Sagarmala: Developing India’s Ports to Aid Economic Growth

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By Pritesh Samuel

The Sagarmala project is an Indian government initiative to develop the country’s ports and logistics to accelerate economic growth. By developing the program, the government hopes to reduce logistics costs for domestic as well as import/export cargo by optimizing infrastructure investment. A recent study done in September estimates that the resultant cost savings could range from US$ 5.2 billion (Rs 35,000 crore) to US$ 5.9 billion (40,000) crore per year by 2025. The government has planned six megaports under the project, namely the Vizhinjam International Seaport (Kerala state), Colachel Seaport (Tamil Nadu), Vadhavan Port (Maharashtra), Tadadi Port (Karnataka), Machilipatnam Port (Andhra Pradesh), and Sagar Island Port (West Bengal). Data shows that despite its long coastline of 7,517 km (4670.84 miles), India’s coasts only contribute to 15 percent of national trade activity.

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The Advantage of Coastal Shipping

Logistics in India contribute to 19 percent of the GDP, and remains among the highest in the world as compared to China’s 12.5 percent. Several studies show that using coastal shipping and inland waterways would be 60 to 80 percent cheaper than road or rail transport. If coastal shipping is used to complement road and rail transport in India, it could therefore lead to significant logistics cost savings. Additionally, the government recently relaxed transport rules for shipping, which will allow foreign ships to use coastal routes. Taking advantage of this, Korean automaker Hyundai Motors, followed by several other automobile manufacturers like Renault-Nissan, Ford and Toyota, recently shipped around 1,200 automobiles from Tamil Nadu to Gujarat. Car makers also reveal that the government has promised an 80 percent discount on ship cargo charges.

The Sagarmala project also aims to shift the movement of coal to the coastal route, which would cut down electricity costs by up to 35 percent. This is particularly true for coastal power plants in Andhra Pradesh and Karnataka, which receive coal by rail networks. Shipping of coal via ports can lead to estimated savings of about US$ 1.4 billion (Rs 10,000 crore) in the power sector. This holds especially significant as the government passed the Coal Mines (Special Provisions) Bill, 2015 in March 2015 allowing for FDI in the sector. Coal can also be moved via shipping methods for non-electricity use, such as for use in steel plants. Other products like steel, cement, fertilizers, and food grains can also be shipped at a capacity of around 80-85 million tons by 2025.

The Nitty-Gritty of the Sagarmala Initiative

The Sagarmala initiative focuses on three pillars as per the Indian government:

  • Supporting and enabling port-led development through appropriate policy and institutional interventions and providing for an institutional framework for ensuring inter-agency and ministries/departments/states’ collaboration for integrated development.
  • Port infrastructure enhancement, including modernization and setting up of new ports.
  • Efficient evacuation to and from the hinterland.

In addition, the government has also proposed 14 coastal economic zones (CEZs), which will link coastal districts to ports. Such CEZs are envisioned to be much bigger than India’s Special Economic Zones (SEZs), extending 500kms (310 miles) along the coastline and 300km (186 miles) inland. They will have coastal economic units for manufacturing facilities. These CEZs are also expected to aid the planned industrial corridors, such as the Visakhapatnam-Chennai Industrial Corridor as well as the Delhi-Mumbai Industrial Corridor. India’s respective states are expected to take the lead on developing CEZs, though experts feel that in order for CEZs to be successful, their actual implementation, tax structure, and incentives need to be emphasized.

Project Framework

The government formed the National Sagarmala Apex Committee (NSAC) to provide the overall policy guidance. In addition, the government has incorporated the Sagarmala Development Company (SDC) under the Companies Act of 2013. The SDC will help in project development and will serve as an agency for the coordination and monitoring of the Sagarmala project. The SDC will also be responsible for raising funds in the form of debt or equity as per the project requirements. To further support the project, the government has formed a Sagarmala Coordination and Steering Committee (SCSC) under the Cabinet Secretary along with other relevant ministries such as shipping, road transport and highways, tourism, defense, home affairs, and NITI Aayog to ease coordination between the different ministries and ensure efficient implementation.

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Observations

The government hopes to increase cargo traffic by three-fold in the next five years. If implemented successfully, the Sagarmala project will significantly help cargo transport become more efficient while reducing costs. The project will also help in creating jobs and boost the government’s flagship manufacturing initiative, ‘Make in India’. In addition, foreign businesses will be able to invest as the project will require the modernization, mechanization, and computerization of ports and related areas. Around 173 projects with a required investment of US$ 60 billion will need to be completed by 2020. While the government will continue to face challenges regarding land acquisition, regulatory issues, and appropriate incentives, it will need to address them on a priority basis if it wants the Sagarmala project to successfully boost India’s economic growth.

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