INDIA’S vast, 7,500-km-long coastline, and its rich maritime history have strangely not benefitted the domestic shipping industry. Ironically, even as the nation’s export-import trade expands rapidly, the shipping sector and local ports are not gaining significantly.

Instead, neighbouring ports in the region – including Colombo in Sri Lanka, Dubai and Fujairah in the UAE, Salalah in Oman, Aden in Yemen, and even Singapore – have been reaping a windfall because of India’s buoyant external trade.

India’s ‘external engagement’ – both merchandise and service exports and imports – will add up to $500 billion this year, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). Nearly 95 per cent of India’s exim (export-import) trade by volume, and 70 per cent by value, is moved by sea.

But inefficient ports, many of which are grossly mismanaged, cumbersome procedures for clearance of goods, pathetic surface infrastructure linking ports to the hinterland, lack of finance and technology, stiff port charges and crippling tax burdens have stunted growth in the Indian shipping and ports industry.

The country has nearly a dozen ‘major’ ports, none of which can, however, accommodate large ships or container vessels. Most of the ports in India are owned by the government, and the ‘boards’ that are supposed to manage them are packed with political appointees and lackeys of ministers and bureaucrats.

The result: ports like Colombo and Dubai attract all the major ocean-going vessels, from where goods are transferred into smaller ships for transshipment to India’s ‘major’ ports.

But despite attempts to stem the rot, the situation in India’s port and shipping business continues to deteriorate. It has come to such a stage that many Indian shipping firms are now planning to sail away to foreign shores, notably Singapore. Most of the leading private sector shipping companies have set up subsidiaries in the city-state, and are acquiring vessels through those companies.

One of the major reasons attracting them to Singapore is the simplicity of the tax regime. Whereas there are nearly a dozen taxes imposed in India, shipping companies have to pay just one – tonnage – tax in Singapore. It is also easy to raise funds in the city.

Some shipping companies from Mumbai have already relocated to Singapore and all their ships operate under the Singapore flag. Others, including Varun Shipping and Mercator Lines, who have set up subsidiaries in Singapore, are acquiring vessels through those set-ups. Mercator is also planning an initial public offering (IPO) in Singapore. The largest private sector shipping firm, GE Shipping, also has a Singapore subsidiary.

According to shipping industry sources, Indian ports are not only inefficient and congested, but it costs 50 per cent more to call on a port here, compared to Dubai, Singapore or Colombo. In many instances, Indian port costs are more than double other international ports.

One reason for the absurd costs are the imposition of dredging charges by the dozen major ports, on to ships calling on them. Because of their inefficient operations, most of the major ports face problems relating to silting, and have to constantly dredge the channels.

The port trusts pass on these costs to ship-owners. The result: the Indian consumer has to ultimately pay for these inefficiencies, as none of the shipping companies will absorb the costs. Worried about the soaring costs at Indian ports, the government is now thinking of subsidising ports for the dredging costs.

Industry bodies have also been urging the government to reform the shipping and port industry in the country. Earlier this month, the Federation of Indian Chambers of Commerce & Industry (FICCI), a lobby for domestic trade, called on the government to de-bottleneck the ports infrastructure to help achieve export targets – of $160 billion this year, and $200 billion next fiscal.

“There is a need to develop a world-class container hub terminal with direct calls to other international hub ports and major cargo destinations,” said a FICCI spokesman. “Efforts should be made to simplify port clearance procedures including customs, which are considered as a major bottleneck in the export and import transactions.”

The low public and private investment in creating world class port and shipping infrastructure, long gestation period, complex procedures and regulations have resulted in congestion at various major ports causing business inefficiencies, high transaction costs and thereby making Indian exports less competitive, according to FICCI officials.

According to Yudhisthir Khatau, president, Indian National Shipowners’ Association, the industry needs to invest at least $20 billion over the next three to four years to modernise its fleet. The association has sought ‘infrastructure status’ for the shipping industry, to enable companies to access cheaper funds from financial institutions.

Under the International Maritime Organisation rules, all single-hull tankers have to be converted – or replaced with – into double-hulled ones by 2010. Likewise, ships that are over 25 years have to be scrapped. Nearly 40 per cent of Indian ships would be 25 or more by 2010, and may have to be scrapped. The gross tonnage of Indian vessels at present is 8.5 million, but by 2010, 3.5 million gross tonnage would have to be scrapped.

Khatau warns that “Indian shipping is in a crisis, and the issues have to be addressed soon.” Failure to do so would reduce the domestic industry’s share in the 400 million tonnes of cargo that are handled in Indian ports annually to five per cent from the present 13 per cent. Indian ports are expected to handle a billion tonnes of cargo by 2010-11.

Lack of funds has resulted in deteriorating quality of Indian-flagged vessels. There has been a spate of accidents in recent months, with nearly 15 ships – including seven Indian vessels – having sunk off the coast in the last two months.

Companies are unable to allocate funds for repairs, nor are many of the shipping lines able to hire qualified and experienced staff. There is an acute shortage of shipping personnel globally, and most Indian trained personnel are picked up by international lines, offering huge salaries and benefits.

Shipping Minister T.R. Baalu, however, is bullish about the prospects for the shipping and ports sectors. He points out that the United Progressive Alliance (UPA) government has formulated, and is implementing, a national maritime development programme that lays emphasis on development of the maritime infrastructure.

But there have been major delays in expanding and upgrading the existing infrastructure. The Jawaharlal Nehru Port Trust (JNPT), just across the harbour from Mumbai – which is ranked as the 28th largest container port in the world – accounts for 60 per cent of India’s container traffic.

Yet, it has been facing enormous problems in executing its expansion plans and even in getting the necessary approvals for a Rs8 billion dredging contract. One of the lowest bidders, Van Oord of the Netherlands, has now stipulated a deadline – September 1 – for its bid.

Though it is India’s leading container port, JNPT is unable to handle 14-metre draught vessels that can carry 6,000 TEUs (twenty-feet equivalent units). Internationally, many ports are preparing for the new generation, ultra large container ships, capable of carrying 12,500 TEUs, and Post-Suez-Max (up to 18,000 TEUs) and Post-Malacca-Max (over 18,000 TEUs).

The largest container ship today is the Emma Maersk, which has a 14,500 TEU capacity. But none of the top-10 container carriers in the world – the 10th biggest has a capacity of 9,040-TEU – can call on an Indian port now, or in the immediate future.

For a country with global aspirations and ambitions to emerge as an economic giant, a burgeoning external trade, a rich maritime history and a vast coastline, this is indeed a gloomy scenario.