The Hindu Business Line : More major ports a key requirement to meet export targets

INDIA'S export earnings in 2004-05 topped $80 billion, notching up a 24 per cent growth over the previous year, while the country's import value touched $105 billion — 34 per cent up from the earlier year.

The export-GDP ratio was 11.5 per cent, and the import-GDP ratio 14 per cent in 2003-2004. Encouraged by the robust growth in exports, the Commerce Ministry has moved up this fiscal's export target to $92 billion.

In his Budget speech for 2005-06, the Finance Minister, Mr P. Chidambaram, announced an ambitious export target of $150 billion by 2008-09. The strong export performance has boosted the Centre's confidence about the sector's capacity to double its share in world trade from the current 1 per cent by 2009. Thus the Prime Minister, Dr Manmohan Singh, has set a target of achieving a trade figure of $500 billion by 2010.

Does India have enough major ports to handle the expected increase in the volume of foreign trade by 2010? About 95 per cent by volume of the country's trade, and about 70 per cent by value, pass through ports. Therefore, any attempt to effect a significant increase in trade volumes must take into account the adequacy and capacity of the ports to handle the projected traffic.

Of the 12 major ports, six are on the West Coast — Kandla in Gujarat; Mumbai and Jawaharlal Nehru Port in Maharashtra; Mormugoa in Goa; New Mangalore in Karnataka; and Kochi in Kerala. The six on the East Coast are Kolkata and Haldia in West Bengal; Paradeep in Orissa; Visakhapatnam in Andhra Pradesh; and Ennore, Chennai and Tuticorin in Tamil Nadu. Together, the 12 ports handled 383 million tonnes of sea-borne trade in 2004-2005.

The minor and intermediate ports on the East and West Coasts handled about 130 million tonnes in 2004-2005. Of the total sea-borne trade of 513 million tonnes, major ports handled about 75 per cent, and minor and intermediate ports 25 per cent. The 12 major ports have 227 berths to handle a variety of cargoes their capacity utilisation was 90 per cent.

The National Maritime Development Programme envisages a capacity addition of about 520 million tonnes over the next 10 years. This would mean the capacity requirements of major ports should go up from the current 400 million tonnes to about 917 million tonnes by 2013-14.

What is needed in the next five years is not only the enhancing of capacity at the 12 major ports but also the development of similar facilities in select minor port locations that have the potential to be developed as major ports.

One estimate suggests that the unsatisfactory state of physical infrastructure in the country will add 20-40 per cent cost to Indian products. Investment in infrastructure in 2002 was a mere 6 per cent of GDP, or $31 billion, compared to 20 per cent, or $260 billion, for China. According to a number of sources the total investment needed in infrastructure over the next decade should be $600-800 billion. Considering the level of investment China is pumping into the infrastructure sector, the above-mentioned estimates do not appear unrealistic.

Why should the Central Government get involved in the creation of new major ports? Can the responsibility of creating port infrastructure be left entirely to the private sector? To answer these questions satisfactorily we must understand the market structure of port services. Economists Wilder and Pender have defined the market structure of port services as `differentiated oligopoly' with spatial considerations of particular importance, suggesting that ports, in general, exhibit the characteristics of a `partial monopoly'.

The geographical locations, favourable environment, access to sea or river and hinterland connectivity are advantages that cannot be easily duplicated. Since ports are endowed with such `partial monopoly' the public sector becomes an appropriate agency to step in to maximise public welfare.

Second, there are significant aspects of `public goods' in ports, such as approach channels, breakwater, sea walls, conservancy and pilotage, which are directly linked to a country's maritime safety and, therefore, assigning the public sector that role appears to be a sensible policy option.

`Third, economists generally agree that a competitive price system does not accurately measure costs and benefits where spillover costs and benefits are significant. Ports provide an example of producing such `external goods' or spin-off effects.

Fourth, the `public goods' in ports exhibit the principle of indivisibility — the maritime access channel, navigational aids, communication and breakwater appear to belong to this category. Fifth, such `public goods' in ports are like permanent assets that can be considered as a country's social overhead capital to be consumed collectively by its population and, hence, deserves to be funded by the public sector. Specialised berths, terminals, and purpose-built facilities for handling import/export cargoes exhibit the characteristics of `private goods' and can be left to the private sector.

As a matter of political philosophy, the Centre is committed to a policy of public-private partnership. If public partnership should assume meaning and content there should be financial participation by the Centre, particularly for the creation of new major ports in India. After the declaration of Ennore as a major port in 1999 the Centre does not appear to have selected any minor port for development as a major port during the last six years.

Considering the growth prospects of the economy and the projected growth of foreign trade, India needs at least another 10 major ports, in addition to the 12 it now has. There is potential to develop three major ports — Mundhra, Pipavav and Jamnagar, in Gujarat; one more major port in Ratnagiri, in Maharashtra; Bellikeri in Karnataka, and Vizhinjam in Kerala.

On the East Coast there is potential to develop one major port in Kulpi in West Bengal; Dhamra in Orissa; and Gangavaram, Krishnapatnam and Kakinada in Andhra Pradesh. In one study the journey of an export container was broken into an overland and a sea component and it was found that an extra 1,000 km by sea raises the cost by just 4 per cent while the same distance by land ups the cost by 30 per cent of a median shipment.

According to the UNCTAD Review of Maritime Transport 2003, in spite of general improvements during the last decades, on average, developing countries pay 70 per cent more for the international transport of their imports than what is paid by developed countries.

In 1978, China's exports were valued at around $20 billion, and its rank among world exporters was 32. That country's exports have grown at 30 per cent annually and, in 2004, it overtook Japan to become the third largest exporter with exports of $600 billion.

China has 1,430 ports with a total handling capacity of 4.17 billion tonnes. The total port handling capacity is to expand to 6.1 billion tonnes by 2010, with container handling capacity alone to reach 140 million TEUs. With this level of investment it is hardly surprising that China has eight large container ports that are among the top 30 container ports in the world.

(The author, a former Acting Chairman, JN Port Mumbai, and former Chairman, Mormugao Port Trust, Goa, is a Visiting Professor at Manipal Academy of Higher Education, Karnataka. Responses may be sent to drjospaul@rediffmail.com)

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