Why does it cost so much?

As with other parts of infrastructure, new institutional structures have been attempted in Indian ports. Vendors like P&O have got 30-year contracts to run terminals at different ports. This appears to have delivered good results in terms of reducing delays at ports. As several Economic Surveys of the ministry of finance have emphasised, pre-berthing time and turnaround time have improved dramatically. An interesting feature of this situation has been the power of intra-port competition: the injection of P&O into the Jawaharlal Nehru Port improved the performance of the traditional public sector terminal as well.

However, a report in this newspaper last week has put the spotlight on the real measure of the performance of a port: cost. The cost of handling a container ship in India is $14.6 per TEU (twenty-foot equivalent unit) while it varies between $0.54 and $3.06 in other ports in the region. Almost all components of charges are abnormally high in India. As an example, the cost of towing a ship from the approach channel to the berth is $21,000 at JNPT while other ports in the region charge between $66 and $2,275.

From an economic perspective, the task of infrastructure is to deliver low costs of transportation, and thus reduce the transactions costs involved in trade. Turnaround time measured in hours is a means to lower the cost of processing containers. We may be satisfied with the turnaround time achieved, but that is only a means to the end. The end is low cost, and we appear to have failed in achieving this end.

The failure of policies on ports calls for a fresh examination, from first principles, of policy issues on ports. The essential task appears to be that of fostering intra-port and inter-port competition. Gujarat has achieved something remarkable by having no less than 41 ports studding its coastline. This might possibly generate competitive conditions and lower prices in a way that does not happen elsewhere in the country. Another long-standing lacuna is the small size of Indian ports, in absolute terms. The biggest ports on the drawing board in India are not even one-tenth the size of Hong Kong""this may be inducing poor economies of scale for Indian ports.

Paradoxically enough, the improvements which are taking place in other parts of Indian infrastructure""roads, railways and telecom""amplify the marginal benefit of strengthening ports. At a time when the remaining infrastructure was weak, the incremental benefits from improving the ports were smaller. But India is increasingly in a situation where factories are getting plugged into global production chains. Now the benefits from rapidly solving the problems of one link (ports) get amplified because the remainder of the chain is working well.

The last point which requires emphasis with regard to ports is intra-India transportation. Shipment by sea achieves engineering efficiencies which can be matched only by the railways. There can be an upsurge of within-India transportation if there is a vibrant port sector. However, port capacity has barely been keeping up with international trade requirements. A decisive push for much bigger capacities will deliver intra-India "gains from trade", which are as precious as the gains from international trade.