, Articles of Iron Steel, Hand Tools, Machine Tools, Articles of Base Metals, Railway parts, Vehicles, Copper articles.
Kyrgyzstan	Electrical Machinery, Machinery, Optical Medical Instruments, Iron Steel, Copper articles, Nickel articles, Articles of Iron Steel, Vehicles, Aluminum articles, Machine Tools.
Oman	Articles of Iron Steel, Machinery, Electrical Machinery, Vehicles, Copper articles, Iron Steel, Optical Medical Instruments, Aluminum articles, Articles of Base Metals, Lead articles.
Syria	Machinery, Electrical Machinery, Articles of Iron Steel, Optical Medical Instruments, Hand Tools, Machine Tools, Aluminum articles, Vehicles, Copper articles, Iron Steel.
Tajikistan	Articles of Iron Steel, Machinery, Electrical Machinery, Optical Medical Instruments, Hand Tools, Machine Tools, Articles of Base Metals, Iron Steel, Copper articles, Nickel articles.
Turkey	Vehicles, Machinery, Iron Steel, Aircraft Spacecrafts parts, Electrical Machinery, Aluminum articles, Articles of Iron Steel, Optical Medical Instruments, Articles of Base Metals, Machine Tools.
Ukraine	Machinery, Iron Steel, Vehicles, Articles of Iron Steel, Hand Tools, Machine Tools, Optical Medical Instruments, Electrical Machinery, Aircraft Spacecrafts parts, Aluminum articles

Source: ITC Trade Map

India exports a range of engineering products to the members of INSTC countries (Table 3).

Table 5: India’s engineering products imported from INSTC members countries

Countries	Engineering products imported by India (2016)
Iran	Iron and steel, Aluminium and articles thereof, Zinc and articles thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Articles of iron or steel, Lead and articles thereof, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical,  Copper and articles thereof, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Vehicles other than railway or tramway rolling stock, and parts and accessories thereof, Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal
Russia	Iron and steel, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Copper and articles thereof, Nickel and articles thereof, Aircraft, spacecraft, and parts thereof, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Aluminium and articles thereof, Ships, boats and floating structures, Articles of iron or steel, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical
Armenia	Copper and articles thereof, Lead and articles thereof, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof
Azerbaijan	Lead and articles thereof, Zinc and articles thereof, Aluminium and articles thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof
Belarus	Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Vehicles other than railway or tramway rolling stock, and parts and accessories thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Iron and steel, Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal, Articles of iron or steel
Bulgaria	Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Iron and steel, Aluminium and articles thereof, Ships, boats and floating structures, Arms and ammunition; parts and accessories thereof,   Zinc and articles thereof, Copper and articles thereof
Kazakhstan	Iron and steel, Zinc and articles thereof, Other base metals; cermets; articles thereof, Copper and articles thereof, Articles of iron or steel
Kyrgyzstan	Aluminium and articles thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof
Oman	Aluminium and articles thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Iron and steel, Articles of iron or steel, Nickel and articles thereof, Vehicles other than railway or tramway rolling stock, and parts and accessories thereof, Zinc and articles thereof, Lead and articles thereof, Electrical machinery and equipment
Syria	Articles of iron or steel
Tajikistan	Aluminium and articles thereof, Iron and steel
Turkey	Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Iron and steel, Ships, boats and floating structures, Electrical machinery and equipment, Vehicles other than railway or tramway rolling stock, and parts and accessories thereof, Articles of iron or steel, Aluminium and articles thereof, Copper and articles thereof, Aircraft, spacecraft, and parts thereof, Zinc and articles thereof, Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal, Lead and articles thereof
Ukraine	Iron and steel, Electrical machinery and equipment, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, Ships, boats and floating structures, Articles of iron or steel, Railway or tramway locomotives, rolling stock and parts thereof; railway or tramway track fixtures, Aircraft, spacecraft, and parts thereof

XI. Current status and potential for INSTC member countries in India

India imported engineering goods worth USD 1,468 million in 2016 from the members of INSTC (including Bulgaria which has an observer status). India’s import data reflect a significant decline in imports of engineering products from INSTC member countries compared to import of over USD 1,869 million in 2014 (Table 4). This could occur because of general global slowdown in demand for imports and some technical issues such as UN sanctions on Iran some logistical challenges. However, potential seems huge considering recent initiatives by the INSTC member countries to improve connectivity and logistics.

At the country level, there are three countries, namely Russia, Tajikistan, and Oman in whose share of India in their total export is nearly two percent or more.

Table 4: India's Import from the Members of International North-South Transport Corridor (INSTC)
(Value in thousand USD)

Country	Product label	India's imports			Member country’s global exports			Share of India in country's total exports (%)
		2014	2015	2016	2014	2015	2016	2014	2015	2016
Russian Federation	All products	4207629	4527091	4782005	497833529	343907652	285491052	0.8	1.3	1.7
	Engineering Products (HS Code 72 to 94)	955368	1180177	670651	62,729,592	54,758,329	45,513,679	1.5	2.2	1.5
Iran, Islamic Republic of	All products	11246347	6225321	8253715	68104098	41255011	46346916	16.5	15.1	17.8
	Engineering Products (HS Code 72 to 94)	48442	4535	31972	68104098	41255011	46346916	0.1	0.0	0.1
Belarus	All products	198,927	162,150	136,269	36,080,537	26,660,395	23,413,988	0.6	0.6	0.6
	Engineering Products (HS Code 72 to 94)	7,696	4,116	7,835	8,426,611	5,829,889	6,340,574	0.1	0.1	0.1
Republic of Kazakhstan	All products	924,993	337,545	320,361	79,458,749	45,954,426	36,775,323	1.2	0.7	0.9
	Engineering Products (HS Code 72 to 94)	38,897	29,593	41,295	8,734,092	6,673,663	6,875,883	0.4	0.4	0.6
Republic of Tajikistan	All products	3,619	9,875	14,689	896,822	928,097	744,434	0.4	1.1	2.0
	Engineering Products (HS Code 72 to 94)	143	9	8,482	333,032	353,911	278,594	0.0	0.0	3.0
Sultanate of Oman	All products	1819510	1567250	1,300,263	50,718,324	31926531	24454713	3.6	4.9	5.3
	Engineering Products (HS Code 72 to 94)	251153	240694	309749	2495148	6793631	4813252	10.1	3.5	6.4
Republic of Armenia	All products	1,856	14,453	1,339	1,490,190	1,482,667	1,775,573	0.1	1.0	0.1
	Engineering Products (HS Code 72 to 94)	715	111	773	355,178	283,617	290,631	0.2	0.0	0.3
Republic of Azerbaijan	All products	422225	82110	280718	21751737	11,326,841	12636624	1.9	0.7	2.2
	Engineering Products (HS Code 72 to 94)	192	135	662	240,909	207,761	269,117	0.1	0.1	0.2
Syrian Arab Republic	All products	86,750	35,828	35,695	1,107,309	844,021	731,525	7.8	4.2	4.9
	Engineering Products (HS Code 72 to 94)	1	37	3	99,081	66,567	47,976	0.0	0.1	0.0
Republic of Ukraine	All products	2195127	1802262	1955996	53913302	38127040	36838979	4.1	4.7	5.3
	Engineering Products (HS Code 72 to 94)	246793	167188	72464	23130275	14,646,509	12713932	1.1	1.1	0.6
Republic of Turkey	All products	1347562	989334	1129743	157610158	143850376	142606247	0.9	0.7	0.8
	Engineering Products (HS Code 72 to 94)	264837	196764	274564	68453821	60454045	61131365	0.4	0.3	0.4
Republic of Kyrgyzstan	All products	486	1,582	1,808	1,883,733	1,441,468	1,423,028	0.0	0.1	0.1
	Engineering Products (HS Code 72 to 94)	184	284	182	210,604	228,194	207,067	0.1	0.1	0.1
Republic of Bulgaria  <p>(Observer status)	All products	108594	88595	121651	29386540	25778746	26087706	0.4	0.3	0.5
	Engineering Products (HS Code 72 to 94)	55388	42490	49906	11509012	10332943	9979315	0.5	0.4	0.5
India's total export to INTUC members	All products	22563625	15843396	18334252	1000235028	713483271	639326108	2.3	2.2	2.9
	Engineering Products (HS Code 72 to 94)	1869809	1866133	1468538	254821453	201884070	194808301	0.7	0.9	0.8

Source: ITC Trade Map

India’s share in exports of engineering products by INSTC member countries is quite low, as engineering goods worth USD 195 billion were exported by these countries in 2016. In the preceding years (2014 and 2015), total engineering exports by these countries were much higher at USD 255 billion and USD 202 billion respectively. Going by the engineering export data of these countries, one can argue that there is a huge potential as complementarities do exists in India’s import and their exports.

It is expected that with the INSTC fully coming into operation, exports from these countries to India could get a significant boost. Even a target of three percent could potentially provide a huge boost to export from these countries, and could result in a fourfold increase over the current level.

The INSTC certainly presents an opportunity to India to boost its engineering exports to member countries and beyond.

XII. Distribution of India’s engineering imports from INSTC member countries

Presently amongst INSTC member countries, most of India’s imports of engineering products are concentrated in five countries. Russia accounts for nearly 46 percent of India’s total engineering imports from the INSTC member countries. It is followed by Oman (21%) and Tajikistan (19%). Kazakhstan and Ukraine are other countries with significant share. These together account for about 92 percent of India’s total import of engineering products from the INSTC corridors (Figure 2).

Figure 2: Share of INSTC member countries in India's engineering

XIII. Major items of import by India from INSTC member countries

India exports a range of engineering products to the members of INSTC countries (Table 5).

XIV. Could there be a future convergence between India’s INSTC and China’s OBOR?

China’s OBOR, formally announced by Chinese President Xi Jinping in a speech at Nazarbayev University in Kazakhstan on September 7, 2013, is a much publicized initiative compared to India’s INSTC. OBOR is, arguably, China’s most ambitious initiative seeking to reshape its engagement with its neighbors, and with the Eurasian land mass. It aims to connect some 60 countries across Asia, Africa and Europe to boost trade and economic ties along its traditional maritime route.

In contrast, INSTC, also a very ambitious project, will connect the India Ocean and Persian Gulf with the Caspian Sea through Iran and then onwards to St. Petersburg in Russia and Northern Europe. At the moment, there are 13 countries who have officially agreed to become part of the INSTC. Some of these countries, such as Kyrgyzstan, Uzbekistan, Turkmenistan, among others, are also part of China OBOR. It could be expected that several other countries in the central part of Europe could join the project. Bulgaria, presently having an observer status, could join soon.

Operationalization of INSTC on the one hand and OBOR on the other could probably help South Asia integrate more effectively to the global trading system.

A close look at the map, combining the two (OBOR and INSTC), suggest good potential and scope for their convergence. While China’s OBOR connects Shanghai and Almaty in Kazakhstan, extension of INSTC connects Almaty through Bandar Abbas in Iran. Similarly, extension of INSTC’s north-west route (connecting Iran, Turkmenistan and Kazakhstan) could converge to connect OBOR’s Shanghai-Almaty route.

Map 2: INSTC and Other Transport Corridors

Source: Institute for Defense Studies and Analyses, New Delhi http://www.idsa.in/system/files/issuebrief/instc.msroy180815.jpg

Since connectivity is critical for promotion of trade, one can expect that with better understanding, improving political relations and broadening of scope of the two initiatives, countries in Asia and Europe will emerge better integrated and attain a position towards fuller exploitation of trade and business opportunities. Such a development can certainly make INSTC and other similar transport networks economically viable and sustainable.

This paper is a modified version of the article published in ‘Indian Engineering Exports’ magazine, September 2017 issue. This has been prepared by Suresh P Singh and Manila Sharma of EEPC India’s Policy Division. Views are personal.

1. A study conducted by the Federation of Freight Forwarders’ Associations in India (FFFAI) found the route is 30% cheaper and 40% shorter than the current traditional route.