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May 17, 2016

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Can India make it in maritime?

First the bad news: India is not China and doesn’t look like being so anytime soon. The reasons why so many shipping people would like it to be is obvious: growth in population and GDP, industrial development and modernisation are the pillars of shipping demand.

Even leaving aside the economic issues with this analysis, there are structural reasons why a comparison is wrong. India has spent decades talking about modernisation while China, through its political structure, has simply been able to make it happen.

Messy democracy might beat one-party rule if you are a libertarian, but it has meant India’s infrastructure – transport and ports, judicial and financial – has mouldered even as successive leaders have talked of reform. But as a recent IHS seminar heard, there is a chance for change, embodied in Prime Minister Narendra Modi, who has brought to a national level the kind of dynamism that made him a successful state leader.

Modi has a job and a half on his hands. His first task it is generally acknowledged, is to win a second term and enable some of his ideas to come to fruition but he realises he cannot do it alone. To support his ideas, he has implored India’s diaspora to return and seek new opportunities at home.

There are practical reasons for this too. India’s business environment has not just encouraged its own shipowners to move abroad, but actively discouraged foreign companies from investing. Without Foreign Direct Investment, there is doubt that the funds can be raised for the required infrastructure, even if the political will can be harnessed.

To Phillip D’Costa, Chairman of the Indian Maritime Association, the Modi administration is less inhibited by the weight of India’s expectations than more by not being in control of both houses of Congress. Even so, things are changing.

“There have been some delays but no stalemate. There has been progress, such as bringing the transport and shipping ministries together with a mandate to improve rail, road, waterway and coastal logistic links.”

Nonetheless, he accepts that growth in shipping has been restricted for many years by the restrictive tax regime. “The government needs to be prepared to reduce the burden on industry in order to make it competitive globally. For that it needs to look at taxes. The Modi government has said to the diaspora ‘come home to work in India’ but it won’t happen unless see change on the ground and a focus on the sector.”

That some Indian corporates prefer to invest in the UK for marginal returns rather than in their homeland is an illustration of the challenge. Encouraging investment in shipping and ports in particular to build capacity will mean throwing the doors open to foreign investors alongside domestic operators, but their wariness to commit can be linked directly to the country’s labyrinthine legal system.

Partner at Norton Rose Fulbright Philip Roche pointed out that India’s courts are home to three million outstanding cases, a situation he described as ‘truly awful’. Simple tasks such as vessel mortgage enforcement have little chance of success and the advice is never to litigate in India – even should you win, the costs will outweigh the award.

“A case that might take 18 months in the UK could take 10 years in India and it is equally hard to enforce a foreign arbitration award; commerce can’t deal with that sort of delay.” Corruption is a factor but not necessarily in the courts themselves he said; the government is not beyond changing rules to suit themselves, even retrospectively.

“This needs to be sorted before Foreign Direct Investment comes and it won’t come if the rules are arrayed against them and there is no redress in the courts.”

Changes have been made to the Arbitration process in an attempt to speed it up with a new 12 month time limit. To Roche this is welcome but also impractical since most proceedings will take longer – and if they fail will revert to the courts.

To D’Costa “arbitration in India has failed and can only be considered an ad hoc process”. The new system has sent shockwaves through the judiciary to the extent that when an arbitration was concluded in record time, the response was an immediate, but failed appeal. “It’s a shock but it gives great hope of a change in perspective and behaviour,” he said.

Like China of course, India is rich in human resources. Its seafarers are in strong demand but when they come ashore they often leave the industry. The country would like to use their experience to build a true maritime cluster but do the estimated 650m people under 30 view shipping as a career?

“Take a random sample and technology is the top choice, maybe finance or property but I’m not sure shipping would be in the top five,” said D’Costa. “It’s only when you have a real focus that it drives the imagination and creates interest.”

The government has a target to create 10m jobs in the maritime sector which it expects to fill with those young people. But while India has plenty of graduates it will need to engage the private sector for the vocationally-trained maritime professionals it needs, he said.

D’Costa added that the government is encouraging the development of coastal hubs to give the opportunity to mariners to come ashore, apply their skills and help develop the home grown maritime industry. One of the banner projects is the Kandla ‘Smart Port City’ whose blueprint is a bottom-up approach to application of new technology.

“That’s not to say there is uniform development around the coastline but there is a desire to develop the most efficient way to connect transport and create supply chains linking ancillary industries.”

So positive things are happening, most recently the state-backed Indian Maritime Summit which saw over 140 initiatives signed and strong foreign corporate attendance. The buzz-phrase is ‘removing the red tape and rolling out the red carpet’ but in reality there is a decade’s work and maybe more ahead before India can truly be said to achieving its maritime potential.

What is also clear is that the comparison with China is unfair as well as inaccurate. While it shares infrastructure challenges that represent an opportunity for growth, there are enough difficulties to overcome to make a central planner weep. But perhaps democracy can provide a more sustainable, long term solution?

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