PMO launches new maritime strategy, to infuse funds into port sector

With almost all major ports languishing with low traffic levels, the funds will go a long way towards expanding cargo capacity and improving port facilities

The Prime Minister's Office has approved a three-pronged strategy for the development of the maritime sector, the key element of which is to finance the development of ports with at least Rs 25,000 crore from the Maritime Development Fund (MDF).  

 

India’s so-called ‘major ports’, so named because they are run by the central government, are almost all badly in need of funds to handle the expansion of ocean-going traffic, which is expected to grow annually at a CAGR of close to 5 percent. It grew by 4.6 percent in the first half of FY25.  

 

The expansion of ports’ capacity will be handled by the Sagarmala Development Company (SDCL), which has been repurposed as an NBFC starting 2025. This will allow the company to get access to the said amount in the Maritime Development Fund as seed capital. The money will be invested in these ports to build new terminals, breakwater, dredge shallow channels, and add backend infrastructure for freight trains and trucks to access the ports. 

 

While the decision to convert the SDC into a finance company was taken earlier this year, the go-ahead to channel MDF funds into it was taken after the Ministry of Ports, Shipping and Waterways made a presentation to Prime Minister Narendra Modi this month. 

 

It has also been decided to expand the role of India Ports Global to invest in one more port in Sri Lanka. Once approved, this will be the fourth port abroad that IPGL will manage, after Chabahar in Iran, Mongla in Bangladesh, and Sittwe in Myanmar. Given the tensions in the Indo-Pacific region, the government has also decided it will henceforth participate in all international projects for the development of ports on this belt of water.  

 

An official of the Ministry of Ports, Shipping and Waterways said the large financial support to SDCL to invest in ports in India is the most significant of these decisions as of now.  

 

Of the 12 government-run ports, almost all need to be rebuilt quickly. Two more – Vadhavan in Maharashtra and Galathea Bay in Andaman and Nicobar Islands – have been approved and added to the list of major ports and will take close to a decade to be ready for the first ships to call there.   

 

Lack of space, funds constrain growth 

There are two major problems plaguing the existing 12 ports: shortage of finance and the lack of space.  As per a Crisil report of 2023, to develop a container terminal with a capacity of one million TEU (or twenty-foot equivalent, a measure of container capacity) needs an investment of Rs 10 billion to Rs 15 billion. The scale of such an investment makes it difficult to involve the private sector as the first mover. Globally, governments typically underwrite these large investments and then bring in the private sector to invest in building and managing terminals. In India, other than Adani and more recently, JSW Infra, there are no large players in the sector with the expertise needed to build such ports. “Regulatory requirements such as technical experience and financial circumstances and capabilities act as entry barriers for new players to enter this industry,” notes the Crisil report mentioned earlier.  

 

These problems have also affected plans to privatise terminals at existing ports. While the ministry reckons that more than 56.5 per cent of total cargo at major ports is handled by PPP players, plans to push this to over 85 per cent by 2030 are taking time to fructify.  

 

One of the main reasons is that almost all these ports, except for JNPA, Deendayal, and Paradeep, have a huge city behind them. Of the total traffic at major ports, 46 per cent is handled by these three. For the rest, cargo from the hinterland has to navigate dense city traffic to arrive at these ports. The same reasons restrict options for expanding the existing railway lines to cater to the business. The last 108 km of the western leg of the Dedicated Freight Corridor travelling the outskirts of Mumbai to reach JNPA has been pending for years since land is not available for this stretch that cuts across dense habitations. Mormugao in Goa is a prime example of what these delays can do – it has a mere 1.69 per cent share of total freight traffic handled at central government-run ports. Similarly, the Mumbai Port Authority does not rank among the top five ports handling overseas traffic, serving mostly coastal trade instead. Data from the ministry shows capacity utilisation at most ports have not risen, even as exporters and importers complain of long delays in loading and unloading of cargo.  

 

As of now, despite the impressive 46 per cent rise in freight handled by all Indian ports (both government- and private sector-run) in the past decade of FY15 through FY24, the increment has largely been captured by JNPA, Deendayal, Paradeep, and the Adani-run Mundra ports. By 2030, Deendayal port aims to reach a capacity of 269 million tonnes per annum (MTPA), Paradip of 290 MTPA and JNPA, 142 MTPA. “The growth trend in the market share of cargo is, therefore, confined to only three of the Major Ports while the remaining show barely perceptible improvements,” noted a Parliamentary Standing Committee on Transport, Tourism and Culture in a February 2024 report. 

 

The way out of the jam

 

One solution is to build new ports far from the cities but technically next to existing ports, thus allowing the older facilities to gradually wind down. “The additional capital for SDCL will therefore be very necessary,” said an official who works with the sector. With the investment in relatively less crowded zones, the new ports can also seek to monetise the land for commercial purposes, as JNPA has done. 

 

Because of the same geographical constraints, with the exception of Adani-run Vizhinjam, not much expansion is happening at scale in the southern ports, where most of India’s expanding manufacturing sector is concentrated. For starters, these ports could do with significant amount of dredging to deepen their draft beyond the current 14-16 metres to globally comparable ones of 17-23 metres. To make the rules easier, the government has reclassified the channels of all its ports as national waterways since if they remained the property of the respective ports, it is they who would have had to finance those works.   

• The MDF is expected to be structured as a corporate entity, with the government holding a minority stake of at least 26 per cent, while the majority shareholding will be offered to multilateral financial institutions and global funds. The fund will provide various forms of financial support, including debt, equity, viability gap funding, and buyer credit.  
• It will be similar to the National Bank for Financing Infrastructure and Development (NaBFID) but will have a dedicated focus on the maritime sector. 
• The Fund replaces an earlier investment corpus of Rs 4,000 crore, in place since 2014 but which has hardly ever been used. That too was meant to promote the shipbuilding industry in India.