The maritime sector is an important contributor to the country’s growth, accounting for about 95 per cent of the export-import trade by volume and 70 per cent by value. India’s maritime transport growth is driven by developments in the global economy – growth in world output and trade – as well as the domestic economy. During the past two years, there has been an upward trend in global economic activity. Though India’s economic outlook projections for 2017 and 2018 were 6.7 per cent and 7.4 per cent (International Monetary Fund report, October 2017) respectively, the growth momentum slowed down during fiscal year 2017-18. The key reasons behind this were the lasting impact of the currency exchange initiative and the uncertainty related to the mid-year introduction of the goods and services tax.
Indian port traffic has witnessed single-digit year-on-year growth from 2012-13 to 2017-18. Though capacity addition has picked up pace at major ports, progress on the development of new non-major ports remains tardy. However, the port sector is expected to exhibit reasonable growth in cargo traffic in the coming years. The government is being proactive and leaving no stone unturned to ensure sector growth. It has been meeting challenges such as those related to connectivity and overcoming financial and administrative hurdles through the adoption and implementation of new and supportive policy measures. The outlook for the sector thus seems bright.
Indian Infrastructure takes a look at the key trends in the maritime sector as well as the future outlook…
- Cargo traffic at Indian ports grew at a compound annual growth rate (CAGR) of 5.59 per cent between 2013-14 and 2017-18, reaching 1,208.95 million tonnes (mt). The growth was primarily led by non-major ports, which witnessed a CAGR of 6.16 per cent, compared to 5.16 per cent for major ports.
- In 2017-18, the major ports handled 679.37 mt of traffic, registering a year-on-year growth of 4.78 per cent, as against 6.91 per cent during 2016-17. The share of the major ports in the total traffic handled at Indian ports declined continuously till 2014-15, but has been increasing since. The share of the major ports stood at 56.2 per cent in 2017-18, as compared to 55.25 per cent in 2014-15. Commodity-wise, cargo growth has been largely driven by 3Cs – containers, coal and crude – which comprised 75 per cent of the total traffic.
- At the state level, traffic at non-major ports has been increasing significantly, driven by greater efficiency levels, deeper draught and a competitive tariff structure. In 2017-18, non-major ports handled 529.58 mt of traffic, registering a year-on-year growth of 9.14 per cent, as against 4.13 per cent during 2016-17. With regard to the share of non-major ports in total traffic, though there was a slight reduction during 2015-16 and 2016-17, their share has been rising since 2012-13. Port-wise, Adani Ports and Special Economic Zone Limited-operated Mundra port became the first commercial port in 2013-14 to handle over 100 mt of cargo in a year. Krishnapatnam port, which was commissioned in 2008, is among the fastest growing ports on the east coast.
- In terms of infrastructure, there has been record capacity addition at the major ports. During 2016-17 and 2017-18, these ports added a capacity of 101 million tonnes per annum (mtpa) and 385.19 mtpa respectively. Overall, the major ports have added a capacity of 650 mt in the past five years (2013-14 to 2017-18). As of March 2018, capacity at the major ports stood at 1,451 mtpa. At the state level, the capacity of non-major ports increased by 233 mtpa from 2013-14 to 2017-18. On the flip side, the pace of greenfield project execution continues to remain sluggish.
- Private participation has been invited for the development of berths, container terminals and new ports, mechanisation of facilities, etc. With 100 per cent foreign direct investment and other favourable policy initiatives, the sector has attracted several foreign players – PSA International, Dubai Ports World, APM Terminals – that have a strong presence in the Indian port sector. In 2017-18, of the total traffic of 679.37 mt handled at the major ports, 165.38 mt (24.34 per cent) was handled by public-private partnership (PPP) operators. In a major development, in January 2018, the cabinet approved the revised model concession agreement (MCA) for PPP projects at the major ports. The amendments are expected to make port projects more investor friendly and improve the investment climate.
- To improve operational efficiency and profitability, a benchmarking exercise was conducted for the major ports under Project Unnati. Overall, 116 initiatives were identified across all the major ports to unlock a capacity of 100 mtpa. As of November 30, 2018, 91 initiatives stand completed.
- On the efficiency front, there has been a significant reduction in turnaround time, from 94 hours in 2013-14 to 64 hours in 2017-18.
- With regard to financial performance too, the operating surplus increased from Rs 25.19 billion in 2013-14 to Rs 56.67 billion in 2017-18. Net profits increased by over three times from Rs 10.26 billion to Rs 34.13 billion during the same period.
As per the World Bank’s Doing Business 2019 report, India climbed up the Ease of Doing Business ranking from 100 in 2017-18 to 77 in 2018-19, as a result of increased adoption of global standards. With regard to facilitating ease of doing business, the Ministry of Shipping (MoS) has identified a number of parameters for reducing dwell time and transaction costs at the major ports. These include elimination of manual forms, direct port delivery, installation of container scanners and radio frequency identification-based gate automation system, and e-delivery of orders. These initiatives have already been implemented at the Jawaharlal Nehru Port Trust and are being implemented at the other major ports as well.
- Ports are exploring new business areas to diversify their portfolio and reduce business risks, with roll-on, roll-off and liquefied natural gas terminals, smart port cities and port-based special economic zones emerging as new areas of growth. Cruise tourism is another new area of growth. Cruise terminals are operational at Mumbai, Mormugao, New Mangalore, Cochin and Chennai. The upgradation of a terminal at Mumbai and the construction of a new terminal at Cochin are under way.
- Backed by a series of policy initiatives taken by the government in the recent past, the long-term outlook for the sector remains positive. The initiatives, aimed at giving more autonomy to port trust boards, revising the MCA, bringing some clarity on the tariff front, promoting coastal shipping and inland water transport, enhancing ease of doing business, forming dedicated special purpose vehicles for last-mile connectivity projects, etc., are expected to speed up the pace of project execution.
- As per MoS estimates, cargo traffic and capacity are expected to increase to 2,500 mt and 3,500 mt, respectively, by 2025. Meanwhile, in the near term, cargo traffic is expected to increase by 6-9 per cent during 2018-19 and 2019-20.
- The launch of Sagarmala has brought optimism to the maritime sector and given concrete shape to the country’s maritime development plans. While policy support is positive, more budgetary support will be needed for timely execution of Sagarmala projects.
- In 2017-18, the MoS awarded 27 projects worth Rs 41.47 billion. These projects created an additional capacity of 21.93 mtpa. More than 50 projects involving an investment of Rs 100 billion and a capacity addition of 90 mtpa are targeted for award during 2018-19.
- Going forward, given Sagarmala’s scope and huge investment requirement, the effectiveness of the programme will lie in the timely execution of projects. Issues related to obtaining clearances, requirement of multiple approvals, land acquisition, lack of clarity in contract agreements, cargo evacuation, etc., that have slowed down project execution, need to be addressed. Limited draught capacity of ports to accommodate large container vessels is another key concern.
- Nevertheless, there is strong government intent to bring about a sea change in the sector. The creation of dedicated freight corridors, coastal economic zones, improved road and rail connectivity, etc., are expected to reduce the overall logistics cost of trade. In the meantime, first- and last-mile connectivity through rail, road and pipeline networks needs to be planned and developed in advance.
- There is also a need for periodic review and monitoring of projects to ensure timely implementation. Overall, increased government support in terms of announcements of new policy measures is expected to provide a more favourable environment for the stakeholders going forward. w
Based on a presentation by K. Ravichandran, Senior Vice President and Co-Head, Corporate Ratings, ICRA Limited, at a recent India Infrastructure conference