Without transshipment, India’s port-led industrial growth strategy through Sagar Mala would remain ineffective
It is well known that India’s domestic infrastructure is not up to global standards. It is also common knowledge that its low quality infrastructure raises business costs and reduces global competitiveness. Despite efforts to improve infrastructure for several years, the results are still not enough. This is evident from India’s low global rank in ease of trading across borders. It is also evident from the challenges facing India in developing as a global maritime hub through the port-led development initiative of ‘Sagar Mala’.
Ports integrate host countries with global production networks. Countries with high shares in global goods trade, or having trade as a major source of their national incomes, have no alternative other than having efficient ports. Depending on the size of the country’s coastline and degree of integration with regional and global economies, ports play multiple roles. These include just not facilitating exports, but also supplying imported resources and commodities to their hinterlands. Some ports specialise in transshipment and are vital for enabling cross-continental traffic and smooth functioning of global value chains. Singapore, Hong Kong, Shanghai, Busan, Jebel Ali and Colombo are some examples.
India is yet to develop major transshipment ports. Vallarpadam in Kochi was supposed to be a major transshipment port, but hasn’t got going. Its transshipment container terminal is functioning at just around half of the installed capacity. More transshipment capacity is in the pipeline as the Vizhinjam port develops on the Kerala coast. For becoming a global maritime hub, as the Sagar Mala aims to, India must develop good transshipment facilities. But such facilities, as well as facilities not necessarily focused on transshipment but on basic port function of handling high container cargo traffic for servicing hinterland needs, are unlikely to produce results simply from more new ports or upgrading of existing ports. Till the cost of using port facilities in India remains uneconomic, they would have limited presence in global production networks.
It is unfortunate that even relatively new port facilities in India have hardly come up to global efficiency standards. Several ports have come up in India over the last two decades. Except JNPT, which is ranked in the mid-30s on global port efficiency scale, no Indian port figures among the top 50 best ports in the world. This is because of high logistics costs of Indian ports. India’s low rank of 146 in the World Bank’s Trading Across Borders Index underlines the high cost.
The costs for Indian ports continue to be high for two major sets of factors. The first of these are due to features of the ports themselves. While some of these point to quality of existing infrastructure, a substantive part includes procedures. The most important among the latter are lengthy processes that are still necessary for export and import. While customs operations in India are rapidly going paperless and converting to digital, inspections and scrutiny continue to be lengthy for cargo and other shipping operations. The second important set of reasons for high logistics costs of Indian ports pertains to issues arising from problems of movement in hinterland. Connectivity between ports and hinterland is still a formidable hindrance.
Sagar Mala is trying to address this issue by emphasising on multi-modal connectivity to ports. But connectivity improvement plans continue to be affected by operational problems on roads as well as perennial problems of acquiring land for expansion.Even if India is able to substantially reduce logistics costs over the next decade, plugging a few of its ports deep into global supply chains would require major regulatory changes. Cabotage laws in India continue to remain restrictive. Foreign-flagged vessels are not allowed to ship cargo from one Indian port to another as that remains a protected turf for domestic shippers. Some initial reforms have been introduced here, such as for Roll-on, Roll-off (RoRo) vessels. But further change in cabotage laws is essential for encouraging transshipment functions on Indian coasts. Without transshipment, India’s port-led industrial growth strategy through Sagar Mala would remain ineffective.
One wonders why even after 70 years of independence, and notwithstanding stated ambitions of becoming an economic superpower, basic maritime facilities continue to remain as inefficient as they are in India. Why does an economy, which does so well among its peers in protecting the interests of minority investors, fare so poorly in enabling trading across borders? One really can’t help wondering if regulatory attention among policy-makers has not been adequate on making India’s trade simpler and less expensive as opposed to the attention other sectors have got. Unlike areas like ‘registering property’ or ‘enforcing contracts’ where India ranks low and central regulators have limited involvement, making these essentially state-specific, major ports and their functions are in central command.
There is hardly any reason why customs operations in India took such a long time to go digital. There is also no reason why cabotage laws remain as restrictive as they are and why major ports in India are yet to be corporatised. The only answer seems to be the low priority that outward-oriented infrastructure reforms in India continue to suffer from.
The author is Senior research fellow & research lead (Trade & Economics) at the Institute of South Asian Studies in the National University of Singapore.
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