In the contemporary period, the global supply chain is dependent on China. However, a landmark G20 Leader’s Summit produced an economic corridor titled ‘India-Middle East-Europe Economic Corridor (IMEC)’ to make India one of the critical centres for restoring the global supply chain emerging from Asia.
Illustration by Team Geostrata
This article aims to observe the current logistic and non-tariff barriers faced by India and suggest practices to mitigate the challenges related to India’s market access to Europe and West Asia using the 3,000-mile corridor.
LOGISTIC SYSTEM IMPROVEMENT
The core components of the India-Middle East-Europe Corridor (IMEC) are to enhance the potential for economic investments, trade and fostering cooperation. The corridor focuses on an increased integration of the Indian market with West Asia and Europe. Such a vast corridor needs an efficient logistical system to improve regional connectivity and energy supply.
It requires an efficient strategy to ensure the movement of goods, services and labour. The corridor focuses on shorter routes to support inter-continental connectivity. The corridor connects all the major ports like JNPT, Kochi, Kandla and Mudra in west India and Fujairah, Jebel Ali, Ras Al-Khair, Dammam, Duqm and Salalah in the Gulf region.
The majority of the ports located in Western India lack adequate seaport infrastructure. This goes against the general assumption, which claims that the corridor will reduce costs and increase trade.
Therefore, port-related infrastructure needs sufficient attention. The government needs to focus on deepening the drafts of berths, deployment of cranes, and adequate storage space. Deepening the existing drafts will ensure better connectivity to inland container ports.
The ports in western India often experience higher freight rates. The difference in rail and road freight rates has discouraged businesses from time to time. Therefore, the movement of freight containers to other inland cities is expensive.
In this case, there is a need for greater attention to improving the insufficient rakes to reduce the duration and waiting time for a locomotive to five hours. This will reduce the freight rates considerably and will ease the flow of business.
The connectivity infrastructure aided by a vast rail network has helped India. However, mega infrastructural projects in West Asia are at various stages of development. In this case, there is a growing need to focus on increasing the rail and road connectivity from the major ports in the Mediterranean.
The statement can be justified by the willingness of major Gulf countries like Saudi Arabia and the UAE to fulfil their logistical requirements. Therefore, West Asia needs to be perceived by India as countries willing to undergo economic diversification and not as mere energy producers.
In the majority of the cases, the Western Indian ports have faced restrictions in terms of the flow of cargo to the port. In the case of JNPT, the congestion has resulted in road congestion due to a lack of adequate road infrastructure. This has made valuable trucks wait for five to six kilometres.
NON TARRIF BARRIERS FACED BY INDIAN EXPORTERS
The much-needed changes can help India to overstep its profile as an attractive global supply chain hub. Improved logistics can help India to create value-added employment. The changes will result in the sophistication of manufacturing sectors like pharmaceuticals, automotive and electronic assembly.
Therefore, IMEC should be perceived as an opportunity to improve India’s logistics base as it aims for deep economic integration with Europe and West Asia.
This will lead to the sophistication of its manufacturing and logistics sector. A sophisticated logistics sector will attract foreign investors and join the local manufacturers with the global supply chain.
In the case of trade, the IMEC does not do away with the problems faced by the Indian exporters. The members within the IMEC framework are one of India’s top exporting destinations. India has undergone trade agreements and Memorandum of Understandings (MOUs) with most countries participating at IMEC. India faces non-tariff barriers from some of the prominent members of the IMEC.
The same is true in the European Union’s case. The EU has continued to put various restrictions on various Indian exports. Such restrictions are not limited to phytosanitary products but also to food products. Therefore, India and IMEC members need a robust trade agreement to realise the benefits of globalisation and IMEC.
The local companies of India need sound business strategies to integrate themselves with the global supply chains. The advantage of this is likely to increase with the creation of IMEC. However, the trade relations with these countries are fraught with non-tariff barriers that hurt India’s ability to access the markets of the IMEC members.
In the case of West Asian markets like the UAE, customs clearance is necessary even before the products are docked, making the Indian exporters incur additional costs.
India needs to ease their system of customs clearance process to make way for transparency and realise the ideals of IMEC that aim for market integration and hassle-free movement of goods and services.
The newly inducted economic corridor must focus on the existing agreements between India and West Asian countries. India does have free trade agreements with the majority of the countries. There are few Memorandum of Understandings (MOUs) in sectors like housing, tourism and investments.
This can be exemplified by India’s relations with major energy-producing countries like Saudi Arabia. In this case, Riyadh and New Delhi do not have any trade agreements but only a few MOUs in housing, tourism and investments.
Therefore, there is a need for India to negotiate the procedures of testing, inspections and certification, including labelling of products with the West Asian countries to increase India’s market reach.
The reduced cost of transportation will enable specialised industries like pharmaceuticals, gems and jewellery to thrive. However, a detailed process involving customs documentation and paperwork impedes India’s market access to West Asia.
Therefore, there is a need for negotiations for a digitised form of customs documentation to tide over lengthy and complex paperwork procedures. This will help to bridge the logistics gap among the business. In such circumstances, businesses with the right logistics provider can only survive.
In conclusion, India’s logistical challenges and non-tariff barriers with other countries have posed difficulties in realising the potential of IMEC. Therefore, India has to address the major problems posed by non-tariff barriers and logistical challenges.
The potential of the IMEC cannot be hyped as it is still being determined whether it will be economically viable and beneficial. In brief, a vast, expansive, complicated network like IMEC cannot be designed only on geopolitical justifications but on economic principles to make it economically viable.
BY ANIRBAN DUTTA