Maritime trade has been anchored too long

The maritime sector has a vital role to play in India’s growth story. It is of paramount importance to revitalise the ports and the shipping sector to increase capacity and efficiency. India must take full advantage of the lower logistics costs of water routes — both internationally and inland.

India’s marine export-import trade has been growing at a rate of 4.5 per cent y-o-y (5-year volume CAGR) and accounts for 95 per cent of total exim trade volume for India. The development of a robust maritime sector is pivotal to economic development in countries with long coastal boundaries. A three-pronged plan consisting of a workable policy, fiscal incentives and infrastructure, would ensure development of India’s coastal shipping sector and strong growth.

Apart from having a multiplier effect on the economy, the maritime sector itself has the potential to significantly contribute to GDP. India’s main trade commodities are crude and petroleum products, bulk commodities such as coal, iron ore and containerised cargo. Trade growth is expected to remain strong, at 5-10 per cent, for most commodities over the next 10 years. This represents a massive opportunity.

India’s total international trade increased by more than 230 per cent between 2000 and 2014, to 811 million tonnes (mt) in 2013-14 but Indian shippers saw their trade rise by just 26 per cent, while the share of trade carried by Indian flag vessels sank to below 9 per cent during FY2013-14 compared to 40.7 per cent during 1987-88.

It is estimated that investment opportunity of close to ₹1.14 lakh in inland waterways development and ₹3 lakh crore in port-led development under the flagship Sagarmala project exists in India.

The biggest benefit from a robust shipping sector will be massive cost-saving: the cost for coastal shipping is ₹0.15-0.2 per tonne/km compared to ₹1.5 for railways and ₹2.5 for road. This represents the potential to lower logistics cost by ₹21,000-27,000 crore by 2025. In addition, coastal shipping can be a catalyst for coastal industrial clusters and fit in with the plan to develop new smart port cities.

The passage of the National Waterways Bill is a key step. Inland waterways extend to about 14,500 km across the country. In sharp contrast to peer countries, only 3.5 per cent of India’s trade is being done through waterways as against 47 per cent in China, 40 per cent in Europe, 44 per cent in Japan and Korea, and 35 per cent in Bangladesh. Moreover, inland water transport is an environment-friendly and cost-effective mode of transportation, which has the potential to establish an optimal modal mix and reduce logistic cost and relieve the congestion on road and railways. Four waterways are currently under development, namely Ganga, Brahmaputra, Mahanadi and Buckingham Canal.

There are compelling reasons to invest in Indian ports: 1. Projected cargo traffic to be handled by 2021-22 is 1,695 mt according to the National Transport Development Policy Committee, an increase of 643 mt from 2014-15; 2. 2,422 mt of cargo handling capacity is required by 2021-22; 3. Additional cargo handling capacity of 901 mt is required to be created in the next 6-7 years.

The Government has facilitated opportunities for fresh investments in the sector. It has allowed 100 per cent FDI in ports. Additionally a 10-year tax holiday has been extended to enterprises engaged in developing, maintaining, and operating ports, inland waterways, and inland ports.

The Government must focus on the improvement of infrastructure and deployment of technology. To project sea transport as the prime mode of transportation and effectively utilise our 7,517-km coastline, we need first and last mile connectivity, largescale containerisation of cargo, and development of efficient multi-modal transport services. Setting up port-based SEZs at all ports housing a cluster of maritime-related industries, warehouses and ship repair facilities would help develop a robust maritime sector.

The writer is MD & CEO of YES Bank

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