NEW DELHI: Prime Minister Narendra Modi is planning an ambitious programme of infrastructure and port development as part of India’s drive to develop its industrial manufacturing sector. Although critical to India’s long-term competitiveness, port liberalisation and expansion will continue to be slowed by trade union opposition. In addition, wider investor concerns over an unpredictable tax system, challenges facing infrastructure connectivity to ports and ongoing bureaucratic obstacles to projects could obstruct the government’s ambitions.
Liberalisation and increased private investment in port infrastructure and commercial transport form a key aspect of the government’s plans to develop a stronger manufacturing sector in India. Port investment increased substantially under the former government in 2013 with the removal of prohibitive tariffs for private investment in new terminal projects at major ports.
The exemptions of smaller private ports from tariff regulations also increased their competitiveness and led to more investment in smaller facilities.
The government is now looking to establish an additional five major ports across India in the next five years, supported by at least USD 28.7 bn in private investment. India has an existing network of 12 major ports and 187 smaller port facilities Additional funds will also be sought for connecting transport infrastructure, including USD 100 bn in rail links to remote inland destinations between India’s east and west coasts, as well as a series of major highway corridors to boost connectivity.
The government also plans to double electricity output by investing USD 250 bn in power generation by 2019, further supporting the development of the manufacturing sector.
The government hopes the plans will double port capacity from 800 mn tons currently to 1.6 bn tons by 2019. Since March 2014, India has approved at least 30 port expansion and development projects valued at USD 3.4 bn, with a view to increase annual cargo-handling capacity by up to 350 mn metric tons. The new bids represent a significant increase in foreign direct investment (FDI) in India’s ports, which was valued at just USD 1.6 bn between 2000 and 2011. Major projects underway include Sagar in West Bengal and Dugarajapatnam in Andhra Pradesh. A fourth container terminal will also be added at Jawaharlal Nehru Port Trust, alongside container terminals built at Ennore, Kandla, and Kolkata, and a multipurpose facility in Mumbai.
These investments are badly needed to improve India’s competitiveness, with infrastructure challenges cited as a primary obstacle to investment by foreign companies and a key contributor to a decline in FDI in 2013.
According to the Transport Corporation of India, slow movement on Indian highways and high congestion at road tolls costs the economy more than USD 680 mn each year. Similarly, unpredictable power supply can lead to significant drops in productivity. Addressing India’s infrastructure weaknesses were a key part of Modi’s electoral manifesto and was initially assessed by PGI in May 2014. The article can be accessed here.
Despite these huge investments, the ports sectors will continue to face a capacity deficit of at least 450 mn tons. Furthermore, union opposition to liberalisation threatens to slow planned port developments significantly. All 12 major ports in India are currently publicly owned and operated, and discontent has grown in recent months among port workers over plans to incorporate and privatise these facilities.
Port and dock workers went on strike in March over the corporatisation plans, while on 2 March, Visakhapatnam Port Trust (VPT) employees protested at the trust offices in Andhra Pradesh, demanding a reversal of government policy. The strike was ultimately averted following negotiations between the government and labour unions, in which the government said ports would not be privatised without “proper consultation” with unions.