India approves major transshipment hub, aims to slash logistics costs for containerized cargo movement
India’s Sagar Mala infrastructure program aims to reduce logistics costs as a percentage of GDP to around 10% from 18% in a bid to transform India’s economy into one led by exports and fueled by private domestic and foreign investment.
Sagar Mala is centered on the modernization of the country’s ports and development of infrastructure that can move goods to and from ports quickly, efficiently and cost effectively to increase the competitiveness of the country’s export sector by cutting logistics costs. Port hinterlands are to be industrialized and lead an economic transformation of the country’s coastal regions, which already account for more than 60% of national GDP.
Because of poor port infrastructure and productivity, India’s transshipment cargo is handled at South Asia hubs like Colombo or Singapore, costing Indian ports around USD230 million in revenue annually, according to the government. This also ends up costing Indian shippers more to get their goods to global markets, hurting the competitiveness of the country’s exports.
Given the number of projects involved there is considerable variance in estimates for the total cost of the Sagar Mala initiative. The program envisages spending of somewhere between $10 billion and $11 billion on port upgrades over the coming five years, adding up to 1,500 million tons per year in capacity and the development of several new greenfield ports. India on Tuesday approved a greenfield project at Colachel with the aim of establishing a major transshipment hub. A further $3 billion or more is to be spent on dozens of last-mile port-rail links.
Funding for Sagar Mala projects is to come largely from the private sector, both foreign and domestic, on a public-private partnership basis. At a major investment conference in Mumbai in April 140 PPP contracts worth around $13 billion for port and connecting infrastructure development were signed.
Political risks are probably the most daunting obstacle the program faces as they can make it difficult to attract the right investors and prevent the successful delivery of projects.