The INSTC has remained at the centre of India's plan for central Asia, crafted by geopolitical pundits at the external affairs ministry, hoping to reach into Afghanistan, and commerce ministry officials looking to boost exports to Russia, Iran and other nations.
Exporters, however, say cargo shipments remain scarce on the route because of a lack of banking services and Indian freight forwarders yet to up shop in Iran.
“A lot of problems persist, with the banks negotiating the documents of transit goods passing through Bandar Abbas. Exporters are ready to provide a combined bill of lading showing the final destination to prove that goods are only in transit. But banks remain jittery, now that US sanctions have again begun,” Director General of Federation of Indian Export Organisations, Ajay Sahai, said.
While Russian companies
are providing freight and tracking services, the low presence of Indian freight forwarders is another challenge. Only few Indian players have affiliations with Iranian counterparts, something which is essential to do business over there, he said.
India’s current trade with Iran takes place mostly through the choked Bandar Abbas port. It handles about 85 per cent of that country’s seaborne traffic. Delhi is betting highly on upgrading the Chabahar port
in southern Iran. Operations at the deep-sea port, having the capability of handling high-tonnage vessels, are behind schedule and drag down the INSTC, say officials.
Meanwhile, Bandar Abbas remains congested. While railway, road and ship linkages are in place, connecting it all the way to Russia, 3,200 km away, unloading time for ships remains high.
Shipments from Nhava Sheva Port in Mumbai proceed to Bandar Abbas and fork out on one of the two routes from there. The first traverses through Tehran and crosses the Caspian Sea to Astrakhan, and the other leads to Baku in Azerbaijan, from where it goes north to Russia by land or sea. But many traders are avoiding this altogether, as Russia allows major shipping through the Bosphorus strait, allowing ships to reach the Black Sea port of Sevastopol. “The port is in the capital city of the Crimean peninsula, recently annexed by Russia and Moscow, is pumping in funds to expand operational capabilities,” a diplomatic source said.
A commerce ministry official said almost all of India’s container trade with Russia was still passing through Suez Canal, moving around Europe and through St Petersburg.
“Logistics costs for trade with Russia are quite high. Through the traditional route, it takes around $7,000 for transporting a single unit. As of now, shipments through the INSTC cost $2,700-2,800 per unit. But the new route, being pushed by Turkey through Suez Canal and then Bosphorus, is cheaper at $1,200 per unit,” Mohit Singla, chairman, Trade Promotion Council of India, said.
The Federation of Freight Forwarders’ Associations in India estimates that the average time taken through INSTC has dropped from 35-40 days to 20-22 days.
Access to Afghanistan
The corridor is also crucial for India’s plan of securing a route to war-torn Afghanistan that does not have to cross neighbouring Pakistan. Last November, a consignment of 15,000 tonnes of wheat reached the country through the route. The work on the Afghan side of a rail link between Khaf in northeast Iran and Herat in Afghanistan, begun two years earlier, is also stalled.
Back in February, India also acceded to the Ashgabat agreement, allowing New Delhi to take advantage of rail connectivity in central Asia and utilise the Iran-Turkmenistan-Kazakhstan railway line.
In the broader region, India’s trade with the central nations stood at $ 6.47 billion in the April-October period of 2018-19, compared to $14.39 billion in 2017-18. Major exports to the region are pharmaceuticals, machinery, coffee, tea, and spices. Countries in the region are considered underserved markets and are potential suppliers of energy and minerals to India.
Talks on the new route started in 2000 and the initial agreement was signed in 2003. A successful dry run was conducted through Iran, Azerbaijan, and Russia in 2014.