Containers resilient as Indian port growth slows

Containers resilient as Indian port growth slows

A host of major financial institutions have lowered their GDP growth forecasts for India.

Container volume growth at India’s major ports, up 6 percent in each of the first two quarters of the fiscal year, is proving resilient as overall port volume growth slowed in the second fiscal quarter to 1.5 percent from 5 percent in the first quarter, according to a JOC.com port data analysis.

India’s GDP growth plummeted to a three-year low of 5.7 percent in the first fiscal quarter, and slower GDP growth is likely in the cards for the second quarter given the combined effects of demonetization in November, and the Goods and Services Tax (GST) rolled out in July. The new indirect tax system, touted as New Delhi's biggest-ever economic reform, has led to major compliance hassles for small- and medium-sized enterprises. IHS Markit has revised downward its forecast for Indian GDP growth in fiscal 2017 from 7.1 percent to 6.8 percent.

In the first fiscal half, from April to September, major ports grew 3.2 percent year over year to 326 million tonnes, government statistics show.

The domestic credit rating agency Investment Information and Credit Rating Agency (ICRA) in an analysis said a sharp decline in coal imports was major factor in the slower rate of growth, which threatened ports heavily dependent on coal shipments if they did not diversify.

Those concerns aside, ICRA believes ongoing investment initiatives under the Sagar Mala port-led development program, coupled with a remedy to long-running terminal tariff issues and connectivity improvements, will aid long-term growth of the maritime sector. However, it warned that a container capacity glut, which is more evident on the east coast, could threaten the viability of terminal operators in that segment.

“Given the high leveraging of some private port sector entities and the issues faced in achieving optimal returns from the business, ICRA believes that consolidation trends could gather further momentum going forward,” said K. Ravichandran, senior vice president and group head at ICRA.

Other dominant global and domestic financial institutions have echoed similar views on India’s economy. The Asian Development Bank last week lowered India’s growth forecast for fiscal year 2017 to 2018 to 7 percent from a previous estimate of 7.4 percent, while the Reserve Bank of India, India’s central banking regulator, revised that figure from 7.3 percent to 6.7 percent.

The World Bank in a report on Wednesday stated India’s growth could slow from 8.6 percent in 2015 to 7 percent in 2017, citing those disruptions and lackluster private investments, and the International Monetary Fund (IMF) this week also lowered its GDP forecast for India to 6.7 percent from 7.2 percent.

“Growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the mid-year introduction of the country-wide [GST],” IMF stated.

However, Indian government leaders maintained that the first-quarter numbers were just a blip and that growth would rebound as impacts tied to new tax compliance taper off. Officials at the Ministry of Shipping are also bullish that port volumes will accelerate on the back of ongoing economic reforms combined with an expected global demand recovery.