Raising the Bar - Fast implementation is the key!

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90% volume and 70% value of our international trade is transacted through water transport. Given the target growth rate in GDP of 8% p.a. it is expected that our Exim trade which bears a direct correlation with the GDP, will grow at 13% p.a. This will result into a corresponding need for creation of commensurate port capacity and logistics infrastructure. As such the Maritime Agenda 2020 envisions creating additional port capacity equivalent to 2156.51 million tonnes. Of this 842.8 million tonnes is expected to be created in Major ports and 1313.71 million tonnes in minor ports. This capacity creation will likely require an investment of Rs. 2.77 lakh Crores.

This looks like a great plan to have. However, executing it and delivering on it is another thing all together. Almost 81% (around 66% for Major Ports & 96% for Non-Major Ports) of this massive resource mobilization for its execution is expected through private sector participation significantly through the PPP route. A review of the pace of infrastructure creation in the last three years reveals a very disturbing picture. Of the 23 central government projects / major port projects targeted to be signed off through the PPP route only in the previous year, only 10 have witnessed tangible progress. Obviously we will not be able to achieve the targeted capacity creation by the required dates at this pace.

Over the last decade the share of minor ports, in total cargo handling in the country, has increased from 23.71% to 33.98% and with this, the focus has shifted to the role of the minor ports in delivering this capacity. Gujarat with its iconic maritime arm – the Gujarat Maritime Board – has emerged as the dominant maritime state and accounts today for 71% of the minor port capacity. GMB has become a brand in its own right commanding significant goodwill in the maritime circles and community. While it has already become the standard, several other states have woken up to the imperative and have also been instructed to set up maritime boards to promote maritime development in their respective states.

GMB's challenge is thus to raise the bar. This will hence require not only a very ambitious vision but also an audacious strategy. It will require a politico-administrative will to adopt innovative approaches if needed. In order to not only retain its leadership position, but to also capture a lion’s share of the expected growth in the coming decade, Gujarat will need to demonstrate boldness and speed of action. It will need a certain readiness to experiment with fresh concepts and the courage to craft policies, create institutional arrangements, and incentive frameworks for port sector development based on its own independent professional assessment without necessarily seeking the support of precedents. Let other states watch its actions in awe!

Gujarat has a significant locational advantage - proximity to the vast Northern hinterland and face towards the western world which is the key trade partner for India. Besides this natural advantage it has several leadership and cultural strengths. Moreover other states have other weaknesses which Gujarat should recognize and build its own strengths in these areas aggressively. The key weakness that comes in the way of development is ‘execution’ or actually the lack of it. We all know how brilliant we are at planning and how seriously we are impaired when it comes to implementation. Gujarat has already distinguished itself for better decision making in comparison. However to put significant distance between itself and others, what it needs to do is to execute with such speed and pace that it captures the market before others can create the capacity. Having adopted the model of "Port-led-Development" Gujarat is best placed to do so.

This though will require some radical steps. The concept of 'single window clearance' has at best been only rendered lip service and we are yet to see a genuine 'single window clearance' operational in any infrastructure sector. Enabling all clearances in one office requires enforcement of such concept with the support from the highest political level in the state. All different ministries and departments would need to depute empowered representatives with an explicit mandate to clear and facilitate business proposals within announced extremely challenging (read ‘short’) timeframes. Today while the entire country is bogged down in "decision making inertia", Gujarat should chart a contrarian path with confidence and determination and put huge distance between itself and others.

Besides enabling more enthusiastic private sector participation in the PPP bidding that happens, it is also extremely important to ensure that there is no site-squatting and promoters awarded LOIs actually deliver the infrastructure in time. This will require very strong project monitoring by GMB. Several developer concerns, which while genuine, are also at times used to camouflage the intention of sitting on opportunities and delaying actual investments need to be nipped in the bud. 'Environmental clearances' is one such thing. Cracking the problem of ‘environmental clearances’ is hence very important. Businesses tend to look upon these as essential ‘compliances’ or as ‘unwanted nuisance’. It is important to create some state machinery / agency which can employ the best talent in this field and using a credible / standardized process undertake environment impact assessments and environment management planning and obtaining clearances from the MOEF, for the port projects for a reasonable fee. This should alleviate a key problem faced in port development by the developers and reduce this risk associated with such projects in Gujarat. While it is not my intention to propose here a comprehensive set of suggestions, I would still like to leave this discussion with one more, slightly radical suggestion. I suggest that GMB should go out and partner with major ports to take up port development in Gujarat. The government may enable this route at a pre-fixed revenue share commonly applicable to all such join ventures without having to go through the public tendering route – the only condition being execution within agreed timeframe without slippage. Many major ports are flush with funds and having become landlocked in urban locations struggling to expand / grow. Obviously they do not have much scope for growth within their port areas and are unable to invest their funds effectively. Also further investments in the same location are not justifiable from strategic perspectives. GMB with its vast coastline, geographical advantage and business like image would be a very attractive proposition for such ports to get into joint ventures with. Besides, these major ports have deep experience in port operations and have relationships with shipping lines and other business in the ecosystem to make such JV’s very successful. This would work to the great advantage of Gujarat.

The regulatory climate is changing. The specter of indirect tariff regulation finding its way to minor ports is looming large. As the cry for level playing field grows louder, it is inevitable that some tariff controls will manifest sooner or later. The best way to make regulation redundant is to induce a very high degree of competition in the domain. A significant jump in the port capacity would also result into improved economics for the rest of the connected logistics and connectivity projects as their business cases will be supported by higher demand for their services.

In summary, I think it is important for Gujarat to almost design a “first mover’s advantage” through extremely high speed implementation of capacity creation and cement its claim to servicing most of the growth in trade – even the one which today may not be on its radar! If there is any state that can do it, for sure it is Gujarat!

Hemant is a Senior Director with Deloitte and has led provision of consulting services to a range of industries in Infrastructure including Power, Sea-Ports, Airports, Shipping & Logistics sectors. He is a Chartered Accountant with more than 20 years of experience significantly as a consultant to businesses.

He heads the Finance & Legal Reforms Committee of the Infrastructure & Logistics Federation of India. He is also a member of the CII’s Logistics committee for the Western Region and has chaired the CII’s National Summit on Logistics 2010. He is a distinguished speaker especially on transport & logistics sector and has spoken at various industry events in past organized by CII, FICCI, IATA, IBLF, IACC etc. He is recognized in the industry for his point of view and bringing in innovative approaches to problem solving.

He has advised on range of issues including strategy formulation, business planning, project reports preparation, feasibility assessment, PPP structuring, institutional strengthening, capacity building, and financial evaluation among others. His transport & logistics clientele include many state government departments / authorities from public sector and leading transportation & logistics companies across India from private sector.