Ports must be need-based

There are several state-run ports mushrooming across the entire coast line, but do we need a port at every 100 km of coastline? Probably not, the key is to build port capacity where it is needed the most, writes Anil Singh.

Container trade in India only picked up significantly after the ports started opening up container terminals to private sector participation in 1997 with the first private terminal at JNPT (Nhava Sheva International Container Terminal). The success of the government’s privatisation initiative can be gauged from the fact that there has been a 400 per cent jump in the volume of cargo handled. Since then the industry has grown in the country but still remains in a very nascent stage as containerisation accounts for only 23 per cent of India’s total international trade. The revenue share model that had been agreed upon was based on an understanding of the market but was fairly conservative in the prospects of the growth of the industry. There is a requirement of revisiting the model having considered the dynamic changes that have been seen over the last 16 years.

Poor back-end infrastructure

Today, India’s goods overseas are losing their competitive edge despite low labour cost, one of the main reasons being high logistics cost stemming from our poor infrastructure. India’s logistics infrastructure is inefficient and this not only results in higher prices and lower competitiveness, but also hampers economic growth. The cost of logistics accounts for around 21-23 per cent of the production expenses in India as compared to 3-6 per cent in developed western markets. Again, the question is of making sure that these back-end infrastructures are in place and projects are underway in earnest.

Issues hampering private investments

There needs to be a more positive outlook and more investments towards the sector for it to grow and prosper. Proper infrastructure and rail-road connectivity is the need of the hour to ensure lesser turnaround time. Today, exporters are looking for better efficient service but due to inadequate roads, the average transportation time has gone up considerably and affected the business environment. Lack of funds for investment in infrastructure, uncertainty in the global economic scenario, and the steep tax and regulatory regime in India, have pushed these developmental initiatives. Additionally, there are issues of land acquisition, rehabilitation and delays in environment clearances, which mar the ports sector. There should be considerable reduction in procedural bottlenecks. Trade procedures need to be simplified by improving co-ordination between customs and port authorities. Also, more involvement of state governments by setting up state maritime boards will ensure a favourable climate for investment.

More ports, less business

This is the time to invest and build capacities. Overcapacity utilisation at major ports is becoming one of the important challenges for almost all the major gateway ports in India. At JN Port which is India’s premier port handling over 55 per cent of the country’s container trade, the average capacity utilisation is over 95 per cent, which is very high even compared to global standards and existing terminals are struggling to meet demand. There are several state-run ports mushrooming across the entire coast line, but do we need a port at every 100 km of coastline? Probably not. The key is to build port capacity where it is needed the most, where the importers and exporters want it.

Policy initiatives required

A market regulated tariff regime is the need of the hour. Indian Private Ports and Terminals Association (IPPTA) has given the Ministry of Shipping several suggestions on the new guidelines that allow future port projects for self-regulation, which will be kept in check by competition and market demand and ultimately provide relief to the industry as a whole. This has been a longstanding demand given that the current tariff regime penalises efficiency and productivity thereby providing no incentives to the operators. According to the draft guidelines, Tariff Authority for Major Ports (TAMP) will be a regulatory body fixing a reference tariff. IPPTA has suggested that there should be no interference once market tariffs are agreed with the customer. We do hope that suitable migration to a market-linked tariff is also quickly extended to the existing operators.