– By Mohan Kumar and Nilaya Varma
Despite initial doubts, the India-Middle East-Europe Economic Corridor (IMEC) has survived and thrived since the initial MoU was signed in September 2023. This remarkable progress, achieved even without a detailed implementation plan in the first 60 days, serves as a compelling testament to the IMEC’s resilience and potential to overcome obstacles.
Since its inception, the IMEC corridor has made significant strides. Notably, the French have appointed a special envoy to IMEC, Saudi Arabia has pledged a substantial investment of $20 billion, and India and the UAE have signed a Framework Agreement on IMEC. Furthermore, there has been a noticeable increase in road transportation of goods between the UAE and Haifa. This development has been particularly significant amidst the disruptions in the Red Sea.
While each signatory comes with its own strategic interests, the IMEC corridor is an opportunity to do globalisation right between the developed world and emerging middle powers in an increasingly multipolar world. As the US looks to contain and counter Chinese influence through IMEC, the European Union looks at energy and economic security. However, the US and EU will have the standard approach of de-coupling and diversifying their supply chain to achieve resilience in global trade. The UAE and Saudi Arabia are looking towards becoming the keystones in connecting the East and West in the new international order driven by a green transition. Conversely, India looks to break out of BRI’s encirclement in South Asia, integrate into the global value chain, and lift half a billion of its people out of poverty.
The IMEC corridor offers unique features that set it apart. One of the most intriguing is its provision of a cost-effective cross-border ship-to-rail transit network. This innovation is predicted to reduce travel time between Mumbai, the starting point, and the destination, Piraeus Port in Greece, a 100% Chinese-owned port authority, by 40%. Another exciting feature is the pipeline for clean hydrogen export. This is where Saudi Arabia and the UAE envision making substantial contributions, diversifying their economies from their heavy dependence on hydrocarbons and embracing a more sustainable future.
The IMEC corridor can be a game-changer for the EU, grappling with its fossil-fuel overdependence on Russia and ambitious plans to achieve Net Zero by 2050. Including a green hydrogen pipeline, a crucial feature of the IMEC, could be a significant boon for the EU and Saudi Arabia. The latter has set a target to supply 10% of the world’s green hydrogen by 2030. This commitment aligns with the G20 New Delhi Leaders’ Declaration commitment to ‘Support the acceleration of production, utilisation, as well as the development of transparent and resilient global markets for hydrogen produced from zero and low-emission technologies and its derivatives such as ammonia’ and their efforts to triple renewable energy capacity globally.
With China accounting for 31% of global manufacturing, each IMEC country except Saudi Arabia has a sizeable trade deficit with China. The US’s trade deficit with China stands at $367 bn, the EU’s at $316 bn, India’s at $85 bn, and the UAE’s at $16 bn. The US and EU are mainly banking on India to offset this trade deficit, hoping India’s manufacturing matures enough to deliver their de-risking strategy.
Further, the EU is worried about the $9.1 billion in investments made by China in 24 of its major ports, ranging from 4% to 100%. The EU and US have also expressed fears over Chinese-made ship- to-shore cranes, which they believe are vulnerable to exploitation by Chinese actors via backdoor entry through the equipment software.
While IMEC signatories had expected China’s geopolitical view on the project due to IMEC’s potential as a BRI competitor, Turkey’s response has come as a surprise. Turkey has not minced words and stated that there are no corridors without it. It has quickly understood the disruptions that IMEC can cause to its well-established position as a logistics hub between Asia and Europe. Just a month after IMEC was announced, backed by Iraq, UAE and Qatar, it quickly unveiled the Iraq Development Road (IDR) and has projected it as a serious $25 bn alternative to IMEC. The IDR involves shipping goods from the southern Iraqi Grand Faw Port to Turkey via rail and road, with Europe as the destination. Having so far invested about $194 bn in transportation with another $162 bn in the pipeline, Turkey views IMEC as a threat to its economy and is cautious about not making the same mistake as the Ottoman Empire did with the Silk Road by forsaking it when the Suez Canal arrived.
India’s handling of these global developments will be the essence of IMEC’s success. Since there are no permanent friends and enemies but only permanent interests, the West and Middle East, which desperately need a China alternative and diversification of their economies, may hop on board any additional corridors if they can secure their interests. The G7’s Partnership for Global Infrastructure and Investment (PGII) and the EU’s Global Gateway are heavily funded projects that are willing to be viable partnerships to counter China and make a mark on the Global South’s need for sustainable infrastructure.
IMEC’s signatories are banking heavily on India as a supply chain alternative to China. India currently produces 3.1 % of the global manufacturing output, valued at about $450 bn, compared to China’s 31%, valued at over $4 trillion. India will need a severe overhaul in how it does business if it needs to rise to the occasion and attract the capital fleeing China in search of friendly shores. For a country strategizing to be a developed country by 2047, a 9% annual growth for the next 25 years, backed by massive growth in trade and infrastructure, is a must. The Performance Linked Incentive schemes and National Hydrogen Mission are laudable approaches in this direction.
But for far too long, despite expressing hope in India’s potential, the world has been critical of its protectionist and illiberal trade policies as a key reason it has been unable to integrate itself like China into the global value chain. With PM Modi calling IMEC an intergenerational project, India must think long and hard about achieving regulatory harmonisation and smooth trade facilitation that contributes to humanity’s long-term development. While India is vocal about the non-trade barriers (NTB) it faces with the EU; the time may have come to negotiate import tariffs such as Carbon Border Adjustment Mechanisms (CBAM) and Regulation on Deforestation Products.
India will need to lower its applied tariffs, upgrade its manufacturing prowess to tackle NTBs, work on its ease of doing business, and continue its banking and land reforms. Furthermore, while India doesn’t recognise itself as an ally to any of the IMEC signatories and maintains its national interests in dealing with anyone it chooses, its signatories will seek FTAs as they invest billions of dollars in developing India as an alternative to China. With foreign negotiators at the top of their game in subjects ranging from Green Hydrogen to AI and Labour Standards to Government procurement, India must bring in a well-trained A-Team as it did during the G20 Negotiations backed with institutional memory to continue smooth relations for centuries.
There is every indication that India is doubling down on IMEC. For instance, in the recent visit of the US National Security Adviser Jake Sullivan to Delhi, his Delhi interlocutors discussed the subject of IMEC to ensure it remains on the American radar. More significantly, IMEC also seems to have figured in the outreach segment of the recently concluded G7 Summit in Puglia, Italy. In conclusion, the IMEC, if implemented fully, bids fair to be a total game changer with wide-ranging geo-economic implications.
(Ambassador Mohan Kumar is a former Indian Ambassador to France and currently dean/professor at OP Jindal Global University; and Nilaya Varma is the Co-founder & CEO at Primus Partners.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)