Indian businesses are worried about an ongoing global shortage of containers amid the Russia-Ukraine war.
Centre trying to lower import dependence on China
Besides, the Centre has also been trying to check its dependence on imports from China, which accounts for 90-95% of the global market for shipping-grade containers.
“A PLI scheme is under consideration. According to the requirement, the incentive amount will be considered to woo private players, and make India self-sufficient in manufacturing containers,” one of the officials said.
A high-level committee has been formed to promote local container manufacturing and bring it under a PLI and cluster-based manufacturing system. The scheme may be announced in the budget for FY25. The government plans to introduce PLIs in several new sectors that have a high level of import dependence, this official said.
Queries emailed to the ministries of ports, shipping and waterways, commerce & industry, finance and the department for promotion of industry and internal trade (DPIIT) did not elicit an answer till press time.
The need for a steady supply of containers is also key to the Centre’s efforts to boost domestic cargo transportation through inland waterways and coastal shipping. This “structural weakness” that has been hurting goods exports since the outbreak the covid-19 pandemic is expected to be addressed through the scheme.
The sanctions imposed on Russia by the European Union and US following its invasion of Ukraine have led to an acute shortage of containers, which in turn has increased freight rates and impacted global trade. The pandemic, too, disrupted manufacturing and supply of containers globally.
“There are apprehensions about a glut in container demand. To some extent, it may sound convincing, but what about the scarcity of containers when demand for them rises unexpectedly?” the second official said.
“India has emerged as a promising market for fulfilling global goods demands. Our exports are increasing and as we strive to become the world’s third-largest economy, it is crucial that we reduce our dependence on others for containers to meet global demands,” this official said.
A proposal for the container PLI was also mooted by the ministry of ports, shipping and waterways early last year but the ministry later put it on hold citing a glut-like situation for containers in the latter part of 2023. This proposal was for a ₹11,000-crore container PLI scheme to be spread over a nine-year period, beginning 2024-25.
The plan was to manufacture 20- and 40-feet containers of various configurations. The aim was to enable India to potentially compete with China and garner at least 10% of the demand from global liners.
“A proposal for it will be sent to the finance ministry soon,” the official said.
The Economic Survey for FY22 highlighted how container shortage is impacting trade. It said covid-19-related restrictions on international trade in 2020 also affected container movement.
The prolonged partial closure of ports across the world created a glut of containers in some ports and an acute shortage in others. At the same time, because of widespread manufacturing delays, not enough containers were made, said the Economic Survey released by the government.
“With the global economy starting to recover since early 2021, containers, which were stuck at various storage points are not being sent back to service fast enough, resulting in a skewed demand-supply situation for shipping containers, leading to very high shipping rates. During April-September 2021, India spent $14.8 billion on transport services imports, or 65% higher than last year.” said the Survey.
The Centre has taken a few steps to ease the supply shortage, such as increasing the import of containers, and releasing abandoned, detained or seized containers.
To increase domestic container manufacturing, the government has identified Bhavnagar in Gujarat as a hub, and a few companies have already started operations. According to the Centre, India requires 350,000 containers every year, and the demand will only increase, with the government having set an ambitious export target of $2 trillion by 2030.
“Production linked incentive programme for container manufacturing has been under evaluation and discussion over the past couple of years. The key drivers are substantial dependence on China for supply of containers and the demand-supply mismatch, considering India’s growing requirements for containers in the backdrop of expanding domestic and international trade,” said Saurabh Kanchan, partner, Deloitte India.
“In India, there is limited private sector investment and capacity in the area container manufacturing. This is attributed to high input costs and therefore a high cost of production for Indian manufacturers. PLI programme can potentially address the cost disadvantages and help create additional capacity,” the Deloitte India partner said.
However, over the longer term, the PLI scheme design should address creation of an eco-system of cost-competitive raw material suppliers, supported by demand side measures such as local sourcing norms for containers, commensurate with India’s participation in international trade, he said.
S Ramakrishna, former chairman of the Federation of Freight Forwarders Association of India (FFFAI) emphasised the critical need for the government to address the cost and supply of raw materials used in container manufacturing.
“The government should also address the issue of the cost of raw materials used for making containers, especially considering that the raw material for containers includes Corten steel sheets, which is a critical concern,” said Ramakrishna.
“The government should also not limit this support to the PLI scheme only. Container manufacturing should be treated as an export-oriented unit and it should be made GST-free, considering they are predominantly used for export-import purposes,” he said.
“It is important to note that more than 90% of containers come from China, irrespective of the shipping companies. Therefore, India needs to sustain its container manufacturing capabilities. Beyond containers, we also need to develop our shipping lines.”
As per commerce ministry data, despite persistent global challenges, overall exports (goods and services together) hit the highest level in 2023-24. Overall exports reached $778.2 billion in 2023-24 as compared to $776.4 billion in 2022-23, registering a marginal growth of 0.23%.
In 2023-24, services exports increased from $325.3 billion (FY23) to $341.1 billion, while merchandise exports marginally declined from $451.1 billion to $437.1 billion, the commerce ministry data showed.
