Draft Ports Bill 2022 and Port Infrastructure in India – Explained, pointwise

Introduction

The Union Government has prepared a new Draft Ports Bill, 2022. It has been prepared to replace the Indian Ports Act, 1908. An earlier draft was released in 2021, and this Bill has some improvements over it. The purpose of the Draft Ports Bill is to revamp the 1908 Act to reflect the present-day frameworks. In addition, it seeks to amend and consolidate legislation for containment, prevention of pollution and facilitate compliance with the country’s maritime treaties and international instruments and aid the consultative development of the ports sector in the national interest.

About Ports in India

Source: IBEF. Chidambaranar is also called Tuticorin Port.

According to the website of Ministry of Ports, Shipping and Waterways, India has 12 major ports and 200 non-major ports. The Major Ports Authorities Act, 2021 is applicable to 11 Major ports, (Chennai, Cochin, Deendayal (Kandla), Jawaharlal Nehru (Nhava Sheva), Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, V.O. Chidambaranar (Tuticorin) and Visakhapatnam). Port Blair was declared as 13th major port via a notification in 2010, although there were considerations to scrap the major port status in 2017. In 2020, the Union Cabinet had given ‘in-principle’ approval for Vadhavan (in Maharashtra) to be developed as a Major Port. Mundra is the largest private container port in India. Most of the non-major ports are small fishing harbour, and only a few of them cater to international shipping. Major ports are listed in the Union List and come under the jurisdiction of the Union Government. Non-major ports are in the Concurrent List and come under the jurisdiction of respective State Governments, but the Union Government has overriding legislative and executive powers.

What are the Institutional Arrangements governing the Ports Sector in India?

Apart from the 1908 Act, the Major Ports are governed by the Major Port Authorities Act, 2021 which repealed the earlier Major Port Trusts Act, 1963.

In 1997, a Maritime State Development Council (MSDC) was created by an Executive order, with the Union Minister of Shipping as chairperson and the Ministers in charge of ports of the maritime States/Union Territories (UTs) as members. The MSDC serves as an apex advisory body for the coordinated development of major ports and non-major ports.

Source: Ministry of Port, Shipping and Waterways. Institutional Arrangement of Port Management in India.

What is the current status of India’s Maritime Trade and Cargo Handling?

Over 95% of India’s trade by volume and 65% by value is done using maritime transport facilities at ports. Merchandise exports reached US$ 417.81 billion in FY22. Increasing trade is translating into higher demand for containerisation due to their efficiency.

Net profits at the major ports increased from INR 1,150 crore (US$ 178.4 million) in FY13 to INR 3,413 crore (US$ 529.6 million) in FY18, while operating margins increased from 23% to 44%.

To meet the growing cargo traffic, the capacity of ports was increased to 1,514 million tonnes in FY19, from 505 million tonnes in FY07. Cargo traffic handled by India’s major ports grew 7.72% YoY to touch 720.29 MT in FY22.

Turnaround time at major ports in India has decreased at a rapid pace from 82.32 hours in FY17 to 59.51 hours in FY19. Turnaround time at major ports was 62.16 hours in FY21. Turnaround time refers to the time that is taken between the arrival of a vessel and its departure. Average turnaround time is influenced by factors such as type of cargo, parcel size and entrance.

Non-major ports are evolving faster than major ports and a major chunk of traffic has shifted from major ports to non-major ports. The contribution of non-major port traffic to the total traffic rose to 45% in FY22. The share of non-major ports was only 8% in 1993-94.

Source: IBEF

What are the major provisions of the Draft Ports Bill, 2022?

The Draft Indian Ports Bill has a 4-fold primary objectives: (a) Promote integrated planning between States and Centre-States through a consultative and recommendatory framework; (b) Ensure prevention of pollution measures for all ports in India while incorporating India’s obligations under international treaties; (c) Address lacunae in the dispute resolution framework required for burgeoning ports sector; (d) Usher-in transparency and cooperation in the development and other aspects through the use of data.

The Bill is aimed at ensuring streamlined and homogenised development in the maritime sector. Its objective is to promote ease of doing business. Some of the redundant provisions of the 1908 Act have been deleted or replaced with contemporary provisions.

What are the issues with the Draft Ports Bill, 2022?

First, the Draft Bill seeks to give statutory status along with wide ranging powers and functions to the MSDC. The Bill will make it a permanent body with its own office, staff, accounts and audit. A body like the MSDC is necessary, but the nature and quantum of its work do not call for a statutory or permanent status.

Second, the proposed composition of the MSDC favors the Union Government. The draft Bill makes 5 Secretaries and 1 Joint Secretary to the Government of India, besides the administrators of the coastal UTs, as members of the MSDC. The vote of an officer would count the same as the vote of a minister. This sets a bad precedent.

Third, as noted above, the performance of non-major ports has been better. Between, 1993-94 and 2021-22, the average growth rate of cargo traffic has been 14% in non-major ports versus 4.8% in major ports. Thus the Union Government should delegate more control to State Governments rather than centralising through MSDC.

The 2011 World Bank Report, ‘Regulation of the Indian Port Sector’, observed that non-major ports are perceived as more business-oriented, customer-friendly, cheaper, and, in general, more efficient. On the other hand unnecessary regulatory and financial burdens are imposed upon port trusts, private terminal operators, and investors by the Union Government.

How can these issues be resolved?

First, the MSDC should continue to function as an apex advisory body.

Second, Like the Goods and Services Tax Council, the MSDC should consist only of the concerned Ministers of the Union and maritime States/UTs; officers should only be special invitees. The Union and State Governments can have 50% vote share each.

Third, In accordance with global port reform strategies, the Union Government should strive for greater decentralisation, deregulation, corporatisation, and private sector participation. The Union Government should only be responsible for functions like border control, competition policy, port security, environmental protection, and hinterland connectivity.

Fourth, State Governments and city municipal corporations should be provided greater stakes in corporatised major ports.

What are the key challenges faced by the Port Sector in India?

Infrastructure Bottleneck: Indian ports are plug with the lack of capacity and low productivity. The high turnover time and freight costs make Indian ports less competitive. Although the turnaround time has improved it is still poor compared to global standards e.g., Japan (8.16 hours), Taiwan (10.56 hours), Hong Kong (12.48 hours) have much better turnaround times than Indian ports (62.16 hours). Poor planning has meant that India’s port expansion has not been commensurate with rise in cargo traffic.

Logistics Bottleneck: The port productivity and efficiency also depend upon the quality and reliability of road and rail connectivity, and adequate storage and handling facilities. The lack of expressway connectivity between major ports and industrial clusters, high fuel cost make hinterland transportation inefficient and slow.

Technology Bottleneck: Major international ports are using advanced innovations and information technology to change the way goods are transported between port terminals. They have implemented end-to-end solutions and online tracking systems to streamline the flow of information between their trading partners. In India such smooth information flow between customs, ports, inland terminals and shippers involved in container trade is limited. This reduces efficiency.

Regulation Bottleneck: The port operations in India are marred by complex custom procedures, regulations, and lengthy documentation process. In some major ports like Singapore modernized custom administrations have adopted a highly selective procedure for examinations of containers and about 95% of containers are allowed clearance without any physical examinations. In India, rules require 10% of the contents of each box to be checked and verified. It causes delay, and adds a high transportation costs.

Source: CII

What steps have been taken by the Government for developing Port Infrastructure in India?

First, The government has allowed FDI of up to 100% under the automatic route for projects related to the construction and maintenance of ports. Indian ports have received cumulative FDI inflow worth US$ 1.63 billion between April 2000 and June 2021.

Second, Major Port Authorities Act has been passed in 2021, replacing the Major Port Trusts Act, 1963. The new Act aims to decentralise decision-making and reinforce excellence in major port governance.

Third, Project UNNATI has been started by the Government of India to identify opportunity areas to improve operations of key Under the project, 116 initiatives were identified, out of which, 98 initiatives have been implemented, as of September 2020.

Fourth, A new Captive Policy for Port Dependent Industries has been prepared to address the challenges of renewal of concession period, scope of expansion, and dynamic business environment.

Fifth, Private ports enjoy price flexibility as the Government allows non-major ports to determine their own tariffs in consultation with the State Maritime Boards. At major ports, tariffs are regulated by the Tariff Authority for Major Ports (TAMP).

Sixth, Model Concession Agreement (MCA) has been finalised to bring transparency and uniformity to contractual agreements that major ports would enter with selected bidders for projects under the build, operate and transfer.

Seventh, A 10-year tax holiday has been provided to enterprises engaged in the business of developing, maintaining and operating ports, inland waterways and inland ports.

What more steps can be taken going ahead?

Suggestions have been provided in the report titled “Promotion of Infrastructure in India’s Maritime Sector” by the Ministry of Ports, Shipping & Waterways, to improve the port infrastructure and efficiency.

First, Government should formulate policies for generation of employment opportunities with involvement of personnel in various activities of construction, operations and maintenance of projects in regard to creation of Coastal Economic Zones (CEZs), Coastal Economic Units (CEUs), Port-Linked Industrial & Maritime Clusters and Smart Industrial Port cities.

Second, ways should be chalked out to link Private Ports with the Major and Minor Ports of the country in order to cater to the growing requirement for import/ export of manufactured goods/ raw materials.

Third, The Ministry of Ports in coordination with the Ministry of Renewable Energy should work towards establishment of solar power plants and wind power generation units on the unutilized land. This will help reduce the burden on non-renewable resources of energy and to increase the employment.

Fourth, The Ministry should develop an efficient system which can support seamless movement of cargo across all modes. The Ministry should emphasize all the Major and Minor Ports to enhance the productivity and infrastructure to the level of best Ports in the world which will enable them to compete globally.

Fifth, Increased competition and economy of scale have fuelled the development of bigger ships. In order to accommodate such vessels, promotion of huge facilities capable of handling bigger ships is required.

Sixth, to ensure green development, the Ministry should formulate proper guidelines and conduct an environmental impact assessment before releasing funds for any connectivity project.

Seventh, The Ministry of Ports should also work in close coordination with the Ministry of Road Transport and Highways, NHAI, and Ministry of Environment to address the delays in projects due to land acquisition and environmental clearances.

Conclusion

The Government has set a target to make India a developed nation by 2047. This will require rapid economic growth supported by domestic demand, investments and robust exports. Maritime trade and port infrastructure will play a vital role in achieving a robust growth in exports. Thus the Government has to support the development of world-class port infrastructure in India to make Indian ports and exports globally competitive.

Syllabus: GS III, Infrastructure: Ports

Source: The Hindu, Hindustan Times, IBEF, CII