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Sagarmala – A New Wave of Economic Growth

Maritime trade has been buoyant since several centuries. The Indian peninsula with a coastline of 7,500 km and a potential of 14,500 km of navigable waterways, makes port-led development a preferred long-term strategy for trade and transport. It is with this in mind, that NDA I under the leadership of Shri Atal Bihari Vajpayee envisioned a maritime equivalent of the Golden quadrilateral. Taking his vision forward, Narendra Modi-led Government of India undertook the ambitious Sagarmala project.

National Perspective Plan (NPP), which was released by the Hon’ble Prime Minister in April 2016, gives details of the Sagarmala project. Considering our economy is tightly coupled with the domestic and international trade (95% of merchandise trade passes through sea ports), port-led development is a long-overdue initiative.

Why Sagarmala?
  • Overall efficiency of the Indian ports lags far behind as compared to its international counterparts. Compared to the global benchmark of 1-2 days, the turn-around time for major Indian ports is around four days. While there are exceptions like the Mundra and Gangavaram Port, which operate at global efficiencies, other ports continue to suffer from various infrastructure and operational challenges.
  • Connectivity of ports to hinterland India is a major challenge in India. Freight containers face high idle time due to limited capacity of railways and poor road connectivity of ports with the end destination. Coastal and inland water transportation form less than 6% of India’s modal mix, much lower as compared to China (47%) and Japan (34%).
  • A structural major challenge posed by the Indian logistics sector is high distance between ports and industries. As per the Sagarmala website, logistic costs of India and China are comparable on a per tonne basis, it is the high lead distances that erode efficiencies.

So, to optimise the logistic costs for exports and imports (EXIM) in the following four ways:

Sagarmala – Optimising the Cost of Logistics

What is Sagarmala?

The project will bring discernible benefits for two types of industries. One, where cost of transportation as a percent of total cost of goods is high. Secondly, for industries such as air express and logistics, where timely delivery of goods is critical for business operations.

  • More than 570 projects with an investment requirement of USD 120 billion have been identified for phase-wise implementation between 2015 and 2035.
  • The project espouses logistics related cost savings to the tune of Rs 35 to 40 thousand crore by 2025.
  • There are four main features of Sagarmala project:

  • Projects under Sagarmala will be implemented largely through private or PPP mode.

The Sagarmala Development Company Limited (SDCL) set up by the Ministry of Shipping, will be used to provide equity for Special Purpose Vehicles (SPVs) set up by ports. SDCL will also be responsible for:

  • Development and formulation of projects under NPP
  • Funding window for residual projects
  • Drawing of detailed master plans for the Coastal Economic Zones (CEZs)
  • Raise funds from multi-lateral and bilateral agencies
Road Ahead
  • With focus on the development of industries proximate to ports, both, bulk manufacturing (like cement, steel) along with discrete manufacturing (like apparels, electronics) are expected to create 40 lakh direct and 60 lakh indirect jobs by the year 2025.
  • Total cargo (tonne) increased by 4.83% between 2017-18 (April – Nov)
  • Sagarmala’s aim to revive efficiency of ports is evident from the fact that total profit from ports is expected to increase from Rs. 3,000 crore (2014) to Rs.7,000 crore (2017-18).
  • As a part of Sagarmala project, six mega ports have been planned by the Government:
    • Vizhinjam International Seaport, Kerala
    • Colachel Seaport, Tamil Nadu
    • Vadhavan Port, Maharashtra
    • Tadadi Port, Karnataka
    • Machilipatnam Port, Andhra Pradesh
    • Sagar Island Port, West Bengal
  • Currently 90% of coal is transported through railways. Transportation of coal through the coastal route will lead to savings of around Rs 10,000 crore in the power sector.
  • As of March 2018:

Source: http://sagarmala.gov.in/projects/projects-under-sagarmala

  • Sagarmala is expected to reduce carbon emissions by the transportation sector by 12.5 MT/annum.
Conclusion

Sagarmala, in its bid to leverage on economic and trade benefits of maritime trade, is posited to stride ahead and create new models for the logistic sector. Since 100% Foreign Direct Investment (FDI) is permitted for construction and maintenance of ports, one expects global investors to view this as an substantial opportunity to make inroads in the emerging sector. Sagarmala has not only positioned, the otherwise neglected coasts, as an attractive investment destination, it has also help create fresh avenues for innovation and job creation. Last but not the least, it would be interesting to see the kind of bilateral and regional collaborations Sagarmala leads to in future.

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