On 13 September, Vizhinjam International Seaport Ltd (VISL) created history when it berthed MSC Claude Girardet—with a staggering capacity of 24,116 TEU (twenty-foot equivalent unit), it is the largest cargo ship to have docked in India. To be sure, VISL was soft launched with the arrival of San Fernando, the 300-meter-long container vessel with a capacity of 8,000-9,000 TEU in July.

VISL is India’s first deep water International Container Transhipment terminal. And, certainly not the last. The union government recently approved the construction of India’s largest port at an estimated cost of Rs76,220 crore in Vadhavan, Maharashtra. Once completed, this deep-draft port will have a cumulative cargo handling capacity of 298 MTPA, including around 23.2 million TEUs of container handling capacity.

According to Sanjeev Sanyal, member of the Prime Minister’s Economic Advisory Council, India is “dramatically” expanding the number of ports in the country.

Addressing the Sagarmanthan hosted in Delhi in November this year, Sanyal, referred to the upcoming Vadhavan port located in the proximity of the east-west freight corridor, and said, “The idea is to be able to build this port, which will be the largest we have ever attempted to build. Though it is to be built by 2030, I am assured that it will be ready by 2028. It will reduce the cost of shipping for northern India, northern and western India by 25%.”

With this India signaled a makeover of the country’s capability and ambition to partake of the lucrative commercial maritime corridor circumventing India. At present a staggering 95% of India’s merchandise trade is carried by foreign ships. As a result, there is an annual outgo of about $90 billion towards freight and other charges. In the last five years, India has brought forward plans to rewire its maritime sector.

Not only is the country investing in ports with huge capacity to handle freight—committing $82 billion to buildout port infrastructure by 2035–but it has also initiated ship building in the country. The plan is to increase the share of India in global ship building to 10% by 2034; at present this proportion is less than 1%, in contrast to share of China and South Korea at 47% and 29%, respectively.

More importantly, the country is reworking the ecosystem for maritime business, especially in decentralizing the regulation of ports to make it easier for the private sector to invest and lead this maritime makeover. In doing so, India is also reducing dependence on foreign fleets, thereby acquiring greater geopolitical autonomy.

Policy Reforms

According to analysts, the tipping point in the induction of the private sector in building ports was the union government’s decision to improve the financial viability of these projects. These are:

• Revision of the Model Concession Agreement (MCA), 2021;
• Formulation of Tariff Guidelines, 2021;
• Establishment of the Society for Affordable Resolution of Disputes-Ports.

Not only did these reforms offer certainty to investors, but it also incorporated a new governance principle: Landlord Model. In other words, it capped the power of the landlord, the Port Trust, in dealing with the operators who run the terminals. And the rights of these private operators are protected by the MCA. This policy change is very similar to the benchmark moment in 1991, when the government decided to terminate the ‘Licence Raj’ and allow the private sector the freedom to choose where and how they will invest.

Similarly, tariffs at major ports are now set by concessionaires based on prevailing demand-supply conditions, with the additional condition that the revenue is shared with the Port Authority. Previously, tariffs were decided by the now defunct Tariff Authority for Major Ports (TAMP), which disincentivised modernization, especially expensive investments in mechanization.

In a recent paper published by Research and Information System, Subhomoy Bhattacharjee and Kartik Kishore, argued, “The investment required for port mechanisation (at present only a third of the berths in India are mechanised) to happen is upwards of Rs 2.5 trillion. In fact, it is only now that with the removal of the cobwebs of arbitrary price fixation that the scale of investments is being drawn up.”

The lack of capacity and the near absence of deep water ports is leading to India’s dependency on foreign ports to channelise imports—not only is this a geostrategic risk, this rerouting raises the cost of imports. At present, a third of the container traffic at major ports is transhipped from international hub ports. For example, 40-45% of the Indian containerised cargo is handled by the port in Colombo, Sri Lanka.

The inauguration of the deep-water port, VISL on the southern tip of India, will go a long way in reclaiming this business. Located, 10 nautical miles away from the east-west international shipping lane and close to two of the world’s busiest shipping lanes–the Straits of Hormuz and Malacca—it can, as it demonstrated in September, accommodate ultra-large container ships and mega crude carriers.

Similarly, the launch of the Vadhavan port will facilitate faster and heavier freight movement connecting Europe, West Asia and India. It will stand to gain as and when the proposed India-Middle-East-Europe-Corridor is rolled out.

In an opinon piece published in the Economic Times, former cabinet secretary V M Chandrasekhar argued that VISL is a gamechanger: “As a fully automated, all-weather port, it’s designed to operate year-round, ensuring reliability in global supply chains. Reliance on foreign ports like Singapore, Colombo and Jebel Ali will largely cease as Vizhinjam reaches its full capacity.”

Clearly, the churn in the business of maritime in India has begun.