A few days ago, Government of India further eased the cabotage law. This time, the Shipping Ministry has allowed foreign flagged vessels to transport fertiliser between Indian ports without licence. Fertiliser is the seventh item that has been freed from restriction imposed by the cabotage law which specifies that only Indian flagged vessels are allowed to carry cargo between Indian ports and foreign vessels can ply, after obtaining a licence, only if an Indian vessel is unavailable.

Earlier this year, the government relaxed norms for foreign vessels to transport, among other things, agriculture, horticulture, fisheries and animal husbandry cargo.

Late in August, two barges carrying 1,233 tonnes of fly ash were flagged off on river Ganga (National Waterway-1) from National Thermal Power Corporation’s Kahalgaon power plant. The barges will travel 2,085 km across multiple waterways — longest haul ever through an inland waterway — to reach Pandu Inland Port in Assam.

The two developments reflect the government’s commitment to reducing the high logistics cost in the country, which is at 14 per cent of GDP; India’s logistics cost is way above the 8-10 per cent levels in evolved economies. High logistics costs blunt India’s competitive advantage, especially when it comes to the ‘Make in India’ initiative.

The Golden Quadrilateral and other road projects have helped move goods faster within the country. So has the recently implemented Goods and Services Tax. But transporting goods through road still costs ₹1.5 per tonne kilometre.

The 3,228 km dedicated railway freight corridor that the government is building, when commissioned, will reduce both the time and cost of transportation. Currently, it costs ₹1 per tonne kilometre to transport goods by rail.

But the government’s obsession with transporting cargo over water is not without reasons. It costs as low as 30 paise per tonne kilometre. Apart from being the cheapest mode of transportation, it is also less polluting.

If the country effectively leverages its 7,500 km coastline and 14,500 km of potentially navigable waterways, a lot of pressure can be taken off the road and rail infrastructure, which are costly to build and expand. The 3,228 km dedicated rail corridor under construction, for instance, costs over ₹81,000 crore. Despite these obvious advantages little over 5 per cent of the goods are moved over water in India with road (over 60 per cent) and rail (over 30 per cent) shouldering most of the load. That is not the case in China where 47 per cent of goods are moved over water or Japan (44 per cent) or even Bangladesh (35 per cent).

The relaxation of the cabotage law will, as an immediate step, increase the supply of ships for coastal shipping. This should push industries and others to move goods such as cement, fertilisers, agriculture and horticultural produce through sea at lower cost. This shift in usage pattern is critical as the government implements its ambitious ₹8.57-lakh crore Sagarmala project, which promises to enhance port connectivity and modernise existing ports apart from other objectives.

The government’s efforts to use the inland waterways for moving cargo is also welcome. Efforts like the movement of fly ash on NW-1 will establish that it is, indeed, possible to use our waterways to transport cargo.

The challenges ahead

But significant challenges remain. Today, even on river Ganga (NW-1) only a few vessels can ply that too during the day and in monsoon months when water levels are high. The river bed needs to be dredged, inland ports need to be built apart from putting in place a proper river information system and digital GPS for night navigation.

It is not surprising that the government, in January, approved ₹5,369 crore for capacity augmentation on NW-1 alone. This will be completed in 2023. The government has identified 106 more waterways for navigation.

Similarly, infrastructure needs to be built along the coast. Making ships available is a good short-term measure. But once coastal shipping picks up, need for better berthing facilities, ensuring quick evacuation of goods from the port and leveraging technology to offer single document for multi-modal transportation will become apparent. Also, what the government has refrained from tackling so far is the high port charges in India. A ship calling on an Indian port pays port charges that are double that of Singapore’s.

The government is right in focussing on water-based transportation to sharply reduce logistics cost. Just that it should go about it in a measured manner. If demand does not keep pace with its reform zeal, it could create excess capacity forcing Indian shipping companies to under-invest.

Such a scenario will undermine government efforts to build a vibrant coastal shipping sector.

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