INSTC route between India and Russia to see pick-up in trade volumes from next month, say officials

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More trade between India and Russia is set to flow through the ambitious International North-South Transport Corridor (INSTC) on a regular basis from next month onwards, officials have confirmed to Moneycontrol.

A significant volume of trade is set to be registered by the INSTC, India's 7,200-km long alternate trade route to Russia through the Iranian deserts, from July onwards, as more Indian retailers begin to export goods to Russia soon and raw materials like coal and fertilisers flow the other way around, officials said.

"A large number of American, European and Japanese firms have left the sanctions-hit country and Indian companies are keen to take their place. We are facilitating all queries on a priority basis," an official said. Once the volumes hit a specific level, a virtuous cycle of investment and awareness is expected to make the route more popular and less expensive, they said.

The INSTC is India's grand plan to cut short the time taken for trade shipments to reach Russia and Europe, and enter the central Asian markets, and vice versa. It incorporates thousands of kilometres of all-weather highways from the Iranian port of Chabahar in the south, through Azerbaijan in the north, and onwards to Russia and Europe.

However, the newly-expected flow of goods is also anticipated to flow through the eastern section of the corridor, which has a rail line connecting Russia with Iran through Kazakhstan and Turkmenistan. Russian firm RZD Logistics last week confirmed it had begun sending container trains to India through this route.

The first rail transit cargo entered Iran on Tuesday through the Sarakhs border crossing, Iranian media has reported. The 39 containers being carried by train left Chekhov station near Moscow on July 6 and have travelled 3,800 kilometers as of Tuesday. It will have to cross a further 1,600 km till it reaches the Iranian port of Bandar Abbas, from where it will be shipped to Mumbai.

Back on track

After a long pause, Russia had officially expedited talks to quickly operationalise the INSTC earlier this year after the Ukraine war began and Moscow was hit with a barrage of international financial and monetary sanctions.

Meanwhile, the transcontinental trade route also became a core point of discussion during the visit of Iranian Foreign Minister Hossein Amir-Abdollahian to Delhi in May, officials said.

Moneycontrol had reported that a monitoring group for operational issues was to be formed by officials of both nations to ease a series of issues at the Shahid Beheshti terminal of the Chabahar port in Iran. The terminal is one of two at Chabahar, Iran’s only ocean port. It has been developed by India, which formally took over operations in December 2018.

India's exports to Russia stood at $3.24 billion in 2021-22, up from the pre-pandemic figure of $3 billion. Meanwhile, imports from the country have risen to $9.86 billion, of which $5.25 billion was crude oil, processed petroleum, and coal. Total imports stood at $7 billion in 2019-20.

"While crude oil will continue to be shipped by sea, the INSTC would be crucial for bringing more coal from Russia," a Commerce Department official said. In the first two months (April-May) of the ongoing 2022-23 year, coal imports from Russia more than tripled to $516 million, up from $167 million in the corresponding months of the previous financial year.

The growth is evenly spread across the anthracite, bituminous, coking and steam coal varieties, data shows. Fertiliser imports from Russia will also benefit from the overland route. Imports have risen nearly 10 times to $344.5 million in April-May 2022-23 from just $38 million in the same period of the previous year.

Long-term viability

The route is also part of India’s overall efforts to establish greater connectivity and trade with the high-potential markets of the adjoining Commonwealth of Independent States (CIS) countries, officials say.

"This grouping of ex-Soviet nations spread across East Europe and Central Asia often have had tenuous relations with the West in the past, and have increasingly hiked their imports from China. After the Ukraine crisis, western penetration in the area is set to decrease further,” he added. Eight of the nine CIS nations are now part of the INSTC, along with Oman, Syria and Bulgaria.

The Federation of Freight Forwarders Association of India, which had conducted the first dry run through Azerbaijan back in 2014, had initially pegged six months as the time required to popularise the new route after it opened. But difficulties over the lack of loan facilities from banks on this route, inadequate insurance coverage for bill of lading, non-vessel operating common carrier, as well as irregular shipping services to Iran had slowed the process.