India Requires Infrastructure to Match Growth Forecasts

With 90 percent by volume and 70 percent by value of India’s international trade moving by sea, development of the country’s ports are to be critical

LondonNov. 8, 2013—Ports, shipping and logistics development across India, Pakistan and Sri Lanka is a key topic of contemporary debate. India’s economy is at the threshold of a “golden age of growth,” with the potential to grow the fastest among Brazil, Russia, India and China (BRIC countries) over the next 30 to 50 years. Goldman Sachs economists predict that, in terms of gross size, the Indian economy may overtake Italy in 2015, France in 2020, Germany in 2023 and Japan by 2032. The fact that the country’s merchandise trade intensity (trade as a percentage of gross domestic product or GDP) is still below 30 percent indicates significant untapped growth potential.

The United Arab Emirates (UAE) and India are already each other's biggest trading partners, with bilateral trade between the two countries in 2011 and 12 worth $67 billion, driven in part by the UAE’s role as a regional and global transport conduit. This is part of the bigger picture of fast-growing trade both with the Middle East and Africa (MEA). India's exports to the MEA today are worth more than the country’s total global exports just 10 years ago, and are an increasingly high priority on the political and business agenda.

With 90 percent by volume and 70 percent by value of India’s international trade moving by sea, development of the country’s ports are to be critical. As India’s rate of containerization is currently only around 25 percent, vs. the global average of 60 to 70 percent, demand for new container port and inland transport infrastructure is forecast to be particularly strong.

“The shipping and ports sector in India needs to develop rapidly to keep pace with Indian trade, and to act as a catalyst in economic growth,” said Shailesh Garg, a director at industry consultants Drewry. “In order to realize this growth potential, the government of India is encouraging the private sector to come forward in developing port activities and operations.” Although India has already attracted the involvement of international container terminal operating groups and other private investors, an estimated $20 billion of further investment is now needed in the port system.

India’s Ministry of Shipping recently introduced changes to the rules governing new container terminal concessions to render them more interesting to private investors. This was a result of a number of high-profile failures in concession tendering that could make the government’s own targets for new capacity set out in its “Maritime Agenda: 2010–2020” look unrealistic.

“In spite of various policy interventions, the progress of public-private partnership (PPP)-related projects in the sector has been slower than expected,” added Garg. “The government, therefore, needs to introduce substantial policy initiatives for developing the port sector to meet the proposed capacity addition targets. Apart from the regulatory environment, the government also needs to focus on integrated development, as inadequate road and rail facilities are leading to logistical bottlenecks, resulting in capacity constraints and under-utilization of port capacity. Further, investment in the modernization of existing ports is critical for removing physical constraints and equipping them to handle modern and bigger vessels.” 

"India's ports and shipping stand poised to capitalize fully on the country's recent economic gains and its growing clout in the world,” said S.N Srikanth, founder and senior partner of Hauer Associates. “However, to transform promise into infrastructure on the ground, India needs to address the single most important constraint that holds it from joining the ranks of the very best: red tape. Daunting as the task may seem, I earnestly believe that the process of meeting this challenge has begun and its positive impact will be seen in the very near future.”