Sops, funds hold the key for infra development

Source: The Hindu Business Line, Jan 16, 2017

Chennai/New Delhi: The efficiency of infrastructure can be measured when all stakeholders — end users, logistics service providers, contractors, developers, financiers and bankers — gain.

On roads and ports front, the users chiefly are logistics service providers like truckers, truck operators, shipping lines, aggregators, road and port operators.

Dispute resolution and the time taken to resolve disputes, which affects liquidity of projects, have been key problems for roads and ports developers.

For the roads sector, K Venkatesh, Chief Executive and MD, L&T International Infrastructure Development Projects, calls for “capacity building on the government side with high quality engineers who are able to process procurement contracts fast. So, they can be people who conceive, implement, monitor and certify.” They can settle issues on the ground. Also, restructuring of projects that have failed, and monitoring their progress will save the public sector banks, he points out.

Throughput of existing roads can be improved by incremental, technological interventions. “There is a need to do a scientific study of combining two-three toll plazas so that there are toll plazas at longer stretches, and the toll revenue can be accordingly shared between multiple concessionaires,” Venkatesh said. Vehicle manufacturers can be mandated to put transponders so that as vehicles pass through toll plazas, the ETC transponders at the plazas automatically deduct the funds.

One glaring data point is the number of deaths on Indian roads — with India accounting for largest number of deaths globally. Curtailing the deaths require better engineered roads, and steps to ensure better implementation of road safety rules for all.

In the ports sector, increasing the tonnage of shipping and shipbuilding have been stressed, with market players pointing out that this could be a strategic sector. Indian shipping tonnage, which was 1.92 lakh gross tonnage (GT) on the eve of Independence, now stands at nearly 10.51 million GT with 1,250 ships. Though the increase is substantial the worrying factor is that tonnage growth stagnated in the last five years from 10.1 million tonnes in 2010 to 10.51 million now. The share of Indian ships in carrying India’s exim trade declined to around 10 per cent from a high of around 41 per cent in 1987-88, due to over-dependence on foreign vessels.

In the last few years, the government had focused much on development of ports. It is time to give a fillip to Indian tonnage to carry international cargo where share of Indian ships is quite dismal. The industry is hoping for subsidy and major sops in the Budget to encourage Indian ships owners acquire more ships. One major demand from the industry is ensure preferential access to cargo for Indian flag vessels and nurture “Flag in India,” which is part of “Make in India.”

“Government could play a facilitating role by providing cargo reservation for Indian tonnage, even while keeping the charter rates market determined. There have also been moves to set up dedicated financing agencies for shipping and port sectors so that the sector is not deprived of funds for tonnage accretion. Our international trade is highly dependent on foreign vessels only,” said Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, Icra Ltd, who tracks the shipping sector.

Foreign flag vessels get cheaper finance at almost 10 basis points cheaper than Indian flag. “We need a specialised fund in India that will aid shipbuilding and shipping with long-term funding and at internationally comparable costs,” said Anil Devli, CEO, Indian National Shipowners’ Association.

The Shipping Ministry in its 2015-16 annual report says capacity of Indian shipping has not kept pace with the growth in cargo leading to higher dependence on foreign flag ships for carriage of overseas trade. This drains foreign exchange for pay freight charges, which could otherwise be used for other high priority imports or for building up indigenous infrastructure.

The worrying factor is that less than 100 ships were added in the last five years, and the industry continues to be dependent on foreign vessels for carrying international cargo. Further, about 40 per cent of the fleet is above 20 years of age.

The shipping industry suffers because of the ‘feeder syndrome,’ said B Govindarajan, Chief Operating Officer, Tirwin Management Services (P) Ltd, a Chennai-based management consultancy firm. “We don’t have one container vessel that bears Indian flag with worth mentioning capacity …that meet international benchmarks,” he said.

There is tremendous potential for increasing earnings/savings of Indian shipping companies by increasing the share of national shipping. The National Council of Applied Economic Research says that shipping as a single industry is one of the largest contributors to foreign exchange pool of India and, it is expected, on the basis of the NCAER’s analysis of the trade and freight data, that a 5 per cent increase in the national shipping tonnage saves or earns an additional 17 per cent on the freight bill.

Devli said while Indian shipping competes with foreign shipping companies internationally, “on our own coast we are costlier than foreign flag vessels. No Indian company participates in offtake of cargo here. This can be done through duty free bunkers, as is available to foreign flag vessels and no tax on seafarer wages as is for foreign flag vessels. These two components alone increase the cost of Indian shipping by about 25 per cent as compared to the foreigner,” he said.

“It may be in India’s strategic interest to have adequate tonnage, especially for transporting commodities such as POL, fertilisers and coal where there is high import dependence,” said Ravichandran of Icra.Several major ports have embarked on a path of easing procedures that would eventually lower the transaction time.

Companies in logistics space also called for improved implementation of telecom service networks. For instance, at a time when government is pushing online payments, call for better telecom network has come from Chinmaya Agarwal, CTO and Co-founder, Jugnoo. Arun Bhati, of Orahi, called for lowering the tax regime as wallet users tend to upload less than amount in their wallets.

 

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