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Singh Targets China’s 7 Days With $60 Billion: Freight Markets

Indian Prime Minister Manmohan Singh. Photographer: Pankaj Nangia/Bloomberg
Indian Prime Minister Manmohan Singh. Photographer: Pankaj Nangia/Bloomberg

Aug. 17 (Bloomberg) -- India aims to pour $60 billion into ports by 2020 under a drive to spur the fastest growth in more than two decades and ease bottlenecks stoking the highest inflation among major economies.

The target is part of Prime Minister Manmohan Singh’s planned $1 trillion revamp of choked transport and power networks to achieve faster expansion. The push must transcend a history of insufficient investment, which has left the world’s most populous democracy trailing a Chinese economy now more than three times larger.

“If there isn’t enough capacity, you lose time and it adds to cost,” said Leif Eskesen, a Singapore-based economist at HSBC Holdings Plc who worked at the International Monetary Fund. “India is poised for continued strong growth over the medium and long term, but further reforms are a must to bring sustained double-digit growth within reach.”

India’s clogged harbors put Thermax Ltd., a power-equipment maker, at a disadvantage to Chinese rivals for obtaining raw materials and shipping goods.

“It takes 45 days transportation for incoming cargo for me and similar time when I send it to my customers overseas,” said M.S. Unnikrishnan, managing director of the company, which is based in the western city of Pune. “The Chinese can possibly do it in seven days.”

India’s prime minister is relying partly on investment by companies such as DP World Ltd. and AP Moller-Maersk A/S to lift capability at ports to 3.1 billion tons by 2020 from 963 million tons in 2010. Achieving this objective would enable greater imports of items from electronics to oil, helping damp inflation by better feeding consumer demand. Deeper berths for bigger container ships also are pivotal to India’s attempt at galvanizing exports of items from clothes to cars.

Rival China

Singh is striving to rival China, the fastest-growing major economy, by achieving 10 percent annual gains in gross domestic product, compared with 8.5 percent in the fiscal year that ended March 31. India has grown at a 10 percent annual pace only once since 1953, in 1988-1989.

China’s gross domestic product, which was about the same size in 1980 as India’s $182 billion GDP, has swelled to almost $6 trillion after boosting investment, compared with India’s $1.7 trillion. About 76 percent of India’s 1.2 billion people live on less than $2 a day, according to the World Bank.

The South Asian nation’s attempt to address port-investment shortfalls stands to benefit builder Larsen and Toubro Ltd., according to Taurus Asset Management Co. Increasing cargo traffic makes Mundra Port & Special Economic Zone Ltd. a buy, said K.R. Choksey Shares & Securities Pvt. Ltd.

Under Construction

Port projects worth 103 billion rupees ($2.3 billion) are under construction or implementation, Ministry of Shipping figures show. They involve the government and private enterprise, and include a 35-billion-rupee liquefied natural-gas terminal at Cochin in the south and the 14.6-billion-rupee development of berths and a terminal in western Mumbai city.

Mumbai-based Larsen and Toubro, India’s biggest builder of power networks and airports, has climbed more than 9 percent during the last two years. Mundra, a cargo terminal on the west coast, is up 26 percent in the same period.

A global stocks rout this month hurt both shares, and the Bombay Stock Exchange Sensitive Index is down 18 percent so far this year. Indian equities are now attractively valued and Mundra is worth buying, said Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities, which has $125 million in assets.

‘Substantial Performance’

Stock prices will recover, corporate-earnings growth will improve and “then you will see substantial performance by the infrastructure sector,” said Sadanand Shetty, a Mumbai-based fund manager at Taurus Asset Management, which has about $665 million in assets. At least five of the funds Taurus manages invested in Larsen and Toubro as of the end of July.

Investor concern that Europe’s debt crisis and a U.S. slowdown will derail global growth sparked the stocks slide. Even as such risks increase, capacity constraints in the Indian economy are fueling price pressures, forcing the Reserve Bank of India to fight inflation and protect purchasing power.

Prices climbed more than 9 percent in July from a year earlier for the eighth straight month. The RBI raised interest rates in 11 steps to 8 percent in July from 4.75 percent at the start of 2010, with food and oil also stoking costs.

Singh’s effort to take advantage of India’s ports potential is the latest chapter in a history of maritime commerce dating from as early as the third millennium BC, when boats sailed from the northwestern Indus Valley to Mesopotamia. The spice trade with India later helped feed the Portuguese empire, before leading to colonization by the British.

Trade Deficit

The nation has 13 major ports overseen by the central government and 187 smaller harbors, together accounting for 90 percent of Indian exports by volume, according to the shipping ministry. India imports more than it exports and had a trade deficit of almost $105 billion in the last fiscal year.

Some terminals are managed by foreign businesses, including APM Terminals, a unit of Maersk, Denmark’s biggest company. APM operates Gujarat Pipavav Port Ltd. and a terminal at the Jawaharlal Nehru Port in Mumbai. Dubai-based DP World, the world’s fourth-largest port operator, has terminals at five locations from Mundra in the northwest to Cochin in the south.

The push to add wharves and deepen drafts must overcome a legacy of inadequate investment in a nation that fell 10 places in the infrastructure ranking to 86th among countries in the World Economic Forum’s 2010-2011 Global Competitiveness Report. Spending on ports may amount to 406 billion rupees for the five-year period ending March 2012, less than half the original aim, according to the Planning Commission.

‘Problem Area’

“I am not sure about the ability to implement the projects,” said Laveesh Bhandari, a director of Indicus Analytics, an economics research firm in New Delhi. “I have no doubt that they will plan well, but execution and implementation will remain the problem area.”

Cargo handling is more than twice as costly as in Singapore and takes over four days on average compared with six hours in Hong Kong, research by India’s Department of Commerce shows.

Sufficient rail and road links to ports also are lacking, said Prakash Tulsiani, managing director of Gujarat Pipavav Port. The government should let terminals set tariffs rather than regulate prices, he said. Officials set fees for major harbors.

Even as obstacles remain, port investment is on course to jump 76 percent in the five years through March 2012 from 230 billion rupees in the previous five-year period, planning commission data show. India’s Maritime Agenda has set a spending goal of 2.77 trillion rupees by 2020.

Relax Labor Laws

Further overhauling regulations that deter investment and relaxing labor laws that make it difficult to hire and fire workers can add 2.5 percentage points of growth to Asia’s third-largest economy, Credit Suisse Group AG estimates.

Privately managed ports show the benefits of liberalization, said Vinayak Chatterjee, chairman of Gurgaon, India-based Feedback Ventures Ltd., which advises on construction projects.

“They are far more aggressive and dynamic and customer friendly,” he said. “Once allowed to implement and operationalize, they deliver. The bottlenecks seem to be at the policy level.”

To contact the reporter on this story: Unni Krishnan in New Delhi at

To contact the editor responsible for this story: Stephanie Phang at

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