6.8. Challenges

Over the years, cargo handling capacity of major ports has steadily increased. However, traffic demand clearly outpaced capacity additions, resulting in port congestion. The share of coastal shipping in India’s domestic transport is miniscule, despite the various benefits it offers. India’s ports are highly constrained for capacity and are expected to remain so in the near future.

At present, there is no comprehensive and coherent strategy for the location of ports in the country or for the overall investment programme in these ports. Till now, investment in major and non-major ports has been done in a somewhat haphazard piecemeal fashion, resulting in suboptimal hinterland connectivity, inadequate infrastructure and drafts, and low levels of containerisation, all these in turn having a bearing on port congestion, cargo evacuation and higher transaction costs. One clear manifestation of the inadequacy is that at present, a good proportion of India’s maritime trade is transshipped in Colombo or Singapore because of lack of capable ports on the Indian coastline to handle large container ships.

Current investment trends may lead to significant waste and inefficiencies in the building of transport links that connect with burgeoning non-major ports. While physical infrastructure grew rather arbitrarily, there has also been little progress towards the generally accepted and successful landlord model of port governance.

Ports in India, essentially the major ports or those owned by the Indian government and run as trusts, widely follow a hybrid format of the long obsolete service port model and the preferred landlord model of port management followed globally. This has resulted in a conflict of interest between the port trusts and the private sector, with the former acting both as port regulators and providers of commercial services in many instances.

In the service port model, the port authority owns the land and all available assets—fixed and mobile—and performs all regulatory and port functions. Here, the port trust is both the landlord and the cargo terminal operator.

While the service port model in India was consistent with a centralized economy, it does not fit well in a market-oriented economy.

In the landlord port model, the publicly governed port authority acts as a regulatory body and as landlord while private companies carry out port operations—mainly cargo handling activities. Here, the port authority maintains ownership of the port while the infrastructure is leased to private companies that provide and maintain their own superstructure and install their own equipment.

Currently, most of the major port trusts in India carry out terminal operations as well, resulting in a hybrid model of port governance.

Also, development of port infrastructure has traditionally been driven largely by public investment. The limited number of private investors that port development and expansion has attracted has been due to unique economic characteristics of seaports.

♤ Provision of basic port infrastructure such as sea locks, breakwaters, port basins, common areas, and main hinterland connectivity entails large fixed costs. Such infrastructure is common to all port terminal operations and is typically funded through public investment.

♤ Relatively large minimum initial capacity of port infrastructure is required from a technical standpoint. Moreover, port infrastructure is frequently indivisible, implying that increase in port capacity can only be realised in quantum chunks.

♤ The initial development costs cause large capital investment opportunity losses as a result of underutilised capacity during the initial phases of port lifecycle.

Consequently, private investors invest primarily in port terminal facilities but not in underlying infrastructure. Typically, private investors develop terminal infrastructure under the BOT model on behalf of the public port authority under a concession of 30-40 years.

The Indian ports and shipping sector suffers from poor incentives, lack of clarity in the regulatory structure coupled with overlapping jurisdiction of institutions charged with sector oversight and a debilitating prevalence of ad hoc and piecemeal decision making. Neither the regulatory structure nor capacity has kept pace with the enormous growth in traffic witnessed in the last decade due to India’s increased integration with the global economy. Coastal shipping as well as inland water transport has grown far less optimally than what would have been ideally desirable, given the low unit transportation cost and environmental impact.