India-Middle East–Europe Corridor (IMEC) significant for infra-finance reforms

India-Middle East–Europe Corridor (IMEC) significant for infra-finance reforms

Subject: IR

Section: Places in news

Key Points:

• India’s presidency of G20 saw two major initiatives in the field of developmental finance that were announced as part of the Delhi Declaration.
  • The first is the launching of an alternative model for inter-continental infrastructure creation through the proposed India-Middle East–Europe Corridor (IMEC).
  • Second is building an early consensus on strengthening multilateral development banks (MDB).
• The two initiatives may address partly the reasons behind the worldwide debt crisis and may create a framework to bail out debt-ridden nations. Both will bring major strategic benefits to India vis-à-vis China.

Why the need for reforming MDBs felt?

• According to available estimates, nearly 60 per cent of low-income countries are either in debt distress or at high risk.
• Infrastructure rush in emerging economies over the last two decades, inadequate safe financing options and China’s debt-trap diplomacy are major reasons behind this mess.

When will the initiatives be implemented?

• The initiatives will get final shape under Brazil’s G-20 presidency.
• However, part of the reforms — like relaxing the capital adequacy norm — may come into effect sooner.
•  It would pave the way to release more funds to the emerging economies. India is keen for an early decision in this regard.

Benefits of reforming MDBs:

• If rightly developed, infrastructure brings tremendous indirect benefits to the economy. However, the long gestation and low direct returns make it unsuitable for regular private finance.
• The collaborative finance model of IMEC which may show the world an escape route from China’s neo-colonialism and may set up bigger and better trade links than promised by BRI.

Significance of IMEC:

• IMEC is a bigger proposition. Apart from rail and shipping options, IMEC would also offer electricity and energy (gas and hydrogen) pipeline connectivity options.
• India, Saudi Arabia, European Union, India, the UAE, France, Germany, Italy and the US have entered an MoU, on the sidelines of the G20 summit, to create the corridor.
• The possibility for success is high as IMEC banks on India’s thriving bilateral relations with Saudi Arabia, UAE have healthy bilateral relations with Saudi Arabia, UAE and Israel to get the project through.
• Like its success in bringing Russia and the US to a consensus at G20, India may also help IMEC connect with the International North-South Corridor (INSTC). It would help trade in the vast region between the Caspian and the Mediterranean seas.
• Most critically, IMEC would open new connectivity options to debt-ridden Africa without much extra cost and ensure better utilisation of assets already built.