Indian Ports Bill 2021: Back to central planning and inspector raj?

India has 12 Major Ports and nearly 200 Non-Major Ports (NMPs), and they handle about 95% of its foreign trade by tonnage. Major Ports figure in the Union List and NMPs in the Concurrent List of the Seventh Schedule to the Constitution. So, Major Ports come under the jurisdiction of the central government and NMPs under the respective state governments, but the Centre has overriding legislative and executive powers.

Two key central legislations governed the port sector: (1) the Indian Ports Act, 1908, which is common to all ports, and (2) the Major Port Trusts Act, 1963. Recently, the Major Port Trusts Act, 1963, was replaced with the Major Port Authorities Act, 2021. The Indian Ports Bill, 2021, proposes to do the same with the Indian Ports Act, 1908.

In comparison, in China, the central government has decentralised the control of ports. Chinese ports are now managed at the municipal level. In the US, most ports are owned and managed by counties and municipalities, but port operations are largely in the hands of private enterprise. In Canada, the federal government owns the port lands and infrastructure but leaves administration to local authorities. In Germany, Denmark and Belgium, ports are owned and managed at the municipal and regional levels.

The port sector in India needs less centralisation, not more. The maritime states and port cities must not only have a substantial stake in Major Ports but should be allowed to manage them. The Centre should limit itself to the ‘higher’ functions of border control, competition policy, port security, environment protection and hinterland connectivity.

NMPs have done better

Between 1993-94 and 2020-21, the cargo traffic of NMPs increased from 14 million tonnes (MT) to 575 MT while that of Major Ports increased from 179 MT to 673 MT. During this period, NMPs’ share of the cargo traffic went up from 8% to 46%. They are perceived as “more business-oriented, customer-friendly, cheaper and, in general, more efficient” (World Bank, 2011).

How did the maritime states do this? They set about developing NMPs almost entirely through private investments, without too much red tape and regulation. Gujarat started the trend back in the 1980s, by developing captive/commercial ports and jetties through public-private partnerships (PPP). Gujarat’s notable achievements are India’s first private port at Pipavav (with APM Terminals Rotterdam); biggest captive port at Sikka (with Reliance Industries); biggest commercial port at Mundra (with Adani), besides India’s first two LNG Terminals at Dahej and Hazira.

In contrast, the Major Ports operated as “Service Ports”, performing the various port functions with their own staff and equipment. The lack of commercial orientation, low labour productivity, sluggishness in adopting innovations, and excessive supervision by the Union Ministry of Shipping had negative consequences. From 1996 onwards, the ministry decided to shift to the “Landlord Ports” model, in which the Port Trust continues to own the land and basic port infrastructure while port operations are contracted out, and the creation of new port facilities given in concession to private enterprise on PPP basis. But the transition was painfully slow.

So, India’s port sector needs less regulation, not more. The way forward is to provide a level playing field by freeing Major Ports of their administrative handicaps, not to impose the same on NMPs.

What makes the Indian Ports Bill 2021 controversial are the provisions of Chapters II and III relating to the Maritime State Development Council (MSDC). MSDC was created by an executive order in 1997, with the Union Minister of Shipping as chairperson and the ministers in charge of ports of the maritime states/Union Territories as members. It served as an apex advisory body for the coordinated development of Major Ports and NMPs. MSDC has met only 17 times in the past 24 years.

The Bill proposes to make MSDC a permanent body with its own office, staff, accounts and audit and gives it wide-ranging powers and functions (Section 10). MSDC is empowered to formulate a National Plan, to be notified in the official gazette, for development of Major and Non-Major Ports, for both existing and new ports, and revise the plan from time to time. It can monitor the development of NMPs to ensure their integrated development with Major Ports and the National Plan. If any port contravenes the National Plan, then MSDC can order an appropriate enquiry. The central government has the power to make a port non-operational if it is not in consonance with the National Plan. The Bill is pioneering a dangerous new jurisprudence wherein mere administrative lapses are criminalised. It prescribes draconian penalties, including imprisonment (Section 83) for non-compliance with MSDC’s directions by Port Authorities, port officials and other persons.

This is a replay of the socialist-era follies of central planning and inspector raj. History has shown that central planning never works. Nobel Laureate Friedrich A. Hayek called it “the fatal conceit”. An empowered MSDC is less about the efficient allocation of economic resources and more about control by the Centre.

The Rakesh Mohan Committee’s India Transport Report (2013) had projected a total port capacity requirement of 4,000 MT by 2031-32. As of 2020-21, port capacity was 2,490 MT (Major Ports 1500 MT, NMPs 990 MT). The new, overly regulatory regime is likely to choke future development of NMPs, leading to serious shortfall in port capacity by 2031-32, with adverse consequences for the Indian economy. This is as worrisome as the Bill’s anti-federal features. Moreover, the Bill is likely to stifle novel initiatives by the maritime states like what Gujarat did on its own long before the Centre.

It is therefore recommended that Chapters II and III of the Bill relating to MSDC, and the draconian penalties in Section 83 for non-compliance with MSDC’s directions, should be scrapped entirely. MSDC should remain an apex advisory body as before. International experience and India’s own past history are proof that “less is more” when it comes to regulation of the port sector. In its present form, the Indian Ports Bill, 2021, is poised to kill the goose that laid the golden eggs.

(The writer is a former IAS officer and a former Vice Chancellor of the Indian Maritime University, Chennai)