The Union Cabinet on Tuesday gave its 'in-principle' approval to set up a major port at Enayam near Colachel in Tamil Nadu.
The cabinet meeting was chaired by Prime Minister Narendra Modi.
As per the decision, a special purpose vehicle (SPV) will be formed for developing the new port.
The initial equity contribution will be from three major port trusts in Tamil Nadu -- V.O. Chidambaram Port Trust, Chennai Port Trust and Kamarajar Port Ltd.
The SPV will develop the port infrastructure, including dredging and reclamation, construction of breakwater and ensuring connectivity links etc.
According to the central government, there are only a few ports in India that have sufficient draft and can match global cargo handling efficiencies.
Currently, all of India's trans-shipment traffic gets handled in Colombo, Singapore and other international ports.
The Indian port industry loses up to Rs 1,500 crore in revenue each year as a result.
Establishing this major port at Enayam will not only act as a major gateway container port for Indian cargo that is presently trans-shipped outside the country, but also become a trans-shipment hub for the global East-West trade route, the government said.
Enayam will also reduce the logistics cost for exporters and importers in South India who currently depend on trans-shipment in Colombo or other ports, thus incurring additional port handling charges.
In an interaction with IANS earlier, Minister of State for Road Transport, Highways and Shipping Pon Radhakrishnan said the proposed port will provide direct employment to 10,000 people and change the economic face of the region.