On the sidelines of the G20 Summit in New Delhi, a Memorandum of Understanding (MoU) was signed between the Governments of India, the US, Saudi Arabia, the European Union, the UAE, France, Germany and Italy to establish the India-Middle East Europe Economic Corridor (IMEC).
About India-Middle East Europe Economic Corridor (IMEC)
- The India-Middle East Europe Economic Corridor (IMEC) is a transnational rail and shipping route spread across two continents, which the US says is expected to stimulate economic development through improved connectivity and economic integration between Asia, Arabian Gulf and Europe.
- The IMEC will include two separate corridors — the east corridor connecting India to the Arabian Gulf and the northern corridor connecting the Arabian Gulf to Europe.
- It will include railway projects, which upon completion will provide a reliable and cost-effective cross-border ship-to-rail transit network to supplement existing maritime and road transport routes enabling goods and services to transit between India, the UAE, Saudi Arabia, Jordan, Israel, and Europe.
- For the project, a MoU has been signed between Saudi Arabia, European Union, India, the UAE, France, Germany, Italy and the US.
- While its details are yet to come out, the project is a part of the Partnership for Global Infrastructure Investment (PGII) — a West-led initiative for funding infrastructure projects across the world, seen as a counter to China’s Belt and Road Initiative (BRI).
What is the objective behind this corridor?
- The objectives for IMEC include generating economic growth while incentivising new investments in the region.
- It aims to connect the two continents (Asia and Europe) with commercial hubs and facilitate development and export of clean energy, support existing trade and manufacturing synergies and strengthen food security and supply chains.
- The project will also help link energy grids and telecommunication lines through undersea cables to expand access to electricity, Internet, etc.
To what extent will the IMEC help India’s external trade?
- The IMEC is expected to increase efficiencies, reduce costs, enhance economic unity, generate jobs, and lower greenhouse gas emissions.
- The cross-border shipping and railways corridor will reduce logistics costs as well as boost trade in goods and services between the UAE, Saudi Arabia, India and Europe.
- For instance, the destination for India’s engineering exports are primarily the Middle East and Europe.
- These exports will get a fillip.
- Similarly, this offers India the opportunity to create green hydrogen and green ammonia hubs near the coasts and supply the commodities via shipping and rail network to the Middle East and eventually Europe.
- Analysts project that the corridor will make India’s export deliverables more efficient and cost-effective thereby adding to their competitiveness.
What will be the challenges in implementing this?
- The first and foremost challenge is to create a firm plan to establish the corridor.
- At present, there are no financial commitments, which will be decided in about two months.
- Laying a network of railway lines, roads and port connectivity across countries requires a high-level of coordination and planning. Besides, the corridor also passes through Jordan and Israel, which throws up geopolitical challenges, which would require a fine balance of economic and diplomatic manoeuvring.
- The BRI, which is in its 10th year, has faced several challenges related with coordinating with countries, financial packages, geopolitics, diplomatic considerations, etc. The IMEC will also have its share of similar challenges.
- Furthermore, apart from Italy, Saudi Arabia and the UAE are also part of the BRI. It would be worth watching how a balance is struck between the two commitments.
What is the Partnership for Global Infrastructure Investment (PGII)?
- The infrastructure plan was first announced in June 2021 during the G7 (or Group of Seven) summit in the UK.
- The G7 countries include the United Kingdom, the United States, Canada, France, Germany, Italy, Japan, and the European Union (EU).
- US President Joe Biden had called it the Build Back Better World (B3W) framework. However, it did not register much progress.
- In 2022, during the G7 summit in Germany, the PGII was officially launched as a joint initiative to help fund infrastructure projects in developing countries through public and private investments.
- US President said, “Collectively, we aim to mobilise nearly $600 billion from the G7 by 2027 to invest in critical infrastructure that improves lives and delivers real gains for all of our people.”
- Essentially, in response to the infrastructure projects being undertaken and funded by China under the Belt and Road Initiative (BRI) at a global level, the G7 decided to present their alternative mechanism for it.
- The stated purpose of both the PGII and the BRI is to help secure funding for countries to build critical infrastructure such as roads, ports, bridges, communication setups, etc. to enhance global trade and cooperation.
What was the need for an alternative?it
- China began the Belt and Road Initiative in 2013 under its President Xi Jinping.
- It aims to revive the ancient trade routes crossing to and from China–from Rome in Europe to East Asia.
- Under this, the Chinese government helped in providing loans for infrastructure projects to various countries, and in many cases, Chinese companies were awarded contracts for carrying out the work. This helped China mark its footprints at a global level.
- However, China was criticised in the West and by some other countries for providing unsustainable debts to countries that will be unable to repay them.
- According to a 2019 World Bank report, among the 43 corridor economies for which detailed data was available, 12 could face a situation where debts were not sustainable, which could lead to public assets being handed over to foreign contractors or China itself.
- India, however, opposed the BRI as it included the China-Pakistan Economic Corridor, which connected Kashgar in China with the Gwadar port in Pakistan via Pakistan-occupied Kashmir.
What has been announced so far as part of PGII initiatives?
- In a recent press release, European Commission (the executive arm of the European Union) chief Ursula von der Leyen said the IMEC is a further step in the PGII process.
- It announced several projects in Indonesia, among other countries, on clean energy, telecommunications, etc.
- India was also a part of this meet, where one of the outcomes for funding was investments in its health infrastructure.
- The US government’s agency, its International Development Finance Corporation (DFC) would invest over $15 million in India’s health infrastructure, “including support for the expansion of a chain of eye clinics for conducting corrective surgery for underserved individuals, and an India-based social enterprise that manufactures safe and affordable women’s hygiene products for underserved women in non-metro areas.”
- The EU, through its Global Gateway programme, has now said it will “activate 300 billion of investments in critical connectivity projects during the period 2021-2027, half of which is destined for Africa.”
- Over 90 projects have been identified in Africa, Latin America and the Caribbean, Asia and the Pacific, and in the Western Balkans.
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