India Middle East Europe Economic Corridor Massive Ambition With Big Hurdles – BW Businessworld

In the recently held Group 20 or G20 summit in Delhi, India along with Saudi Arabia, the United States (US) and the European Union (EU) unveiled the India-Middle East-Europe Economic Corridor (IMEC), a project that aims to bolster development by fostering connectivity and economic integration between these regions.

India’s Prime Minister Narendra Modi has hailed the project and said that it promises to be a beacon of cooperation, innovation and shared progress charting a journey of shared aspirations and dreams. 

PM Modi wrote on X, “Charting a journey of shared aspirations and dreams, the India-Middle East-Europe Economic Corridor promises to be a beacon of cooperation, innovation and shared progress. As history unfolds, may this corridor be a testament to human endeavour and unity across continents.”

Observers are optimistic about the positive impact of this massive corridor, especially for India. However, experts told BW Businessworld that despite the huge potential of this project, there are various challenges to meeting its fate.

While the realisation of IMEC is expected to take over a decade, contingent on factors like financing and sustained member country support amidst political fluctuations, its implications are vast. Experts pitched for the collaborative action plans for funding, network routes, design and allocation of work that must be developed within the stipulated time frame.

Internationally, potential hurdles include regulatory, tax and customs disparities among the nations. Additionally, the corridor’s multimodal nature, spanning land and sea could pose challenges. The existing route through the Suez Canal will not be abandoned and will remain a competitor.

In the next 30 days, working groups will put together a more detailed plan with specific dates. The first phase will involve identifying the areas that need investment and where infrastructure connectivity across nations is feasible. 

“Geopolitical considerations add another layer of challenge. IMEC serves as a pivotal instrument in the Biden administration’s efforts to foster closer ties between Israel and Saudi Arabia, particularly in light of China’s recent success in bringing together Iran and Saudi Arabia. This alignment carries significant implications for upcoming US elections and the broader geopolitical landscape,” said Arun Singh, Global Chief Economist, Dun and Bradstreet (D&B) 

Singh added that striking a balance between economic interests and diplomatic intricacies will be pivotal in navigating these complexities effectively. 

“Since this project passes through various economies having different political and economic landscapes, political headwinds and economic strength are some of the decisive factors in its project. Another one is the financing of this humongous project. In addition to the above factors, given the uncertainty in the global world especially the geopolitical situation is another critical factor ensuring the success of this project,” stated  Saket Dalmia, President, PHDCCI. 

Counter To China’s BRI—

The latest corridor has raised several eyebrows across the globe. Although the majority of the reaction was in favour of the project, Interestingly, India’s neighbour China has welcomed the IMRC, as long as it is not used as a geopolitical tool.

“The project also surfaces amidst attempts by the US, India and Europe to counterbalance China’s expanding Indo-Pacific influence. China might resist infrastructure developments that challenge its Belt and Road Initiative (BRI). India’s refusal to join the BRI, primarily due to concerns about the China-Pakistan Economic Corridor’s route, could add to the geopolitical complexity,” said David Gibson-Moore, President and CEO, Gulf Analytica. 

Notably, Turkey’s President Recep Tayyip Erdogan has said there could be no proposed India-Middle East trade corridor without Turkey. He said, “Turkey is an important production and trade base. The most convenient line for traffic from the east to the west has to pass through Turkey.” 

According to a report by Financial Times, President Erdogan-led Turkey is in talks for an alternative to the IMEC  plan to boost its role as a trade route. Also, the country has generally been supportive of China’s BRI. While citing a study by the Carnegie Endowment for International Peace, FT reported that China made about USD 4 billion in investment in Turkey through BRI, accounting for just 1.3 per cent of the total. 

“The project’s semblance to China’s Belt and Road Initiative (BRI) warrants careful management. The involvement of some of the participants, like Saudi Arabia, the UAE and Italy in both IMEC and BRI will require balancing commitments to multiple initiatives while avoiding conflicts,” Singh added. 

Middle East: A Tale Of Conflict— 

Over the period of time, geopolitical crisis, especially the Iran tensions and Palestine issue, have dominated the Middle East region. However, experts are hopeful that IMEC’s trade incentives might catalyse dialogue to address these longstanding problems. 

“Notably, it could strengthen Israel-Gulf ties, an aspect Israel is particularly optimistic about. India’s relations with Saudi Arabia and the UAE, already flourishing, could further solidify, with the potential of improved trade relations with Israel,” stated Moore. 

Hence, Israel’s advanced technology and innovation capabilities and collaboration with the Kingdom of Saudi Arabia (KSA) and UAE present strategic benefits, including access to their abundant energy resources, bolstering India’s energy security and economic growth. Notably, a cost-effective cross-border ship-to-rail transit network akin to the Etihad Rail in the UAE is expected to reduce the cost of transportation across the corridor. 

The logistics industry is likely to benefit significantly from this partnership. Trade between India and the UAE has surged by 16 per cent in FY23. Logistics giants like Maersk and DP World are already capitalising on this growth, with logistics benefits extending to various sectors like electronics, perishables, textiles and chemicals. 

“The northern corridor’s success depends heavily on Israel, with the Adani-dominated Haifa port expected to play a pivotal role. The route may extend to a port in Italy, potentially northern Greece ports like Kavala, Volos, or Alexandroupoli. This initiative promises to reshape regional and global trade dynamics,” added Singh. 

India’s gain—

The IMEC aligns with India’s vision of becoming a global economic powerhouse and positions the nation strategically in fostering influence over the Indian Ocean and expanding its reach into the Mediterranean and Atlantic regions. IMEC is expected to enhance India’s external trade by increasing efficiencies, reducing costs and making exports more competitive, especially in sectors like engineering and clean energy. 

“India stands to benefit immensely, given the importance of both the Middle East and Europe as export markets. An upgraded transport network of this magnitude could elevate India’s global competitiveness. For Europe, this project is a move towards economic growth and reduced dependency on Chinese supply chains. Saudi Arabia and UAE, meanwhile, foresee this as a pathway to double non-oil trade by 2030,” Moore told BW Businessworld. 

Dalmia added that India’s engagement with Israel, Saudi Arabia and the UAE can provide access to advanced technologies in agriculture and technology sectors, enhance productivity and innovation and strengthen India’s position in the Middle East and the Indo-Pacific. The agreements also hold the potential for extensive trilateral cooperation and business partnerships.

Crisis-ridden Pakistan And Afghan Dilemma

The corridor is a multinational rail and shipping project linking India with the Middle East and Europe and experts believe that Iran, Afghanistan, China and Pakistan play significant roles in its success.

Iran’s strategic location is essential for the corridor and Afghanistan’s stability is crucial for connectivity. China’s involvement can enhance the initiative’s viability and Pakistan’s cooperation is essential for land-based transit. Any naval alliance between China, Pakistan and Iran needs to be watched closely, given their proximity to the Mumbai-Jebel Ali maritime trade route. 

“India’s near neighbours include Afghanistan, China and Pakistan and Iran also holds a key position because its neighbours are collaborators on this project. The building and growth of intraregional projects greatly depend on mutual confidence, political headwinds like a change of administration and leadership and understanding amongst the nations around the project,” Dalmia added. 

D&B’s Singh also said that India should adopt a nuanced approach to engage with these countries. Diplomatic efforts should prioritise balancing regional interests, fostering cooperation and addressing potential challenges related to geopolitical complexities and competing initiatives like BRI.

Overall, the potential gains for trade and commerce arising from the IMEC agreement are clearly immense. However, in the short run, much remains to be done in order to see the project through to completion.