I have attended several briefings hosted by IHS Maritime’s Chief Maritime Analyst Richard Clayton. Richard is always great at stimulating lateral thinking about the big industry issues of the day and one of the most interesting of these was a recent discussion on the potential of the Indian shipping industry and whether or not ‘India is the new China’.
In today’s global political and economic landscape, amid Chinese economic slowdown, this is a question that has occupied the minds of many industry commentators in recent months. As things stand, it’s fair to say that most are sceptical that India is ready to take on that mantle.
Prime Minster Narendra Modi was elected in 2014, achieving the biggest victory by any party in India in 30 years. His victory was secured amid some big promises, with rapid, widespead economic growth at the heart of them. Integral to the success of these accelerated growth plans is the Indian shipping industry and particularly its role in Asia, considering the equally ambitious growth plans of China, as exemplified by its ‘One Belt One Road’ policy, and the consistently prominent roles of both Russia and Japan.
As an economy and a developing country, India stands at a crossroads. The ambitious plans being put into place by Modi’s government have the potential to launch India onto the global stage as a leading economic power, driven by its vast population and abundant resources. But these plans require vast sums of investment, are not without significant risk, and certainly face their fair share of challenges. So how do we judge its prospects of success? The question of where India currently sits in the global shipping industry today, and where it will be in five years time, can help act as a barometer of where its wider economy goes from here.
India’s economy has in recent years seen one of the most rapid expansions of any country in the world. Whilst this generates optimism for the country’s shipping industry, there remain a number of significant barriers for India to overcome before it can truly become a major international manufacturing and export hub. Perhaps the most crucial of these challenges is the significant amount of investment still required in key areas such as transport infrastructure, the national power supply and the development of efficient ports capable of managing such an increase in tonnage.
Modi’s ‘Make in India’ initiative was launched to great fanfare soon after his election. It’s an integral pillar of his economic growth strategy and has put the focus firmly on attracting international investment to grow manufacturing, create long-lasting jobs, and develop engineering expertise in India that will benefit the nation for generations to come. This has seen notable success so far, laying the groundwork for the single largest manufacturing initiative undertaken by a nation in recent history, through the collaboration across several key sectors such as railways, defence, insurance and medical science. However there have been setbacks and shipping is no exception.
Shipping’s part in ‘Make in India’ got off to a good start, not least in the emergence of its LNG sector. India’s largest state-owned natural gas company, GAIL India, issued a tender earlier this year for a project that would see India’s biggest shipping contract yet at US$7 billion, setting out plans for the domestic construction of three LNG carriers. However, with the Indian shipbuilding industry significantly less mature than its counterparts in Asia and with several questions emerging along the way as to what workers’ safeguards were in place, the contract suffered several setbacks before eventually being cancelled. As a result, what should have been one of ‘Make in India’s’ biggest success stories is no more.
The ‘Sager Mala’ project is another ambitious initiative that would go a long way towards driving significant economic growth. Modi proposed this development package which would see all coastal cities in India becoming interconnected through reliable road, rail, port and airport infrastructure. Although initial success has been achieved in the growth of the container market, further progress has been stalled or halted by challenges around a lack of investment and the reliability of the existing infrastructure, which doesn’t easily facilitate engineering projects on a national scale.
One bright spot has been the adoption of the Hong Kong Convention by some India’s leading shipbreaking yards, with more planned. The Hong Kong Convention aims to ensure that ships, when being recycled at the end of their operational lives, do not pose any unnecessary risk to human health and safety or to the environment. With the shipyards in the port of Alang alone recycling approximately half of all ships salvaged around the world, this is a significant step. However, much more needs to be done to cement India’s role as the ‘ship recycling hub’ of the future, with China in particular looking to offer more low cost, sustainable ship recycling.
Modi and his government are now around the halfway mark in their term in office before they face re-election in 2019. In that time, despite a series of significant challenges, there has been a step-change in the way India strives to achieve strong economic growth. Whilst perhaps there is still some way to go before these changes really start reflecting in the figures, Modi has been keen to assert that there has been substantial reforms in streamlining and simplifying governance that will allow India to dismantle trade barriers, promote skills development, establish modern manufacturing supply chains and facilitate infrastructure development.
Overall, it’s an exciting but challenging time for India. Barriers brought about by the absence of well-developed infrastructure, a proven manufacturing capability, domestic engineering expertise, as well as sound governance (where India lags behind its counterparts in China and other emerging powers in Asia) will certainly not be overcome overnight. Nevertheless, progress is certainly being made, and it’d be dismissive to conclude that the economic growth Modi is striving to achieve is an unfeasible ambition. Shipping, as it so often does, will provide the barometer.
Twitter: @BLUECOMMS
