The government will grant billionaire Gautam Adani 16 billion rupees ($240 million) so-called "viability gap" funding to help the new port at Vizhinjam, on India's southern tip, win business from established hubs elsewhere in Asia.
Once Vizhinjam, in the state of Kerala, is operational the federal government will start building the port of Enayam in neighbouring Tamil Nadu, said a senior shipping ministry official. Enayam alone will save more than $200 million in costs for Indian companies every year, he said.
India's 7,500-km (4,700-mile) coastline juts into one of the world's main shipping routes and Prime Minister Narendra Modi wants to capitalise on that proximity by developing ports that can shift freight on to huge vessels capable of carrying up to 18,000 20-foot containers, according to a ET report.
By bringing onshore cargo handling now done at entre pots in Sri Lanka, Dubai and Singapore, Modi's government expects cargo traffic at its ports to jump by two-thirds by 2021 as India ramps up exports of goods including cars and other machinery.
The lack of an Indian domestic transshipment port forces inbound and outbound containers to take a detour to one of those regional hubs before heading to their final destination.
New Delhi expects the new ports to save Indian companies hundreds of millions of dollars in transport costs, as well as ease concerns over the growing strategic clout in South Asia of rival China, which has invested hundreds of millions of dollars in Sri Lankan ports at Colombo and Hambantota.
Adani wants the Vizhinjam port, which an arm of his Adani Group is building at a cost of around $1 billion, to be operational in 2018. The port lies hard by the Gulf-to-Malacca shipping lane that carries almost a third of world sea freight.
"The port can attract a large share of the container transshipment traffic destined for, or originating from, India which is now being diverted primarily through Colombo, Singapore and Dubai," said an Adani Group executive who declined to be named.
But officials acknowledge that it would be difficult for the new ports to win international clients unless they offered discounts.
"A major part of transshipment is happening at nearby ports. We can win some of that business," said ASSuresh Babu, who heads a government agency set up by Kerala to facilitate the construction of Vizhinjam.
"There's a viability issue in the first few years. Already the Chinese are operating there. so unless you give some discount you can't attract these ships. So that's why the government of India has approved the viability gap funding."