Smooth Sailing: Strong government support, but much remains to be done

Strong government support, but much remains to be done

Over the past few years, the port sector has undergone significant changes. There has been a surge in activity in terms of policies and regulations, incentives and schemes, traffic and capacity, and project uptake. The launch of Sagarmala, the government’s flagship programme for the maritime sector, is being regarded as a game changer due to its focus on port-led development. Progress under the port modernisation and connectivity component of the programme has been quite visible. While the potential of coastal shipping and inland water transport (IWT) is still largely untapped, the segment is receiving the much-needed attention. However, the sector still faces several issues, which have led to repeated failures in meeting growth targets for various ports. Key among these are limited draught levels, rigidity in contract documents and delays in securing approvals.

Nevertheless, the port sector has fared better than many other infrastructure sectors, and is one of the most competitive sectors today.

To deliberate upon the progress in the sector, issues being faced and the changes required to meet the ambitious targets, a panel discussion was held at the India Infrastructure Forum 2019…

Port traffic and capacity: Significant potential exists

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, as compared to 5.16 per cent for the major ports. In terms of year-on-year growth, port traffic saw single-digit growth from 2012-13 to 2017-18. With respect to cargo traffic at major ports, there was a 2.9 per cent increase in 2018-19, compared to 4.78 per cent in the previous fiscal year.

Capacity addition at the major ports has also picked up pace. These ports have added a capacity of 650 mt in the five year period from 2013-14 to 2017-18). As of March 2018, capacity at the major ports stood at 1,451 million tonnes per annum (mtpa). A fair amount of capacity has been added by deepening of berths and terminals, mechanisation and modernisation at ports, and with the increase in public-private partnership (PPP) projects. The improvement in rail and road connectivity too has helped reduce congestion at ports.

Capacity utilisation, however, stood at 46.82 per cent during 2017-18, compared to around 70 per cent during 2013-14. Though this is far below the optimal level of 70-75 per cent, it is seen as favorable for the sector as a fall in the capacity utilisation rate signifies a reduction in congestion at ports.

With regard to commodities, there have been significant changes in the commodity composition at Indian ports in the past five years. The container segment has been reporting strong performance due to increasing trade activity, while petroleum, oil and lubricants (POL) volume growth also continues as a result of rising demand. However, in the coming years, the container segment is expected to have a huge overcapacity. Besides, POL traffic is expected to increase further in light of the thrust given to double liquid capacity at ports.

Progress on Sagarmala: The game changer has the potential to revolutionise the sector

As part of the Sagarmala programme, the Ministry of Shipping (MoS) has identified a total of 601 projects across the four pillars of the programme – port modernisation and new port development, port connectivity, port-led industrialisation and coastal community development. These projects are estimated to entail a cumulative investment of around Rs 9 trillion.

Overall, the implementation of about 50 per cent of the port connectivity projects has commenced. Meanwhile, of the 15 multimodal logistics parks that have been identified, 10 are under implementation. Under the port-led industrialisation component, 18 (31.57 per cent) of the 57 initiatives have taken off. Meanwhile, under the coastal community development component, progress has been quite slow. Of the 26 fishing harbours entailing an investment of Rs 40 billion identified for implementation, work at only seven is under way.

Under Project Unnati, the MoS identified and adopted global benchmarks for the 12 major ports to improve their key efficiency and productivity performance indicators. Around 116 initiatives were identified across the major ports in a bid to enhance their capacity by over 100 mtpa through efficiency improvements. As of March 31, 2019, 92 projects have been completed.

Policy initiatives: Changes that will shape future growth

In the past couple of years, a number of policy and regulatory measures have been introduced by the government. The MoS has allowed the relaxation of coastal movement of export-import (exim) transshipment containers and empty containers under Section 407 of the Merchant Shipping Act, 1958. 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. A year after the amendments in the MCA, the MoS released revised tariff guidelines for private terminal operators. Another noteworthy policy initiative is the captive port policy, under which 30 per cent of the captive capacity can be used by third parties.

After years of being neglected, the shipbuilding segment has also received its share of attention. Giving an impetus to the shipbuilding segment, the Make in India initiative offers various opportunities in the areas of shipbuilding and ship repair. In particular, in 2015, the government had granted a subsidy of Rs 40 billion to the shipbuilding industry to be paid over a period of 10 years. Under this, the government will provide a subsidy of 20 per cent to private players on the total contract cost after the delivery of the ship.

In an attempt to move towards a more environment-friendly way of transporting cargo, efforts are being made to increase the share of coastal shipping and inland waterways. In line with this intention, key steps taken by the MoS include relaxation of cabotage for exim and container cargo for agri business-related cargo and fertilisers. Besides, the Jal Marg Vikas Project for augmentation of navigational capacity on National Waterway (NW)-1, declaration of 106 new NWs and allocation of 2.5 per cent of the Central Road Fund for the development and maintenance of NWs bodes well for the IWT segment.

Global comparison: Need to match international standards

Transport and logistics form the backbone of many sectors. Indian policymakers can take China as a role model and emulate its growth story. China’s economic progress over the past few decades has been remarkable. Over the past 30 years, it has progressed from being one of the poorest economies to an upper middle-income economy.

The key point to note is that economic reforms in China coincided with global changes in manufacturing and logistics. The Chinese government established special economic zones (SEZs) on the east coast which created conditions for industrial activities and led to an increase in exports. With a view to sustaining export-led growth, ports were rapidly expanded and aligned with the SEZs. The linkage, in turn, provided means for importing raw materials and exporting manufactured goods. Further, port development was accompanied by an expansion of road, rail and water infrastructure as well.

The way forward

The ports and shipping industry plays a vital role in the country’s trade and commerce. The importance of the sector stems from the fact that ports handle more than 95 per cent of the country’s international trade by volume and around 70 per cent by value. With the majority of global trade carried out via sea, developing strong, well-functioning maritime infrastructure holds the key to economic growth.

Technology is an important focus area across infrastructure sectors, and the port sector is no exception. The government has given a further impetus to port modernisation, mechanisation and digitalisation with a number of ease-of-doing-business initiatives implemented in the past year under Sagarmala. In addition, greater investments have been made by ports in technology deployment. Going forward, technology is going to play a significant role in shaping the port sector.

However, given the broad scope of Sagarmala and the multiple stakeholders involved, effective coordination among them needs to be ensured. Also, given the huge investment involved, issues related to obtaining clearances, requirement of multiple approvals, lack of clarity in contract agreements, absence of an option to change the cargo mix during the course of a concession agreement, cargo evacuation, limited draught capacity, etc., need to be addressed to ensure timely completion of projects.