Introduction

　

 This is a time of great vibrancy and optimism in the Indian infrastructure scene. Many have bemoaned the apparent slow rate of change in India, particularly in comparison to China. However, that is merely seeing a part of the entire picture. The Indian economy, characterised as elephantine, is now beginning to gain momentum and is lumbering ahead faster and faster. The size of the present economy and its diversity richly help in this unstoppable and forward momentum.

　

 This review deals with certain aspects of the Indian infrastructure, namely, Ports and Shipping, Shipbuilding and ancillary industries, all having a direct impact or fallout on that most important of all engines of growth, namely foreign trade. These however are not aspects that can be considered in isolation and need to be viewed within the overall perspective of both the general economic scenario of the country and region, which Mr. Sanjaya Baru has earlier in the day covered for us. Also, this economic backdrop needs to be situated within the overall rubric of the political and security scenario and the international situation which impact on ocean security. These have been discussed in the past few days.

　

Infrastructure Building

　

 I shall commence by referring to the most important infrastructural initiative taken by any Indian government in the past 50 years. That is, and this may appear incongruous as we are discussing maritime matters, the currently well underway renewal of the national highways, in the form of the ambitious Rs.540,000 crore National Highways Development Project (NHDP). This is now scheduled to be completed by Dec 2005 and comprises what is known as Golden Quadrilateral (GQ) that joins the four major urban centers of the country i.e. Delhi, Mumbai, Chennai and Kolkata, and the East-West (EW) and North-South (NS) highways which cut across the country, dividing it into four segments. What is not generally spoken about, which is vital for the development of the ports and the shipping sector, are the numerous ancillary roads being built in the Port Connectivity Scheme which is a part of this NHDP. This Port Connectivity Scheme will link all the major, and some of the minor ports of the country to the Golden Quadrilateral. One must also take note of positive developments in rail connectivity of ports which is also being addressed.

　

 To further augment the ports and shipping sector the government has now indicated its intention to launch a Rs.100,000 crore project, namely, Sagar Mala, which is a proposal to create a golden sea chain of world class ports all along Indian coast line. Sagar Mala is expected to generate private sector interest and will focus on generating transportation efficiency. Of the Rs.100,000 crores for Sagar Mala, 60 per cent is to be allocated for port development, 25 per cent for maritime development and 15 per cent for the development of inland water transport. The Sagar Mala project will also encompass a bundle of principles that will guide the 10-year endeavour to upgrade port infrastructure. A great deal of emphasis is being laid on the private sector with 85 per cent financial participation by private builders and a clear definition e.g. public and private sector will be treated equally with no preferential treatment for government owned ports. But all that is in the future. The current scenario while promising, still needs careful monitoring. There is very little doubt however that this scale of governmental infusion of public and private funds into the economy, unprecedented since the early □e50s when the Indian public sector behemoths were set up along with dams and steel plants, will certainly aid in a kick-start process. Of even greater impact may well be, particularly for the development of inland waterways, the proposed, unabashedly ambitious, river-linking project of the government. It is still too early to comment on this however, at such an early stage.

　

 Currently, despite possessing natural advantages such as a long coastline and strategic location, India's ports handle a tiny component of international maritime traffic. The sector has hitherto been plagued by high tax rates, elderly infrastructure and poor policy support. Now change appears imminent. India has 13 major ports and over 180 minor and intermediate ports, dotted along 6000 km of mainland coastline (excluding the strategic Andaman & Nicobar archipelago). Ports handle 90 per cent of India's foreign trade in terms of volume, and 70 per cent of it in value terms. The major ports control three-fourths of cargo traffic. The minor ports currently control about 24 per cent of traffic. The share of minor ports in cargo handling has grown briskly at over 30 per cent. CAGR in the past but there was some decline in minor port traffic this year. Each major port is managed by a port trust under the jurisdiction of the union government. The minor ports are controlled by the respective state governments. Gujarat, Maharashtra and Tamil Nadu have constituted maritime boards to oversee the function of minor ports.

　

 The ports are governed by the Indian Ports Act, 1908 and the Major Port Trusts Act, 1963. These are being amended to facilitate corporatisation. All major ports come under the regulatory purview of the Tariff Authority of Major Ports (TAMP). Since 1991, the government has tried to attract private sector participation in major ports. Acts governing the sector have been amended, FDI limits in the sector have been relaxed to 100 per cent and assorted tax incentives have been offered. Despite these efforts, major ports have had limited success in attracting private sector participation. This has been restricted to licensing of operations of existing berths or the granting of build-own-operate-transfer concessions for increasing terminal capacity. Minor ports have been more successful in attracting private participation. In Gujarat, three ports, namely, Mundra, Pipavav and Dahej, are being developed by private operators. In the corporatisation of major ports, progress has been limited. Ennore port was corporatised in 2001. Accounting and operating systems have been revamped in a few ports. Private participation in the major ports has been mainly restricted to the leasing of berths and equipment, the licensing of operations of existing container berths, or granting BOT concessions and the creation of additional terminal capacity. The first major project under licence for creation of a container terminal on a BOT basis was at Jawaharlal Nehru Port Trust (JNPT) by Nhava Sheva Inland Container Terminal Limited, a company promoted by the P&O Group. This was followed by development of a container terminal at Tuticorin by PSA, Singapore. The Chennai Container Terminal Limited has been taken over by P&O. Similar concessional BOT agreements at the Kochi and Kandla port trusts are being processed.

　

 Container traffic has grown at over 10 per cent per annum for the last three years. This reflects the global dominance of containerized traffic. But only 13 per cent of India's port capacity is devoted to container traffic. This will surely change, once the port connectivity segment of the national highways program is completed and the obvious attractions of multi-modal transportation, which containers facilitate, bring about more investment in that sector. About 70 per cent of India's container traffic is transshipped through hubs like Colombo, Singapore and Dubai. There has been little action so far on the union government's plans to set up hub ports to handle container traffic. This should change with the implementation of the Sagar Mala Project

　

 The operational efficiency of Indian ports is currently below international standards, although recent improvement has been noted. The average pre-berthing detention reduced from 0.5 days in 2001-02 to 0.34 days in 2002-03 and the average turnaround time reduced from 3.8 days to 3.1 days in the same period. New initiatives emphasise integrated port development. Port connectivity is being improved on a fast-track basis under the National Highways Development Project. Phased corporatisation of the major ports is being introduced. A bill amending the outdated Major Port Trusts Act, 1963 has been introduced in Parliament. Plans exist to develop two container transshipment hub terminals at JNPT and Chennai ports. Development of inland waterways is also being encouraged. These initiatives are in the right direction. Major improvement in operational efficiency will be apparent when management practices and infrastructure improve.

　

Shipping Overview

　

 Shipping plays an important role in the national economy. It is a major foreign exchange earner. Almost 90 per cent of India's trade volume (more than 70 per cent in terms of value) is moved by sea. Indian shipping industry has to an extent, considering its late start in modern times, flourished for many years, achieving many milestones in the 1970s and early 1980s. Today, India has a well-diversified (albeit with some deficiencies) merchant fleet of tankers, bulk-carriers, container ships, specialised multi-purpose vessels and offshore supply vessels. However, despite, an extensive coastline and strategic location along a major global route, Indian shipping remains a tiny component of the international industry.

　

 Indian shipping tonnage has also, unfortunately, been declining in the recent past. Gross registered Indian tonnage was 61,77,559 tonnes on April 1,2003, almost 10 per cent less than last year. Shipping companies are finding it difficult to maintain fleets due to high tax liabilities. Also, nearly 30 per cent of the Indian fleet is more than 20 years old. The share of Indian shipping in India's overseas trade has also declined. Less than 30 per cent of Indian trade is carried in Indian bottoms. Nearly 85 per cent of dry, bulk and general cargo and around 45 per cent of POL products are carried under foreign flags.

　

 There are many factors responsible for the decline. The liberalisation of 1991 resulted in industry support through interest rate subsidies and cargo support being withdrawn. Indian shipping also suffers from high taxation levels, high insurance costs and overregulation. Many smaller maritime nations such as Singapore have Large competitive advantages due to these retarding factors. Shipping is inherently a highly cyclical and capital-intensive industry, which makes Fls and banks wary about offering financial assistance.

　

 The shipping industry is dominated by state-owned Shipping Corporation of India (SCI), which controls half the country's tonnage. Private sector companies include Great Eastern Shipping, Essar Shipping, Varun Shipping, Shahi Shipping and Tolani Shipping. While the government announced two years ago that it intends to divest its 51 per cent stake in SCI in principle, the ground reality is that this has not yet happened.

　

 The government has taken several initiatives in an attempt to revitalise shipping. These include the simplification of ship acquisition procedures and the regulatory procedures for raising resources, retention of sale proceeds and release of foreign exchange. Foreign direct investment up to 100 per cent is permitted. More action is however necessary on the policy front. A long-pending demand of the industry has been the introduction of a tonnage-based tax, on the lines that exist in other countries. Indian companies pay normal corporate tax. A tonnage-tax regime imposes taxes according to the total tonnage carried. Such a shift could spur fleet expansion since there would be an incentive to create capacity. The government has not yielded yet to the lobbying for tonnage tax, but instead has raised the upper limit for transfer of profits to the ship acquisition reserve under Section 33 AC of the Income Tax Act, 1961. This move has provided some relief to shipping companies. Some companies have also begun sailing ships under other national flags to avoid the high level of Indian taxation.

　

 The shipping industry is governed by three separate acts. These are the Merchant Shipping Act, 1958, the Inland Vessels Act, 1917, and the Coastal Vessels Act, 1838. These acts urgently need amendment to add new regulations related to changes in global safety and pollution norms. Shipping is a central subject and comes under the Ministry of Shipping. The National Shipping Board advises the union government on shipping matters while the Directorate-General of Shipping is the main regulatory authority.

　

 Indian shipping has a lot of potential, which could be developed through adequate policy support. Several new opportunities are visible on the horizon. Refining capacity is undergoing a massive expansion, which would make India a net exporter of refined petroproducts within a few years. Container traffic is growing fast as well. Also, India is turning into a major importer of LNG and the transportation of LNG is lucrative. However, the Indian shipping industry lacks the deep pockets required to buy LNG tankers and other vessels suitable to exploit these opportunities. There is, for example, not a single VLCC in the Indian fleet.

　

Shipbuilding in India

　

 In the initial stages of centralization of the Indian economy, the play of economic forces resulted in a concentration of shipbuilding efforts as part of the state apparatus, the public sector as it is referred to in India. This period immediately after independence and in the first thirty years of independent India, saw the setting up, in various degrees of size and competence, of the five major public sector shipyards A sizeable number of private shipyards and a few smaller state-run shipyards also were developed during this period, but of the fifty or sixty that have been set up during the past half century, unfortunately, only a little more than a dozen and a half or so have remained viable entities. They have suffered from the grievous blows inflicted on shipbuilding, as in the rest of the world, due to the East Asian shipbuilding miracle of the last three decades The major state-owned shipyards in India have been able to sustain themselves essentially due to Naval and Coast Guard contracts, and to some extent, in the cases of Cochin and Vishakhapatnam, due to repair activities.

　

 The shipbuilding industry has been delicenced in India, except for construction of war-ships which, to a large extent, had been reserved for the public sector. Recently however, in keeping with its policy of opening up the economy, the government has licensed some private industries also to build smaller warships. There are four major shipyards in India capable of building large ocean-going vessels. They are all in the Public Sector. Two of them, Cochin Shipyard Ltd. (CSL) and Hindustan Shipyard Ltd. (HSL) at Visakhapatnam, are under the administrative control of the Ministry of Shipping (MOS) of the Govt. of India. They are engaged in the construction of vessels required for the mercantile marine. Mazagon Dock Ltd. (MDL) at Mumbai, and Garden Reach Shipbuilders and Engineers Ltd. (GRSE) at Kolkatta, which along with the smaller Goa Shipyard Ltd. (GSL), are under the administrative control of the Department of Defence Production & Supplies within the Ministry of Defence, construct and repair naval warships and patrol vessels for the Indian Navy and Coast Guard. The four larger shipyards have also in the past built a variety of other vessels and structures such as those for offshore oil and gas production and exploration, port auxiliaries, dredgers and inland waterway crafts.

　

 There are a limited number of shipyards in the country which could be classified as medium and small category yards. Of these, five shipyards namely Hooghly Dock & Port Engineers Ltd., Kolkata, Rajabagan Dockyard of Central Inland Water Transport Corporation, Kolkata, Goa Shipyard Ltd., Goa, Alcock Ashdown & Co, Bhavnagar and Shalimar Works Ltd., Kolkata are in the Public Sector. Hooghly Dock & Port Engineers Ld., Kolkata and Rajabagan Dockyard of Central Inland Water Transport Corporation, Kolkata are under the administrative control of Ministry of Shipping; whereas the Alcock Ashdown & Co., Bhavnagar and Shalimar Works Ltd., Kolkata are under the administrative control of the State Governments of Gujarat and West Bengal respectively. Other shipyards are in the private sector. The aggregate annual capacity of all Indian Shipyards is estimated to be approx. 0.15 million CGT (Compensated Gross Tonnage).^*

　

 Ship-repair activity in the country broadly comprises of twenty small sized commercial dry-docks equally divided between the public and private sectors. These are supplemented by 'wet berths' in major ports like Mumbai, Kolkata and Chennai. Vessels serving Nicobar, Andaman and Lakshadweep ports as well as dredgers, offshore supply vessels, jack-up rigs, drill ships and a smaller number of ocean going cargo vessels are serviced in these dry docks. However, dry docks are limited in size and can handle comparatively smaller vessels only. Warships of the Indian Navy are dry-docked and repaired at captive facilities in the Naval Dockyards. Owing to growing demand vis-à-vis capacities of the naval dockyards, repairs of defence ships and submarines are increasingly offloaded to the commercial shipyards.

　

Ancilliary Industries

　

 Shipbuilding is essentially an assembly industry which requires shipyards to procure raw material and equipment for the ships being built. While this subject has become a specialized and modern topic both in East Asia and in Europe-America, in India due to insufficient attention paid to this area, the ancillary industry required for shipbuilding has lagged behind. In particular, the matter has not been helped by the problem that local industry has only hesitantly picked up the challenge of meeting this requirement, basically due to the low volumes envisaged. Further complicating the process have been the cumbrances and difficult systems that have been evolved in the public sector shipyards. In many instances, the lead time for placing an order is longer than the time involved for designing and manufacturing ancillary equipment. As a result shipyards have faced problems in the field, with Indian marine equipment industry not modern enough, nor of international standards. This is a classic case of a chicken and egg situation. Lack of standardization, insufficient order quantities, and crude or obsolescent design capabilities have resulted in an increasing tendency to rely on equipment from abroad. Insufficient resources have been provided for research and development, both of engineering and technology as well as for raw materials. In fact, the Indian raw material market is also in a sorry state due to the fact that part of Indian industry is only now slowing getting more and more sophisticated. We lag behind greatly in matters of specifics and certain issues need to be dealt with in order to alleviate the situation. In particular development of materials of proper specification which can be offered to the marine equipment industry on a reliable and continuing basis, development of a set of standard specifications for all type of marine equipment covering all ship sizes is the need of the hour. Rationalized inspection procedures, procurement/vendor development programmes by shipyards which will endeavour to recognize, encourage and reward the equipment industry which takes up R&D to produce quality equipment, in preference to those which are not professionally committed, are also steps that need to be addressed.