A Mixed Report Card for the India-Middle East-Europe Corridor (GS Paper 2, IR)

Context

• The India-Middle East-Europe Corridor (IMEC), a transcontinental infrastructure project, is facing mixed progress, with faster developments on its eastern leg, and delays on the northern part due to geopolitical tensions in West Asia.
• The corridor was announced in September 2023 during the G20 summit in New Delhi, with hopes of reducing transit time and transportation costs, and transforming global maritime trade.

Introduction

• The IMEC is designed to connect ports and economic hubs in India, the UAE, Saudi Arabia, Jordan, Israel, and Europe, reducing transit time by 40% and costs by 30% compared to the Suez Canal.
• However, its development has been impeded by regional conflicts, particularly in West Asia, which have slowed progress on the northern segment of the project.
• While the full benefits of the corridor are yet to materialize, its potential to revolutionize international trade remains significant.

Progress on Both Ends

Challenges and Delays in Project Progress

• Initial Optimism and Setbacks: The announcement of IMEC sparked optimism, but challenges soon emerged. The normalization of Arab-Israeli relations, which had been a key driver for the corridor, faced a major setback following the Israel-Palestine conflict escalation in October 2023. This conflict has delayed progress in key West Asian nations, particularly Saudi Arabia and Jordan, which have been unable to proceed with their commitments to the project due to the geopolitical situation.
• Impact on Stakeholders: The conflict has made it difficult for countries like Saudi Arabia and Jordan to work with Israel on the northern leg of the project, despite the broader diplomatic and economic goals of the corridor. As a result, progress in this part of the corridor will likely remain slow until the situation in the region stabilizes.

Progress on the Eastern Leg of the Corridor

• Advancement of UAE-India Relations: In contrast to the west, the eastern leg of the IMEC, connecting the UAE and India, has seen much faster progress. The economic relations between the two countries have grown significantly, with bilateral trade increasing substantially post the Comprehensive Economic Partnership Agreement (CEPA) in 2022.
• Trade Growth Post-CEPA: Bilateral trade between India and the UAE has surged from $43.3 billion in 2020-21 to $83.64 billion in 2023-24, reflecting a 93% growth. The diversification of trade, especially non-oil trade, is notable, with non-oil trade increasing from $28.67 billion in 2020-21 to $57.81 billion in 2023-24. This is significant for India, as many of these commodities will be transported westward through the IMEC, thereby enhancing India’s export share in the region.
• Virtual Trade Corridor: India and the UAE have also launched a Virtual Trade Corridor to streamline trade processes, reduce logistical costs, and improve efficiency. This initiative is critical to the IMEC, providing a model that could be adopted by other countries along the corridor to enhance cross-border trade facilitation.

Differing Progress Between Western and Eastern Parts

• Uncertainty in the West: The western portion of the IMEC continues to face significant uncertainty due to the ongoing conflicts in the Middle East. The region's instability has delayed the construction and implementation of vital infrastructure.
• Commitment in the East: On the other hand, the eastern leg, particularly the India-UAE trade route, has gained momentum, with both countries committed to enhancing connectivity and reducing barriers to trade.

Focus on Connectivity Amidst Regional Tensions

• Connectivity as Primary Focus: With the challenges in West Asia, the IMEC’s connectivity aspect is the only component gaining significant traction. Projects related to clean energy exports, undersea fiber-optic cables, energy grids, and telecommunication lines are on hold until the regional geopolitical tensions subside.
• Capacity Building in Eastern Countries: Meanwhile, countries along the eastern part of the corridor have an opportunity to strengthen their connectivity and prepare for the integration of the broader IMEC infrastructure.

Way Forward: What India Can Do

Port Development and Economic Zones

• India can leverage the current slow pace of development to focus on port infrastructure and create economic zones along the corridor’s connectivity nodes.
• This will ensure seamless integration once the corridor is fully operational.

Enhancing Domestic Logistics and Digital Infrastructure

• Improving India’s domestic logistics and digital infrastructure is key to making Indian exports more competitive.
• This will reduce logistical costs and streamline the movement of goods between Indian ports and international markets, including those in the Middle East and Europe.

Strategic Importance of Global Value Chain Integration

• India’s participation in IMEC can offer a chance to position itself as a global supply chain hub.
• To fully capitalize on this, India must focus on improving its manufacturing competitiveness and integrating itself more effectively into global value chains.

Conclusion

• The India-Middle East-Europe Corridor represents a bold vision for the future of global trade, but its success depends on navigating complex geopolitical and logistical challenges.
• The eastern part of the corridor, connecting India and the UAE, is making rapid progress, while the northern segment faces significant delays due to regional tensions.
• India must focus on port development, logistics improvements, and enhancing manufacturing to fully capitalize on the corridor's potential.
• Additionally, setting up a dedicated IMEC secretariat could help organize the project, streamline cross-border trade processes, and encourage more countries to participate, ultimately turning the corridor into a key part of the global supply chain infrastructure.