In the recently concluded G20 deliberations held in India, India was able to forge a historic consensus for the India-Middle East-Europe Economic Corridor (IME-EC). In September itself, Prime Minister Narendra Modi launched the IME-EC project. The project includes India, the UAE, Saudi Arabia, the European Union, France, Italy, Germany and the US. The project is a rail and shipping corridor that is part of the Partnership for Global Infrastructure Investment (PGII). PGII collaborates with G7 nations to fund infrastructure projects in developing nations. PGII is considered to be the bloc’s counter to China’s Belt and Road Initiative (BRI).
The initiative is expected to act as a catalyst for prosperity for India, like the Silk Route did a few centuries ago. Last week, Prime Minister Narendra Modi reiterated that IME-EC has the potential to 'transform' the global maritime trade, and invited investors to partner with the country to be a part of the initiative. The IMEEC would bring down the cost of business by making logistics more efficient, curtail damage to the environment and also create a multiplier effect in job creation. The corridor would have a high-speed data cable, rail link, a hydrogen pipeline, and an electricity cable.
Vinayak Chatterjee, managing trustee of the Infra Vision Foundation and also a founder of Feedback Infra said that while as it stands today, the IME-EC is a logistics transportation corridor but it has the potential to flower into an economic corridor. “Since I mentioned the club of countries that have signatories to the MoU on IME-EC, it sends a powerful message that a swath of well-meaning and friendly countries have joined hands to impact transport, trade and economic development in a model quite different from a dominant one country model that the Chinese propagated with BRI,” Chatterjee said.
Chatterjee said that through the IME-EC project, it is clear that India is looking on the world stage as an emergent third-largest economic country to have a greater play in developing and running megascale infrastructure projects across the world. “To do a 2600-km rail line across the Arabian Peninsula is a very major showcase project for us to tell the world that today I can develop ports, airports, railings. It is going to be a very major project from an Indian point of view. And luckily for us, in a sector where we genuinely believe that we have expertise, which is the building of railroad tracks, which we are very good at,” he said.
For the weekend Edition of The Core Report, financial journalist Govindraj Ethiraj spoke to Chatterjee about how the corridor would play out for India and what is the problem that it's trying to solve through this corridor.
Here are the edited excerpts of the interview:
The broader theme today is supply chains in the global order. Talking about supply chains from India, the IME-EC is the main theme and how it's going to play out. So let me ask what is the IMEC corridor, and what is the problem that it's really trying to solve?
Well, that is a good question, and for your viewers, let us just first put on the table what the India-Middle East-Europe (IME-EC) corridor is. As it stands today, it is a transportation link starting at Mumbai, from where goods will be sent by ship to Dubai port. They will then be transported by rail from Dubai port to Haifa port in Israel via Jordan, and then go by ship again to the port of Piraeus in Greece. From there they will travel overland by road or rail to Hamburg in Germany, which is heartland industrialized Europe. And the project has eight key stakeholders who have signed the MoU during the G20 deliberations in Delhi - India, UAE, Saudi Arabia, Italy, France, Germany, USA and the European Union, all of whom have been signatories to the MoU. And interestingly, Israel is an enthusiastic partner. This is the corridor.
The question really is why is it called a corridor? It is a line that is drawn of how a goods or container will travel. Now, there are two types of corridors. One is a logistics corridor, which is purely a routing of transportation. The other is an economic corridor where across a given route there are different industries or economic enclaves that produce value. As things stand today, this IMEC is a logistics transportation corridor. But that's not the end of the story. It has the potential to flower into an economic corridor. So that is where it fits into the corridor.
So what's the problem that it is trying to solve from an India perspective or the outcome it is trying to achieve?
The answer is in two buckets. One is trade, and the other, very interestingly, which has not been noticed, is its strong nuance on geopolitics. Let me take the geopolitics portion first because it's an important state/stage setting. And to answer the question or address the issue of geopolitics, I will have to talk about the Chinese BRI, which was launched by China ten years ago. It drew a lot of attention as ten years ago it sought to encompass over 100 countries in its fold across south Asia, southeast Asia, central Asia, eastern Europe and the African continent. Its string of projects across this vast terrain included imports, airports, industrial parks, power plants – it had a vast array of projects across hundreds of countries. Most importantly, the Chinese held out the promise of cheap long term funds for infrastructure development. Now, the fact is that the BRI or the Belt and Road Initiative has got somewhat discredited recently, as many of the beneficiary countries which were low income emergent nations are suddenly realizing that they are being led up some kind of a debt trap. Having said that, one cannot wish away the BRI. By the way, the BRI is still quite robust and has a number of interesting projects across the world. So it is not something that we write off. While everybody may not be happy with it, it still has a certain life of its own. Now, coming again, talking about geopolitics of the IME-EC or the IME corridor, it is clear that India as the third largest economy in the world is the bulwark of the plan. And geopolitically it in a sense sends a strong signal as to how the whole thing pans out in terms of the geopolitics.
But first, is it beneficial to India? Since you asked the question, what is the benefit to India, I have four points to answer there. Undoubtedly, there is a significant reduction in logistics costs along certain nodes in the route. However, with the caveat that if I were to ship a container by ship direct from Mumbai to Hamburg through the Suez Canal, it still works out cheaper than this corridor. In effect, the two endpoints are not what is the attempt, but there are nodes in between countries for which certainly the logistics costs will be cheaper because of the way the lines are drawn. Therefore it is expected for India to be a blossoming of trade with countries hitherto unexploited such as Saudi Arabia. Saudi Arabia is on a boom by the way. If you read yesterday's ET (The Economic Times), it said a large portion of L&T’s overseas order book is Saudi Arabia. India needs to develop its links with Saudi Arabia.
It's one of the big achievements in the trade geopolitical route. Also with countries in the Gulf, with UAE, with East Europe and possibly with other countries that spur off from the main route. Third, India has an expectation that there is a 2600 kilometer (km) long rail link, a dedicated freight corridor, kind of an infrastructure play that has to be built across the Arabian Peninsula, between Dubai and Haifa through Jordan. Now, that's a 2,600-km rail link and India with its proven expertise of building rail lines in Africa and Bangladesh, we have the best chance of having a very large infrastructure project coming to us, which is the rail link.
Now that is an expectation India has. There is an expectation of enhanced status of being a big infrastructure developer player in West Asia with this rail. Also it shrugs off the earlier Indo India, Iran, Russia – The International North–South Transport Corridor (INSTC). Many of your viewers may have forgotten, or listeners may have forgotten that we were signatories to something called the International North South Transport Corridor with Iran and Russia, where the Chabahar port in Iran was the fulcrum of that routing. But things haven't quite panned out that way and this corridor now allows India to actually shrug off that initiative.
But again, staying with geopolitics fundamentally, since I mentioned the club of countries that have signatories to the MoU on IME-EC, it sends a powerful message that a swath of well meaning and friendly countries have joined hands to impact transport, trade and economic development in a model quite different from a dominant one country model that the Chinese propagated with BRI. Italy, for instance, has decided to pull out of the BRI. Moreover, it is seen as a dramatic victory for India in many ways as the IME-EC bypasses both Pakistan and Turkey, both of which are nation states which are not currently considered the most favourably inclined to India. And lastly, geopolitically, it very interestingly, opens up a viable access to Gulf, West Asia and to Eastern Europe through a land route which is a combination of a land and sea route which the land portion was unfortunately blocked by Pakistan. I think while most of the conversation is about trade and logistics, I would actually give equal weightage to the geopolitical signals that it sends over and above the trade benefits.
Let me pick on a couple of points, Vinayak. The first is you talked about a container going from, let's say Mumbai to Hamburg, and that being cheaper than, let's say, going through this route. And that's of course logical, but you said the value is really on the intermittent points along the way. What would be a good illustration of that?
Well, a good illustration of that would be in a sense the opening up of eastern Europe. Okay, many of the istans and eastern Europe countries, many of the west Asian countries like Israel, Jordan, these are all countries which are on the line. And quite honestly, when a transport corridor blossoms into an economic corridor, what happens is that spurs take off. You have countries adjoining the route which are not today named in the route, but for whom nodes can take off. And therefore it gives India an extremely good logistics trade advantage with the Gulf, central Asia and eastern Europe… so that containers don't have to go to Hamburg and come back. In the intermediate points, a seamless logistic track with all the paperwork and the hassles all sorted out gives India a big trade advantage in a very happening part of the world today. Earlier west Asia and the Gulf was seen as oil. Today they are not seen as oil. They are seen with the kind of orders we are talking about that L&T gets in EPC (engineering, procurement, and construction), or maybe we will get rail orders, it is going to be seen as an economically happening part of the world. India gets put into that door through IME-EC.
You also talked about the other route which goes over land by rail, which involves the setting up of railway lines. What is India's investment in this vis-a-vis the benefit to it versus the countries that own the land on which that railway line will be built? Does India get a greater benefit? Or conversely, why would those countries invest so much in these rail networks through their countries when they may or may not be of specific benefit to them?
Your question is in two parts. For India, it is very clear we are looking on the world stage as an emergent third-largest economic country to have a greater play in developing and running megascale infrastructure projects across the world. To do a 2600-km rail line across the Arabian Peninsula is a very major showcase project for us to tell the world that today I can develop ports, airports, railings. It is going to be a very major project from an Indian point of view. And luckily for us, in a sector where we genuinely believe that we have expertise, which is the building of railroad tracks, which we are very good at.
From the mountainous regions to Konkan Railway, India has proven it. The question is about the funding. Now, my initial back of the envelope calculation says that if you multiply 2600 km by 30 crores a kilometer, you end up with a project cost of Rs 78,000-80,000 crores, roughly. Now, in today's world, that's not a very humongous amount. Sorry. Now, seven years ago, the Japanese gave us Rs 1 lakh crore for our bullet train project, soft funding. JICA (Japan International Cooperation Agency) gave, without batting an eyelid, Rs 1 lakh crore of 60-year funding at one and a half percent. To provide Rs 78,000 crores across seven well-yield MoU-signing countries, to my mind, financing is not the problem. The issue there is why should India get it? Because of all the countries that have signed the MoU, I think we have the biggest intellectual and engineering capacity to build that rail. It's going to be big.
But is this more like an EPC contract, which is good, obviously, for India and Indian companies or does it mean anything beyond that is really my question.
No no…my question is beyond EPC. After the railroad is built, I would like Indians to operate that railway. We would have ambitions to operate a railway line on contract from the bunch of owners and we would also be a part owner. Everybody hopefully will contribute some capital. We would be running infrastructure projects of that scale and size in the railways is a big feather in India's cap on the infrastructures and diplomatic side. But more importantly, there are other lines that are also going to go through the land route. There would be optic fiber cables, there would be electricity transmission grids. Those are things which would follow the track. it would be a linkage corridor. It has a lot of potential.
But this railway line runs through other sovereign nations. And obviously their participation as well as their continuous involvement in this project to make it a success is important. Their buy-in, both financially and otherwise and extending to the fact that, as you say, they should allow us to be running the network, is critical. Obviously an MoU means that we are heading in that direction.
But there's no clarity yet. No, let me set the record straight. There is no official communication that the railroad is going to be built by India. It is our aspiration and we must among the club of partners, we must now stake our rightful claim to say we need to be the chosen one to build and operate that railroad. That would mean something to India.
Let's switch gears a little bit. Let's talk about where or what we are trying to do with all of this. We want to obviously export goods and import goods. And we are not talking about services because this is physical and we want to send containers or dry bulk goods across the sea and then on the railway line. Again, what is it that we could do that we are not doing already, either outward or inward through this corridor
I mean the corridor doesn't exist. it's difficult to say what we are not doing. I mean I suppose India is trying its best to develop trade. I mean, our commerce minister is signing FTAs with the UAE and others. We are trying the softer side of developing trade.This adds the hardware to the trade side. It's a double engine. While our diplomatic missions, our ministry of commerce are all trying to develop, it's moved from a multilateral world to a regional or a bilateral world and the trade regime. We are attacking a lot of the software issues of FTAs, which you read in the papers every day.This one attacks the hardware side of it.
There are actually 15 nations who are involved across the chain. Now, if you are able to create a single pass system where containers are not stopped at 15 border checkpoints to look for customs duties or illegal stuff going through, then you actually have a very beneficial corridor to foster the hardware impetus to the software efforts that are going on. One will have to look at it in tandem with the software side of diplomatic FTAs and getting the best deal for India and the hardware side, which is one of the links the corridor provides.
I'm going to come back to India in a moment. The BRI involves Chinese companies setting up those points of value add, like you pointed out, producing there, manufacturing there, contributing to the local economy, sending obviously money back to China, but building a global manufacturing ecosystem of sorts. Some of it links back to the motherland, some of it does not. So is that the thinking here too, along this corridor?
Well, see, there are 15 participating nations. Each nation, to my mind, would want to build appropriate economic capacities along the link. That is the natural expectation. And also the Chinese, while it may be aspirational for them. See, the Chinese have a disparate bunch of investments. Ultimately, the BRI is not about a logical chain, it is about a basket of investments. Now in all the basket of investments, it is difficult to envisage Chinese setting up economic enclaves all over the place. And looking at the current state of the Chinese economy, I think that aspiration would have mellowed down hugely because the BRI initiative has also been cut hugely. I mean, it's still going on, but not with the same, shall we say, force of passion that it was launched with. Along the route, I think it is up to each country to maximize its benefit from that corridor. And already in India we are talking about linking three ports. We are talking about Mundra, Kandla, and Navi, Mumbai.
And I have a separate point that assuming that the ink is not dried on the MoU and things are flexible, I certainly think that India should be defined as sub-continental India. And we should as a big brother with good intent and good geopolitics link, (build) Chittagong port and Colombo port, and potentially the new transshipment port for which the bids are likely to come out soon in Andamans. Finally, there is no reason why this should only be a physical link only. After all, when a corridor is being established and I talked about pipelines and optic fibre links. Remember, for long there has been a talk of a pan-Asian energy grid. Today it exists in parts. We buy hydropower from Bhutan, we supply coal thermal from Jharkhand to Bangladesh. And there is talk of an undersea cable to Sri Lanka. The important point is, in a time when the world is moving to renewables, when the sun is setting in Bangladesh, it is shining very brightly in Israel, right? Why can't I have an electricity grid that maximizes sunlight as the earth moves? That should also be a laudable or a desirable portion of this link.
Could you transport electricity to such long distances without loss or considerable loss?
Those things can be managed. I mean, there will be some transmission loss, but it is easier to transmit electricity than it is to transmit oil and green hydrogen and other such stuff. Electricity is easier and today's high…
Got it. My question is now let's look at the India exports basket, particularly from an aspirational point of view.. For example, now the focus is on electronics, semiconductors, iPhones. If you look at where we are today and where we are going in terms of manufacturing basket, how do these corridors play? Or are they positioned in the right place to play a meaningful role?
Look, specifically for the IME-EC, it is clear that India is moving up the value chain in terms of the complexity of its manufactured products. Much of it also has to do with the policy that this government is following. Like, for example, now you have to manufacture laptops and stuff like that in India, right? Before that, it was iPhones and you've got a big manufacturing capacity coming up in manufacturing solar modules.
Pharmaceuticals are big in India, all these countries that are linked honesty don't have the kind of scale capacities. While India is much smaller in scale than China, our capacities certainly are larger than many of these smaller countries along the route. There is a natural demand for all such products which need to be trans-shipped there. Looking 10-20 years ahead, India is going to be a vast manufacturing entity making reasonably value added manufacturers. It could be furniture. It could be electronics items. It could be pharmaceuticals. It could be solar modules. It could be wind turbines. It could be engineering, light engineering products. A hell lot of stuff can move out of India into these neighbouring countries, which in today's context, used to be a problem because I did not have overland access.
It is certainly going to make movement easier in terms of exporting goods out of India. And all manufacturing in India needs components, supplies, etcetera, from the rest of the world. We're not living in isolation. It will even make imports of many sub-assemblies, subcomponents, etc important. But basically it opens up an area of geography which you and I do not often talk about. Every time in our growing up years, it's always been Europe and America and all that.
Again, sticking to electronics for a moment, a lot of the action in electronics is really east of us and not west of us. In the east, our trade agreements are a little weaker than they've been before. Our trade to Asia has actually reduced, while it has either remained the same or increased proportionately to the west. You spoke since you touched upon Chittagong and Sri Lanka, which is more in the east. What's your sense about where we are headed and whether or how we should be looking at transportation corridors on the other side?
I am not sure about your question. Let me attempt to answer this. It is that many of these products, particularly electronics, have been dominated by east Asian countries, south Korea, Taiwan, China, etc. But as you are seeing now, with a combination of China plus one, as well as government policy interventions, much of the production is now being forced to come to India. Some are coming by design and some are coming by default. Even the ones who are coming by default seem to be pretty happy about it because I was reading some of the statements of the HP chairman and they're saying, yes, we are setting up scale capacity in India.
If this is the trend that India is in a China plus one policy, or India with a bigger play policy, Make in India policy, localized manufacturing policy, we are going to be a substantive scale player in such items. And the countries that are on the corridor are customers. Their populations are going to buy these products. Therefore we will need these outlets to sell our produce. The IME-EC corridor is a happy link, but it's not the only link. Let's not get obsessive about this link. It provides a certain connectivity across a certain geography, which is very good, but that's not the end of the story. At the end of the day, the world is our market.
My question is more conceptual, Vinayak. I mean, as someone who's, let's say, trying to understand where we are as a country in the middle of this. This is the west and it's an India Middle East Europe Economic Corridor. Is there a need for something similar or maybe existing arrangements are good enough in the east, given that on the electronic side, a lot of material is going back and forth in the east of India rather than the west of India?
Look, remember India had a look east policy, right? And in that look east policy, there were some announcements which most people have forgotten about. A connectivity from the end of India to the ports in Bangladesh to reduce the distance from the furthest northeastern states to access ports in the Bay of Bengal. There were announcements of a road corridor through Myanmar and Thailand to connect to Malaysia and Singapore. Now, this look east policy had thrown up these ideas, but unfortunately, for various reasons, maybe because of the breakdown of relationships with Myanmar or something else, some of the infrastructure projects announced have not quite taken off in the east. And the west now, to be honest with you, most of India's new investments in manufacturing, is happening in a few states in the western side of India. And therefore it seems a natural springboard for the marketing of those products to have a very viable option to route their goods to customers in west Asia and further on to eastern Europe. It makes sense.
The east somehow is often talked about, but very little is done. Even in the last 20 years, I've heard many prime ministers talk about the look east policy, but after the sound and noise dies down, I have very little to show for, or as a country, we have very little to show for cooperative infrastructure built with a few countries joining hands together. I haven't seen any.
To sum up, I started by asking you about the India Middle East Europe Economic Corridor. What is the problem that it's trying to solve or the outcome is trying to achieve? And I think you placed it in two buckets. How is it looking to you in terms of when we will start seeing things happening, or rather where it is today on the drawing board with all the MoUs or most of the MoUs in place?
There are two sets of activities that need to run in parallel. It is a combination of a new railway line and operating ports. As far as operating ports are concerned, whether it is Haifa or Jebel Ali in Dubai or Mumbai, Kandla, we don't have a problem with the ports. There is adequate capacity, and if more capacity is required, additional birds can easily be built. ports are not an issue. The real issue is to build the high speed rail link from Dubai right up to Haifa port. That is the single biggest hardware piece.
In parallel, there has to be a software piece where 15 countries get together to ease the border crossing restrictions. The clearances that goods require when…you need a single pass system where if I load a container in Bombay on a ship and let's say, it has to reach Hamburg, then nobody has to check a piece of paper by opening the container or stopping it for two, three days. It has to go seamlessly right through. To my mind, this hardware of building the railway link and the software of hassle free movement are the two things that need to start right now in parallel. Once these two get onto a certain momentum, then I think the challenge will be that why should it only be countries who are on the link that benefit?
The question that you asked earlier by even drawing 100 to 200 km spurs from the link, you could potentially add another host of countries. Each country then along the link needs to address the question which you again asked: how can I maximize the benefit to my country by exploiting this link, by setting up an appropriate economic enclave or industrial park or whatever the language is. These are the resets of activities that are required.