Commentary

Benefits of Port Liberalization

Gujarat’s ports have not just enhanced its industry’s efficiency, but also spawned a slew of new industries like ship-building.

In contrast to the rest of India, where it is the government that predominantly owns and manages ports, Gujarat has implemented various forms of port liberalization since the 1990s. This has helped it become the country’s fastest growing state. Gujarat’s economy has grown at an average of 10.14 per cent per year from fiscal year 2001 to fiscal year 2006, the last five years for which data are available. This is comparable with China’s average growth rate since 1978, and is distinctly faster than the growth of the other Asian tigers in the 15 years before the Asian financial crisis of 1997.

2 charts

The only major port that the central government built in Gujarat was at Kandla, in the remote Gulf of Kutch. This port had only a meter-gauge railway and so could not connect with the major broad-gauge railways of the hinterland. Road links were also poor. So international traffic to and from North India, which in the 18th and 19th centuries passed mainly through Gujarat’s ports, passed in the 20th century mainly through Mumbai, Kolkata, and Visakhapatnam.

However, the state’s resourceful politicians found a way out. The Constitution nowhere defined the size of a major or minor port. Major ports were simply those covered by a central government law. Thus, Gujarat found that it could keep expanding its “minor ports” without limit, even if they became larger than some major ports! The state now has as many as 40 minor ports including so-called captive ports built by big industries.

For most of the last decade, India’s biggest port has been Visakhapatnam in Andhra Pradesh. But in 2004-05, the minor port of Sikka in Gujarat overtook Visakhapatnam to become India’s top port. The latest data show that Visakhapatnam once again became number one in 2006-07, with 56.3 million tons of cargo compared with Sikka’s 55.9 million tons. However, projections suggest that Sikka will soon regain the top spot, and handle 127 million tons by 2020.

  • In the fiscal year ending 2007, Gujarat’s minor ports handled 123.6 million tons of cargo, compared with the 53.0 million tons handled by its only major port (Kandla).
  • Its minor ports handled more cargo than all major ports put together in any other state; the closest rival was Tamil Nadu, whose three major ports loaded 82.1 million tons.
  • Its minor ports accounted for 123.6 million tons of the total of 171.9 million tons handled by all minor ports nationwide.
  • Among the states with minor ports, Andhra Pradesh came in a very distant second to Gujarat, with just 18.6 million tons.

The state’s deeply indented shores provide 1,600 kilometers of coast, the most of any state. Almost all India’s coastline is hit by seasonal monsoons, necessitating the construction of costly breakwaters (jetties without breakwaters have to stop loading in the monsoon months). The Gulf of Kutch in Gujarat is the only coastal area in India that is monsoon-free, and so ports and jetties located there can function all year without breakwaters. The Gulf of Kutch also has the deepest water in India: a natural draft of 17 meters without dredging is available at ports like Mundra and Positra, deep enough to accommodate the biggest container ships and large bulk carriers. Very large crude carriers of up to 400,000 tons can anchor at single-point moorings in deep waters many kilometers from the shore, and unload their cargo through pipelines. No other part of India’s long coastline can accommodate such large vessels.

Contribution to Development

One way of measuring the value added by the state’s port-led development policy is to look at the proportion of Gujarat’s international trade that serves the hinterland of North India, and the portion that serves the state’s own industries. One study estimates that as much as 70 per cent of the state’s imports are used within the state, and only 30 per cent go to the hinterland. This suggests that Gujarat’s ports have not been gateways to North India as much as gateways to Gujarat’s own industries. It suggests that ports have contributed, and will continue to contribute, a great deal to the addition of value within the state and to its overall growth.

Three of India’s biggest cement companies — Grasim, Gujarat Ambuja Cement, and Sanghi Industries — have a total of seven captive jetties in the state, and other major Indian and international corporations have set up captive jetties or specialized terminals as well. By far the biggest captive jetties are those of Reliance Industries Ltd at Sikka, which currently load 52 million tons per year of crude oil, refined products, and chemicals. According to projections made by Crisil, additional port capacity to be created by 2020 will be 127.57 million tons at Sikka, 97.86 million tons at Mundra, 45.23 million tons at Pipavav, and 37.07 million tons at Dahej. To put these figures in perspective, Visakhapatnam, India’s biggest major port, handled no more than 55.8 million tons in 2005-06.

The new ports have also helped bring forth new industries. The most important example of this is the emergence of a global pipeline hub at Anjar, near Mundra port, which caters to the burgeoning oil and gas industry worldwide, as well as to Indian needs for water and sewerage pipes. Five companies have already set up a combined pipeline capacity of 1.5 million tons per year, and this is being doubled. These companies make the entire range of gas, oil, and water pipes, including the extra-wide and thick pipes required for the deepest ocean waters.

Heavy plate, which is needed for manufacturing oil and gas pipelines, is currently being imported from Europe. To overcome this dependence, Welspun Gujarat Stahl Rohrer has set up a captive plate mill, and plans to set up a captive steel plant too. Jindal Saw has set up a blast furnace to produce iron for ductile pipes. And other companies are also contemplating steel-making facilities. So, the pipeline hub is becoming a steel hub, too. The new steel plants use imported coal and iron ore, so their port location is ideal. Pipe factories have also been built at Dahej. BK Goenka, CEO of Welspun Gujarat Stahl Rohrer, estimates that India now accounts for almost a quarter of world steel pipe exports.

Another example of port-induced industrialization is the ship-building industry. For a long time, Gujarat was famous for ship-breaking rather than ship-building. It boasted the biggest ship-breaking yard in the world at Alang. Alang is now declining, but new shipyards and repair facilities are sprouting. ABG Shipyard is setting up a major ship-building facility at Dahej, capable of constructing very large crude carriers. The Adani group is setting up another major shipyard at Mundra, capable of building Panamax-size bulk carriers. SKIL Infrastructure Ltd is setting up a major shipyard at Pipavav, where it earlier built a private port. L&T has long been building offshore platforms and support vessels at Hazira. Smaller facilities for building and repairing ships are operated by Alcock Ashdown in Bhavnagar, and Orum Shipyard in Porbandar.

Gujarat’s future port policy appears to have two prongs. One is to become India’s main gateway to the North Indian hinterland. The second is to create Special Economic Zones adjacent to its new ports to attract export-oriented industries. Gujarat has created special purpose vehicles (SPVs) for building rail links. The state government, private port players, and the railways all participate in these SPVs. Through SPVs, broad-gauge links have been built between the new ports at Mundra and Pipavav and the Delhi-Mumbai rail artery, thus providing national connectivity to the minor ports.

To meet India’s burgeoning traffic needs, the railways now plan to build a new, dedicated Delhi-Mumbai freight corridor. Gujarat is getting ready to link its ports to this new rail corridor. By doing so, it hopes to get the lion’s share of hinterland traffic. It can also hope to add at least 10 per cent in value to hinterland cargo through consolidation, packaging, and processing.

Gujarat has pioneered the concept of port liberalization in India and used this to become the country’s fastest-growing state. These results hold salutary lessons for other Indian states.

Swaminathan S. Anklesaria Aiyar is a research fellow at the Cato Institute’s Center for Global Liberty and Prosperity.