South Asia is in for some exciting times ahead with fast changing geo political developments with primary focus being on connectivity. China’s quest to establish “One Belt One Road”, an end to Iranian isolation and Afghanistan’s desire to break free from the stranglehold of a belligerent neighbor have seen exciting churning in recalibrating of relationships in South Asia.
Development of two significant corridors; International North South Transport Corridor (INSTC) and China Pakistan Economic Corridor (CPEC), both with significant economic dimensions and converging of strategic interests in the region is determining new alliances and geo politics. The developments have potential to exacerbate uncertainties and tensions in the days ahead.
For last couple of weeks China initiated China Pakistan Economic Corridor (CPEC) has been the cynosure of Pakistan’s political, military and strategic establishments, who have been singing paeans about the virtues of the project, referring to it as the pinnacle of Pakistan- China relations. However what is most interesting is the hype that is being fed to people of Pakistan about CPEC and the project billed as a solution to all the economic woes confronting Pakistan. It is still early days for the project where work has just begun. The finality is expected to be achieved by 2030.
From the view point of Indian strategic interests is another major project; International North South Transport Corridor (INSTC), which has been in the works for close to one and half decade. The project is of significant interest to enable expansion of economic and energy cooperation between Russia, Central Asia and India that will bypass Pakistan. The project received an impetus with conclusion of the Tripartite Agreement on Transit and Trade between India, Iran and Afghanistan signed in May 2016 which will see the development of Chabahar port in South Iran. Although INSTC was originally envisaged through Bandar Abbas, the signing of the Trilateral Agreement has significant impact on furtherance of the objectives of the project.
The moot question is whether the developments will result in convergence of interests or intensify the already unstable situation in the region.
The financial impact for development of CPEC has been pegged at US $ 46 billion which involves multifarious projects relating to development of road transport, energy and infrastructure. Development of Gwadar port on Makran coast would help direct connectivity with Xinjian in Western China and fulfill the “One Belt One Road” dream launched by Chinese President Xi Jinping. Since major projects are being executed in Pakistan the funding will also have to come from within its resources.
This is the main issue confronting Pakistan. The Economic Coordination Committee of the Pakistan cabinet agreed in February 2016 to set up revolving funds backed by sovereign guarantees to ensure uninterrupted funds to Chinese firms for timely completion of projects under CEPC.
As per a report in The Dawn dated 10 February 2016 authored by Andrew Small of Herald, major concern is “lack of transparency and opaque nature in the way the projects are being pursued”. As per him these are not tenable in the long run. The debt implications for Pakistan economy, the benefit accruing to the population, local impact of the projects and capacity of Pakistan government to build projects on a grand scale are major concerns.
Another major issue concerns the social impact of the projects being executed under CPEC. The blame game has already begun with most non Punjabis feeling left out of the development projects.
Ahsan Iqbal, Minister for Planning and Development, in a written statement to Pakistan’s National Assembly on 27 September 2016 stated; “CPEC will play an important role in achieving targets set under the Vision 2025 plan. It will provide an opportunity for provision of affordable energy to all and upgrade connectivity around the country which will create more opportunities for all.” Pakistan Vision 2025 sets the target of reducing multidimensional poverty by half from the headcount of 40.8pc witnessed in 2012-13.
However some economists from Pakistan itself are not very hopeful of positive outcome from the CPEC. Dr Kaiser Bengali an economist opines that: “The Gwadar-Kashgar road will prove to be another Afghan transit trade-like arrangement” as the country was witnessing downward trends in key sectors. Similar sentiments have been expressed in the third report of the Pakistan Senate made public on 28 September 2016 which claimed that Gwadar as a port was ‘non starter’ and the 1674 kilometer western route through Baluchistan was the least priority of the Pakistan government.
Another major concern has been the security of Chinese nationals working on the projects linked to CPEC. As per plans, two Special Security Divisions (SSD) are to be raised by federal and state governments to provide security to CPEC. Providing resources and money for raising of SSD is a major concern. As per latest inputs the government is considering allowing 1% of the capital cost of the project on account of CPEC security. Though not yet finalized it is proposed to be recovered from users through additional charges on electricity consumption.
As per latest data reported in the media about the progress of the project, China has so far invested US $ 14 billion in the 30 “early harvest projects” out of which 16 are under various stages of completion.
The INSTC was negotiated in the year 2000 and an agreement signed in September the same year between Russia, Iran and India to establish a multi mode transportation network linking Indian Ocean and Persian Gulf with Caspian Sea to enhance trade with North Europe via Russia using St Petersburg port. The agreement envisaged transportation of goods from Indian ports by sea to Bander Abbas in Iran and thereafter by road network to Bander-e-Azali located on Iranian side of Caspian Sea followed again by sea to Astrakhan and onwards to countries of Commonwealth of Independent States (CIS) and Europe using rail networks.
The positive aspect of the INTSC was the recognition of its potential by a large number of countries of Central Asia (Belarus, Kazakhstan, Tajikistan, Armenia, Azerbaijan, Ukraine, Khyrgistan) and others (Turkey, Oman, Syria) who have joined to participate in development of corridor and benefit from its economic potential. The progress on the INTSC, although initially slow from 2005 to 2012 due to sanctions against Iran, has picked up since 2012 and alternate routes added to the initial agreement to expand its reach and potential. Trials carried out to transport containers from Mumbai to St Petersburg in Russia using the INTSC corridor was able to reduce the delivery time of cargo from 45 days to 25 days at 30% cheaper rates justifying the hopes for enhanced connectivity and utility of the corridor.
The trade potential of INSTC corridor is immense. With increase in rail connectivity amongst Central Asian nations, the potential for growth of trade relations between Russia, Central Asia and South and ASEAN nations will be enormous.
The landmark Iran Nuclear Agreement signed in January 2016 which facilitated lifting sanctions from Iran and signing of India – Iran – Afghanistan agreement for enhancing trade and transit and development of Chabahar port further gave a fillip to INTSC.
- So what are the key takeaways from the two important corridors converging in the region?
- As things appear today the CPEC fulfils the aspirations of Chinese leadership to have direct access to Indian Ocean. It is exclusive to the Chinese needs and fulfils its long standing global aspirations.
- Pakistan will benefit due to enhanced trade with China but will be left with huge burden of debt to service the financial burden of development of CPEC.
- India is opposed to development of CPEC since it passes through the Gilgit Baltistan region and Pakistan Occupied Kashmir.
- Iran’s role and desire to benefit from CPEC project will be watched closely.
- The development of INSTC multi model transport corridor is a potential game changer to benefit all stakeholders and enhance connectivity between Central Asia and South Asia.
- China having undertaken massive expansion of its rail infrastructure to enhance trade with Central Asian countries is unlikely to converge interests of CPEC with those of INSTEC.
- Afghanistan is likely to benefit significantly as development of INTSC will facilitate its trade with Central and South East Asia. Being land locked it is currently forced to be dependent on Pakistan.
- The development of INTSC corridor would give a major boost to economic interests of India by facilitating quick transportation of Indian goods to Russia, North Europe and Central Asia and vice versa..