The Hindu Business Line : Inland water transport — Policy support must go full steam

RISING population, increasing urbanisation and introduction of water-intensive technologies, demand optimum utilisation of water. Navigation is one of the non-consumptive uses of water. Developing waterways for navigation provides a fuel-efficient and environment means of transportation.

While inland waterways transport was traditionally the mode of choice for dry and liquid bulk or low unit value cargo transport, recent technological developments as well as delays caused by increased rail and road congestion have resulted in significant movements on inland waterways.

India has an extensive network of inland waters consisting of rivers, canals and lakes, natural and manmade and a long coastline. Inland water transport (IWT) represents a significant resource for India. The total length of navigable waterways in India is about 14,500 km, of which 5,700 km is navigable by mechanically propelled vessels.

The success of the IWT depends on the overall economic environment and the Government's regulatory and investment policies. Setting up of the Inland Waterways Authority of India (IWAI) in 1986, a statutory autonomous body for regulating and developing navigation and shipping in the inland waterways, was a major landmark in IWT development in India. Since its inception, the authority has tried to develop a scientific temperament for the development of inland waterway. Three waterways, the Ganga, the Brahmaputra and the West Coast Canal totalling a distance of 2,700 km have been declared national waterways and are being developed for shipping.

With the arrival on the scene of state-of-the-art, fuel-efficient vehicles and improved capacity of the road and rail sectors, IWT has an uphill task ahead to capture a reasonable share of the inland cargo market.

The IWT policy formulation was preceded by a study of the sector's characteristics and its amenability and options for private sector participation. To render IWT a viable and acceptable modetariff structures need to be rationalised, travel time reduced, and safety of goods in transit improved. Further, sufficient financial incentives to consignees and end users must be provided.

The IWT system in India has suffered from under-investment and financial constraints. Conscious investment is needed for the systematic development of fairway, fleet, terminals and navigational aids. Institutional set up should be initiated with the long-term objective of minimising public money and maximising the share of private investment. The Government, as a facilitator, should also step in to reduce the investor's risk by way of fiscal concessions, easy availability of funds, long-term assurance of cargo and concessionary rates of port charges for IWT vessels.

IWT, as with any infrastructure sector, will have long gestation period for return of investment and hence at the initial government support is inevitable. As the mode becomes popular and its viability well demonstrated, private sector investment risk would reduce resulting in large flow of funds and gradually a stage would emerge when the role of the government would be only that of a regulator.

Being location specific multi-modal transfers to access waterway adds to the IWT cost. User reluctance to experiment with new modes is another impediment. Various measures have been considered to overcome these teething problems such as committed traffic, long-term cargo assurance, captive users as project participants, joint ventures by the government, shipper, carrier, and so on.

The basic policy objectives of IWT have `short- and long-term' components. The physical components of the short-term programme will be the removal of impediments and the full exploitation of the existing waterways and providing the initial support for significant private participation.

For the long-term plan, the development of new waterways and the upgrading of vessel and cargo handling technologies to modernise the total IWT system and integrate it fully with the national transport effort.

The risk of investment comprises debt financing risk and equity financing. Since, the debt financing risk will be perceived as being big for this kind of project, the possible revenue risk premiums will be high. Reducing this risk premium would require a large share of equity capital or external loan guarantees from the government. Operating risks can be fully taken by the operator as long as government does not intervene in major cost components (wages and fuel). Revenue risk pertaining to fare is influenced a lot by government regulation. The more transparent the risk, the lower the risk premium.

Central to the invitation of the private sector participation and a key pre-requisite thereof, is the need for "bankable" and clear policy guidelines defining the scope and terms of private participation. The policy should take cognisance of the risk issues endemic to the sector, constraints that have limited the development of the IWT sector as a preferred mode of transport in India, developmental initiatives and public and private partnership models in countries where IWT has proved successful.

A programme for development of IWT calls for a complete policy package and its efficient implementation. The following were considered as the key components of an IWT policy package:

Proactive role of the Government as a provider and facilitator

Expanding the coverage of national waterways

Increasing the capacity of waterways and waterway infrastructure

Higher budget outlays matching with that for other infrastructure sectors

Measures to induct substantial volume of non-government financing.

Coordinated implementation of public and private investments

Inter modal co-ordination in identifying the traffic streams for IWT movement.

Effective co-ordination between centre and state governments for simultaneous efforts for waterway development

Developing/strengthening the institutional support and training and manpower development

Deferred recovery of charges for services (waterway cess, etc.)

Allocation of larger share of Govt. controlled cargo to IWT in regions served by waterways

Optimal share of cargo to IWT in the inter-modal split and proportionate line cost allocation

The IWT policy announced by the Centre contains the following fiscal and administrative measures:

Inland Water Transport sector has been accorded the status of infrastructure under Section 80 I A of the Income-Tax Act. Under this the investors in IWT infrastructure are eligible for 100 per cent tax exemption for 5 years and further 30 per cent tax exemption next 5 years to be availed of within a period of 15 years. There are spin-off benefits such as 74 per cent foreign direct investment (FDI) with automatic clearance, priority lending by financial institutions etc.

The role of the Inland Waterways Authority of India has been enlarged to facilitate its participation in commercial / joint ventures with equity participation. This is a major step towards public / private partnership.

Provision for BOT projects for IWT infrastructure with Government participation up to 40 per cent equity; details to be worked out on case-to-case basis.

Vessel building subsidy of 30 per cent of the cost to the ship-owners for inland vessels built in India. Such vessels to be registered under the Inland Vessels Act, 1917 and to be operated in the national waterways.

Higher depreciation rate for inland vessels at par with sea going ships (20 per cent now).

Concessionary Customs duty for imported equipment and machinery for development of inland waterways.

Authorisation for the Inland Waterways Authority of India to raise bonds to enable it to borrow from the market and mobilise funds.

Assistance to the State governments to implement Centrally Sponsored Schemes (CSS) for IWT development by way of 90 per cent subsidy.

Allocation of 5 per cent of the government controlled cargo to the IWT in corridors where waterways are functional.

Setting up of an IWT Development Council under the Chairmanship of the Minister of Shipping with representation from 14 riverine States for coordinated IWT development.

Empowerment of Inland Waterways Authority of India to sanction projects costing up to Rs.15 crore.

Systematic development of fairway, terminals and navigational aids and the IWT fleet would result in IWT providing an economic, efficient and environment friendly mode of transportation supplementing the road and rail for an optimal modal split.

(The author is joint secretary level officer in the Ministry of Shipping.)

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