Excessive Centralisation of Ports will Impact The Economy of Indian States

The control and regulation of the non-major ports — also referred to as minor ports — is the latest in the power sharing tussle between the States and the Union.

The Indian Ports Bill, 2021 which attempts to centralise all the non-major ports that are under the control of the states/Union Territories, by breaching their authority to plan, develop, regulate and control the ports, has created a stir among the maritime states. The Bill is viewed as an infringement of state rights and an attempt to stifle the states’ authority in the ports that primarily drive the economy.

In June, just ahead of a Maritime State Development Council (MSDC) meeting to discuss the Bill with the states, Tamil Nadu Chief Minister MK Stalin wrote to Chief Ministers of nine states — Gujarat, Maharashtra, Goa, Karnataka, Kerala, Andhra Pradesh, Odisha, West Bengal and Puducherry — urging them to express their objection over the new draft Indian Ports Bill 2021 and take joint action to prevent any move to dilute the powers already vested with the states.

Union Government

He said, “As per the existing Indian Ports Act, 1908, the powers to plan, develop, regulate and control the minor ports vests with the state governments concerned. However, the new draft Indian Ports Bill, 2021 proposes to change this and transfer many of these powers to MSDC, which has so far been only an advisory body. Further to this, many powers currently exercised by state governments would be taken over by the Union government.”

All maritime state/UT governments except BJP ruled Karnataka have objected to the provisions of the draft bill that would allow the MSDC which has so far been an advisory body to function as a regulatory body for non-major ports. “We object to this proposed appropriation of state authority by the Union government. The proposed provision, instead of making India a strong maritime nation, will stunt the growth of port-led development in the nation through its centralisation of authority,” wrote Odisha’s Commerce and Transport Minister Padmanabha Behera in a letter to the then Minister of State (Independent Charge) Mansukh Mandaviya, in June.

Both the Indian Ports Bill and the Major Ports Authority Act, 2021 have faced strong resistance from coastal states. The Major Port Authorities Bill, 2020 which became an Act after it was passed by the Parliament in February, and focuses on the major ports, was opposed by the BJP ruled Goa state government too.

Centralising Through The Council

There are 12 major ports under the Union government and over 200 non-major ports governed by maritime state governments. A total of 76 and 148 ports are on the east and west coast, respectively.

The MSDC is a central advisory body which was founded in 1997 to make recommendations and to work along with the major and non-major ports. But the new provisions of the draft Bill will allow the MSDC to function as a regulatory body rather than an advisory body. From the constitution to the composition of the council, the structure of MSDC is against the federal structure, according to experts.

As per the new draft Bill, the MSDC council will not have any ministers from the coastal states as its representatives. While the shipping secretary and seven joint secretaries of the Union government will be part of the council, the maritime states will have no bureaucratic representation either, making it a nil representation from the states.

“Like the GST council, the MSDC should ideally have ministers of both the Union and the maritime states and cannot constitute officials. Let’s say there is an issue and it leads to a division of votes. Then, the vote of an official would be counted on par with that of the ministers, which is a bad precedent,” says K Ashok Vardhan Shetty, a former IAS officer and an ex-Vice-Chancellor of the Indian Maritime University.

Non-Major Ports

The non-major ports in India come under the concurrent list which means the Union government has overriding powers and has the liberty to upgrade a non-major port.

“If the Union government finds a potential in any non-major port, they can very well take over, develop and upgrade it into a major port. Tuticorin, Paradeep and New Mangalore Port were all non-major ports at some point and were upgraded to major ports. But enforcing a centralised national plan on states will stifle the economy and curtail competition,” says Shetty.

The provisions of the Bill that criminalise mere administrative breaches has also been contested. Of the many penalties and punishments mentioned in the draft Indian Ports Bill, 2021 a clause states: “If any authority, port or any other person fails to obey any directions of the Council, a fine which may extend to two lakh rupees, and twenty thousand rupees per day for the continuing offence; and a fine which may extend to two lakh rupees, or imprisonment up to six months, or both, on repeat offence.”

According to industry experts and other stakeholders, such regulatory provisions will completely prevent international port developers from entering the Indian port industry. As port administration across countries moves towards a decentralised model, an approach of extreme centralisation in India will not merely delay the port capacity addition and slow down the decision-making process, it will majorly stifle the overall economy.

Indian Ports Bill

Indian ports handle over 95% of the country’s total trade volume and around 70% of total trade value.

Chozha Naachiar Rajasekar, President of the Tamil Chamber of Commerce, says that the Bill would snatch away “the power and negate all the development made by the states through their ports, over the years.”

“This is an interference in the state autonomy, state revenue and the other modalities of the ports. Already states have lost their right over taxation after the introduction of GST (Goods and Services Tax), and this (Indian Ports Bill) would take away other sources of income too,” he says.

A 2013 National Transport Development Policy Committee headed by Rakesh Mohan, a former advisor to the government of India, stressed that the management of ports should shift from the current centralised form to a decentralised one where the port authorities are given autonomous powers within the policy frameworks of the central and state governments. The committee had also highlighted that the maritime states do not have any stake in the development and functioning of the major ports and that needs to change.

The report said, “Given the relative success of non-major ports, it is recommended that their governance structure should be retained and the management of these ports should continue to be performed by the maritime states.”

Excessive Centralisation will Curb Economic Growth

The Indian Ports Bill, 2021 with its extreme regulatory and centralising nature would curb the level playing field in the country’s port infrastructure development, delay and slow down port capacity addition and restrict international port developers to invest in India, stakeholders say, thereby impacting the economy.

Recently, the Tamil Nadu Public Works, Highways and Minor Ports Minister EV Velu said that the provisions of the Bill will have “long term policy implications for coastal states”. He said, “Under the provisions of the Indian Ports Act, 1908, the minor ports in the country have developed well. The draft Bill totally dilutes this good system. I would like to request that the present system with regard to the powers of the state governments in matters of minor ports should not be disturbed in any manner.”

The Tamil Nadu government has also opposed “reducing the autonomous role of states in the regulation and management of the non-major ports”. The Ennore Kattupalli port, which was originally a minor port planned by the Tamil Nadu Maritime Board, is now controlled by the Adani group — one of the largest private ports operators. The proposed expansion of this port has also raised serious environmental concerns among the residents of the region.

It has to be noted that over the years, non-major ports under the states and Union Territories have been more successful in attracting private investments and generating revenue. The maritime states for long have leased out the non-major ports to private investors and the Union government adopted the approach of the states to switch over to a Public-Private Partnership (PPP) model in the mid-1990s.

Regulatory And Financial Control Compared

The Rakesh Mohan committee report claimed that the non-major ports’ share of the total cargo traffic handled by all ports increased due to lower levels of regulatory and financial control compared with major ports. The non-major ports, it said, have been more successful in attracting higher private investment, because they are perceived to be more business-oriented, customer-friendly, cheaper, and in general, more efficient.

“If private players are interested in developing minor ports, let them directly approach the state governments, as they have been doing all these years. This will speed up the process, instead of routing it through the Union government,” says Naachiar.

He added that similar to how manufacturing industries are classified as micro, medium, small scale and heavy industries for multiple reasons including focused development and government investment, the same could be applicable to the development and regulation of ports.

As per an India Infrastructure Research report, the Indian port sector continues to face a plethora of challenges. The key ones include lack of adequate evacuation facilities at ports leading to increased cost of logistics to operators, limited share of coastal shipping and inland water transport, high port charges, lack of uniformity in technology adoption across ports, draft restrictions and delays in completing land acquisition and securing requisite approvals, among others.

Over the years various recommendations have been made to the Indian government to develop mega ports along the east and west coasts. As opposed to large economies like China, US, Germany, etc, that have a few mega ports each, India with its 7,517-km coastline has none.

“Instead of interfering in the works of the states, the Union government should focus on addressing the pending issues, on developing the major ports, and follow up on the implementation of various schemes,” says Naachiar.

He adds, “To prevent road accidents one has to regulate drivers, ensure safety measures, focus on infrastructure, monitoring, etc. But what would happen if you block the actual road in the name of preventing accidents. This Bill is as problematic as that.”

(Economy India)