The port sector is a crucial component in the infrastructure sector, since it handles 95% of India’s external trade by volume and 70% by value, and therefore, directly impacts the country’s positioning in global trade, and thereby, its economy as a whole. India has a long coastline of 7500 km, which has 13 major ports and 60 operational non-major ones.
Port traffic has increased at CAGR of 8.1% to reach 884.6 million tones with an average utilization of ~90%, as compared to the international average of 70%. During this period, non-major ports have witnessed faster growth in cargo handling .The average utilization of major Indian ports is still 90% higher than the International average of 70%.
Planning commission estimates that India’s GDP growth will be 5% during FY13.This has raised doubts on the sustainability of the country’s growth story. Government recognizes the importance of infrastructure investments and policy & structural reforms in Infrastructure sector to boost country’s GDP. The Twelfth Plan proposes to increase the infrastructure investment to 10.5% GDP by the end of the Plan period. This planned investment, if it is realized, can propel the country’s economic growth to a higher trajectory.
Government has launched “Maritime Agenda 2010-2020 to develop the port infrastructure which handles the maximum trade. Under the Maritime Agenda 2010–20, the Government plans to invest INR1,280 billion in major ports in 424 projects .Furthermore, maritime states have drawn up ambitious programs to create additional capacity and develop non-major ports with an estimated investment of INR1,680 billion.
As is the case in the other infrastructure sectors, the private sector is expected to fund a major share of investment in ports. More than 80% of the investments in major ports are proposed to be made by the private sector. This percentage is even higher in the case of non-major ports. State governments will have a major role to play in the development of ports projects and attract private sector investments to the tune of 96% of the total fund requirement. Private investment in ports is especially in container terminals bought optimistic sentiments with the growing market.
Challenges & Road Ahead
Poor Infrastructure: Low Operating /Productive Metrics
- Indian ports have not been able to achieve an optimum level of cargo-handling due to multiple constraints related to handling of cargo, the level of containerization, peaked capacity utilization , custom procedures and insufficient hinterland connectivity, which has increased evacuation time at ports.
- As a result, they lag behind their International counterparts on key operating or productive metrics.
- High turnaround times: Data from Indian Ports Association shows that ports in India suffer from high turnaround times for ships. JNPT, which is the premier port in India, has more than 2 times the turnaround time of Colombo and Singapore ports because of congestion on berths and slow evacuation of cargo which are unloaded at the berths. Waiting and service time at Indian ports are considerably higher due to poor port infrastructure & thus Indian ports are unlikely destination for major international liners despite close proximity to international shipping route.
- Despite Port connectivity development project under nation Highways Development Program and selective rail connectivity provided to some port, evacuation of unloaded cargo & poor connectivity to the hinterland from ports remains a limiting factor. The railways, highways, coastal shipping and inland waterways need to be upgraded to facilitate evacuation of cargo and improve the productivity of Indian ports
- Costal shipping in India is hampered by inadequate port and land side infrastructure which hampers large scale use of it for freight movement. Air cargo has also not taken off significantly in India. With increased volumes of cargo major airports are getting congested resulting in long waiting time. The waiting time for exports in India is 50 hours compared to a World average of 12 hours while the waiting time for Imports in India is 182 hours compared to a World average of 24 hours. Also the airfreight sector suffers from high fuel costs and tariffs as well as several manpower issues. .
- Inadequate depth at ports: The depth at many ports in India is not enough and dredging tenders take a long time in getting awarded. As a result with the existing depths many ports are not able to attract very large vessels.
Policy Issues: Slow Development, Tariff Issues
- Delay in expansion of brown field projects & development of Greenfield ports, on account of the protracted process of receiving clearances, particularly in the case of those relating to the environment. At present, India has a complex and prolonged clearance mechanism for projects pertaining to the environment. There is no single-window clearance and a project moves through multiple departments and processes at the state and Central levels, which considerably delays the process. For instance, in the case of PPP projects, it is estimated that it will take around five years to obtain all clearances and approvals from various agencies and ministries of the Government before financial closure can be achieved and construction initiated.
- The growth of PPPs is marred by procedural and policy-related impediments. Apart from clearances, PPP projects are delayed due to slow bureaucratic procedures at most major ports at the pre-tendering and post-award stages, e.g., delays in dredging and the lengthy process of fixing tariffs.
- Tariff reforms are another key issue that impedes the growth of private investments. Cost-plus-based fixing of tariffs does not incentivize increases in the productivity of berths, especially if the returns are not largely re-invested. The Tariff Authority for Major Ports(TAMP) regulates the returns for players (up to 16% RoE) by fixing tariffs based on the cost-plus approach. Private developers of minor ports are not under the purview of tariffs regulated by the TAMP. Many investors expect that tariffs for major ports will be discontinued or replaced with an incentive-based system that has a price cap.
- Capacity enhancement can be done in two ways, new green-field development projects needs to be established keeping in view the suitability of location based on the hinterland it wishes to serve and the attractiveness of location based on its proximity to shipping routes. At existing major and non major ports where there exists a scope of enhancement of evacuation facilities or where evacuation systems are fair enough to match additional capacity, expansion can be planned. There also exists scope of enhancing port capacity by enhancing port efficiency.
- The existing ports and new ports need to adopt higher level of automation and mechanization to cut the effects of labor issues and mafia influences in port operations. Efficient handling and coupled with quick evacuation will enhance the vessel turnaround time and improve the productivity and output per berth.
- Develop multimodal evacuation and distribution system wherein, it is possible to evacuate cargo using roads, rails and air. Air connectivity to ports will definitely be cost effective and value adding to high value critical cargo.
- A conductive business environment is needed for private investments. The policy and regulatory hurdles hampering private sector initiatives need be addressed for proper port infrastructure development. The recent initiatives of the Government, such as the Captive Port Policy and the Land Policy for Major Ports, are useful steps in removing hurdles and need to be supplemented with pending reforms such as the Ports Regulatory Authority Bill 2011 and simplification of cumbersome approval procedures. The Ports Regulatory Authority Bill 2011 will overhaul the regulatory structure for ports and the way tariff is determined. It is still at the discussion stage and presents an opportunity for the concerns of the private sector to be addressed. Higher tax exemption and lowering of Minimum Alternative Tax (MAT) needs to be looked into.
- The concerns or reservations of private sector players need to be paid special attention, since more than 80% of the investments in ports are envisaged from the private sector.