A lesson From China – Coastal Economy

Of the many setbacks that the mining industry faces, one was highlighted in a report published in Business Standard last week- steep logistics cost! According to the report, logistics costs is the stone tied to the legs of our mining companies, the load that slows them down in a fiercely competitive global race. India’s logistics cost as a percentage of GDP is 14 %  against the US and Japan’s 10% and EU’s 11%. For the costs to come down, the constraints in infrastructure have to be dealt with. In a country like India where grave issues like poverty, poor health care, and illiteracy vie for a larger share of the public expenditure pie, developing infrastructure for trade doesn’t happen easily.  Developing roadways and railways to match the needs of our industries are challenges so humongous that it is understandable if the pace of progress is slow. But what is baffling is the under-utilisation of a boon bestowed upon us by nature – our 7500 km coastline!

In the past year, waterways as a mode of transport accounted only for 6 % of the fright while 87% of India’s cargo was transported using high-cost roads and rails. According to the ministry of shipping, coastal shipping costs one-sixth of rail costs. Concentrating on improving port infrastructure with the focus on clear policies, and effective finance mechanisms can help India save billions of dollars in lower logistics cost which would, in turn, spur competitiveness and economic growth. According to a research report in Morgan Stanley, coastal shipping has the potential to totally revolutionise bulk transportation and result in a saving of 2.5 Billion $ by 2025 for India. The savings could percolate to the ends of the value chain to end-user industries who will most likely use them to expand operations and create more jobs. Realising this potential the Government had started the Sagarmala initiative to give impetus to port-led development. But evidently more needs to be done. The turn around times at Indian ports is twice that of Colombo or Singapore which holds the mirror to our insufficient infrastructure.

In a NITI blog titled Jobs, Growth and Coastal Economic Zones, NITI Aayog chairman, Mr. Arvind Panagriya urges India to take cues from China’s successful Coastal economic zone development model. He says small firms in manufacturing have very low labour productivity much like agriculture whereas large firms can employ more, pay more and thereby boost the economy. Large firms by their very presence can push ancillary small and medium enterprises to strive for excellence. 

Here is China’s growth story in his words :

The single most important key to China’s success in manufacturing has beenits decision to go for the large world markets in preference to its much smaller domestic market. In 1980 when China’s GDP was less than $500 billion at today’sprices and exchange rate, it began by establishing four very large Special Economic Zones (SEZs) along its southeast coast. These zones were located directly across from Taiwan and Hong Kong, which then faced the prospect of being priced out of the world market due to their high wages. Shenzhen, one of these four SEZs, was then at best semi-urban with a population of 300,000. Attracted by low wages and business- and foreign- investment-friendly environment, investors from Hong Kong immediately flocked to this SEZ. Coastal location allowed these firms to operate in the world markets unhindered by the poor infrastructure in the hinterland, especially in the early years. They could import inputs from and export outputs to foreign destinations. Employment opportunities for Chinese workers multiplied.Today, Shenzhen has a population of 11 million and it boasts of gross city product of $265 billion. 

Contrast this story with our ports. Let’s pick one closer home – Tuticorin which is conveniently located at the southern tip near the East-west trade route. It holds the same export potential as Shenzhen. The same semi-urban skilled population.  But the parallel ends there. Unlike people of Shenzhen, we are shunning large export-oriented firms that bring us growth. Ignorant of the benefits that the whole economy reaps from their operations, we scorn at their big profits. With the shut down of Sterlite and ban of exports of beach minerals, the cargo volume at the Tuticorin port has plummeted instead of growing. When growth doesn’t happen, how can we improve infrastructure? And without adequate infrastructure how can our companies be competitive? The current industrial sky spells gloom and it looks like our Mining companies have to continue running with the stone weight for a long time to come.

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