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Post-Covid Economic Growth Will Come Through India’s Ports

Post-Covid Economic Growth Will Come Through India’s Ports

Paras Parekh, Young Professional, NITI Aayog.

 

While Covid-19 has put the world in a major humanitarian crisis, it also has ravaged the foundations of our globalised economy. Possibly every country, big or small, has been impacted by this virus. This pandemic has led to deep supply and demand shocks, thereby disrupting international trade, and imposing severe economic pain. Economists at World Trade Organization project world merchandise trade volumes to fall by 13% to 32% (the fall was 12% at the peak of 2008 crisis) depending on how the crisis evolves. Given this macroeconomic landscape, hard decisions taken by India’s Central and state governments and market regulators have helped to some extent mitigate the pandemic’s economic fallout. 

To chart the way forward, the 2008–09 Global Financial Crisis can be used as a good precedent here. The lesson learnt was that when laying the foundation for a strong recovery, ‘trade’ becomes an important ingredient in addition to fiscal and monetary policy measures. Given that the resulting economic crisis is even deeper than the 2008 depression, all three forces—fiscal, monetary and trade—must pull together.

Our ports and shipping sector is a key driver of trade for India. Moving more than 90% of our international cargo volume, the importance of maritime transport for India’s economic development cannot be over emphasized. India is blessed with over 7500 km of coastline along the Indian Ocean region; it is host to one of the world’s most important trade crossing—connecting Far East with Europe. Nearly 50% of the world maritime trade, 50% of container traffic and 70% of trade in energy sails through the Indian Ocean region. This region is the epicentre of economic activity, and India is strategically placed at the very centre of this network.

Yet, despite our vast coastline and strategic location, the progress of our ports and shipping sector has been much below potential as compared to our neighbours in Asia and Middle East. Contributing just 1% of to India’s GDP, the growth of the sector has been constrained due to many developmental, procedural and policy-related challenges such as limited port infrastructure, sub-optimal transport modal mix for cargo movement, limited hinterland linkages, low penetration of coastal and inland shipping, limited digitisation and mechanization and procedural bottlenecks at various ports in India.

With a vision to reduce the logistics cost for EXIM and domestic trade and boost India’s export competitiveness, the Government of India had instituted the Sagarmala Programme in 2015. As part the programme, more than 574 infrastructure projects (approx. cost of Rs 6 lakh crores) have been identified for implementation across the areas of port modernization, new port development and port-linked industrialization. A key point to note is that this development of logistic infrastructure needs to be complemented with enabling policy and regulatory ecosystem. Ports are no longer just modal interfaces between surface and sea transport. They are now an integral part of an extremely dynamic and time sensitive supply chain network. This aspect is most visible now due to ongoing disruptions because of Covid-19.

Ports and shipping is a capital-intensive sector that is tightly integrated with and exposed to the vagaries of the global macroeconomic factors. The agility and competitiveness of the sector is sine qua non. Today, it is vital that our governance structure, regulation regime and operations be reminiscent of an India of the twenty-first century. Good news is that most key policy legislations such Major Port Authority Bill, Merchant Shipping Bill, the Indian Ports Bill, and other acts and guidelines are already at different stages of scrutiny and revision. Additionally, the government has granted ‘infrastructure status’ to logistics and ports sub-sectors. Still, more needs to be done to realize the vision of making India a global manufacturing and trade hub.

Digitization needs to be implemented at every level of the EXIM value chain along with elimination of unnecessary intermediaries. All brownfield projects for digitization of port and terminal operation, upstream and downstream supply chain integration, digital custom clearance (why still use paper-based systems), e-berthing and e-bunkering at ports, etc., be taken up on priority. Improving the operational and financial efficiency of our existing infrastructure is a low-hanging fruit that can create approximately 10%–15% more port capacity and provide a great boost to the sector.

Liberalization of the sector is also extremely crucial to build flexibility and agility—procedural, operational and financial. To constantly compete with the rest of the world, it is crucial that ports, terminal and equipment operators, ship owners, exporters and importers all work cohesively to meet the evolving demands of the sector. Often, we see public private partnership (PPP) contracts for a period of 30 years or more with no room for adaptions. This will have to be relooked at. While longer duration concession agreements are essential to incentivize private players, the contract should also provide for more commercial flexibility over that long duration. Additionally, all major and most minor ports today are under the administrative control of the Central and state governments, respectively. With adequate supervision through legislations and contracts, governments may consider a staggered approach towards the privatization of all ports and terminal operations in India. Only by further shaping strong public-private partnerships, can we leverage private sector investments and expertise towards development of our ports and shipping sector. These digitised and liberalized measures will effectively form the bedrock of India’s maritime policy and international trade for the coming decades.

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(Paras Parekh is a Young Professional at NITI Aayog. All views are personal.)