India’s shipping industry is at a crossroads. The country is aiming to make big strides in the maritime sector and investing billions of dollars to modernise and set up new ports as well as related infrastructure.
But its domestic shipping industry is finding it tough to compete with foreign shipping lines in carrying India specific export-import trade due to cost disadvantages and an uneven playing field. Indian shipowners have asked the Centre to consider having a national fleet.
This is in line with other major maritime powers supporting their own shipping firms, for retaining control and securing the transportation of critical cargo.
A national fleet policy mandates that ships engaged in trade must be flagged, or registered, in India irrespective of whether they are owned by Indian or foreign shipping lines. Though India has allowed 100% FDI in shipping since 2001, foreign lines are yet to flag in India.
Insisting that India must have a national fleet, Anil Devli, CEO, Indian National Shipowner’s Association (INSA), asked, “If foreign shipping lines control over 90% of India’s cargo, why should they not be asked to flag some of their vessels in India and pay taxes like us.”
Favourable regimes
Foreign lines register their vessels in favourable tax regimes such as Panama and at their local jurisdictions.
Japan, China, the U.S., Malaysia, Indonesia and European nations practice absolute cabotage to protect their shipping lines. The EU practices cabotage even in ship recycling. China ensures that 600 million tonnes of coastal cargo is carried by Chinese vessels only. Cabotage refers to a legal restriction that limits the transportation of goods and people within the country by that country’s own transport services.
Japan ensures that all its imports are carried on by vessels owned, built and financed by entities registered in the country. The Donald Trump administration in the U.S. has proposed at least 30% of gas exports should be executed by their national carriers.
‘No policy support’
But India lacks a comprehensive shipping policy to help build a vibrant industry. It has aimed to raise the ease of doing business to help reduce logistics costs. In the process, foreign shipping lines are benefiting at the cost of domestic ones, industry sources said.
“It has now become a huge burden on us and disadvantage to flag our vessels in India because we have to bear more costs than foreign-registered vessels which just come, pick up and drop cargo and in the process now control over 90% of the trade,” said Ranjit Singh, executive director & CEO, Essar Shipping Ltd.
“There has to be some differentiation as we are flagged here. Otherwise Indian companies will move to other jurisdictions,” Mr. Singh said.
A tug of war has broken out between Indian and foreign lines after the latter started lobbying for removal of a facility called Right of First Refusal (RoFR) granted by India to local shipping firms to pick up cargo after matching the lowest tariff offered by a foreign carrier.
Challenging the view that India did not practice cabotage at all, foreign lines said RoFR was cabotage in a different form and claimed the right was protectionist.
If Indian shipping companies do not accept the rate quoted by the foreign line then the foreign-flagged ship is allowed permission to carry the same cargo for which it had bid. “This mechanism does not add any cost to the consumer but gives opportunity to an Indian company to carry at the rate quoted by a foreign line,” Mr. Devli said.
“RoFR supports a legitimate tax-paying industry. There will be no discernible gain by removing RoFR but there will be a definite impact on the local industry with its removal.”
He said India freely permits transshipment to foreign shipping lines as per policy guidelines issued in March 2016 and does not restrict market access to foreign shipping lines. “So why should India give away ROFR, a strategic advantage in controlling transportation of all of Indian cargo?”
According to INSA, which represents 42 Indian shipping firms, RoFR is given to Indian ships because they pay tonnage tax in India and corporate taxes in the form of Minimum Alternate Tax and Goods and Services Tax.
Job generation
“They employ only Indian seafarers, train 1.5 cadets for every 10 persons employed in a vessel, bear training costs of ₹16 lakh per cadet a year, employ offshore staff and use insurance, legal and ship repair facilities leading to increased employment and creation of ancillary industries,” Mr. Devli said.
Indian vessels often fail to match the pricing quotes of foreign shipping lines because they pay higher taxes. “They also employ more people than foreign carriers; they pay more bunker rate because the base rate is high; their cost of employees is higher because they pay taxes on wages to Indian seafarers; they pay higher rate of tonnage tax and pay IGST at 5% of the value of the ship. All these are not applicable to foreign-flagged vessels.”
Indian shipping companies said in the absence of RoFR, there would be no incentives to flag their vessels in India. “This will lead to loss of onshore and offshore jobs. Indian importers will be vulnerable to freight subjugation and exports will be non competitive,” Mr. Singh said.
According to analysts, multiple issues plague the industry, impacting both Indian exports and imports.
“Indian shipping needs structural changes that will boost our contribution in both trade and shipping lines,” Dr. Arun Singh, chief economist, Dun & Bradstreet India, said. “Currently, over 90% share is contributed by foreign flags.
“A dedicated structural programme has to be initiated [towards] setting up of an enabling ecosystem to increase the contribution of Indian flags... to a sizeable amount.” Recently, he had submitted a Port Study report to the government and the NITI Aayog.
“The demand for continuance of RoFR to all government cargo is justified. However, we need to create an ecosystem which balances the trade and shipping line ecosystem,” he said. However, Rohit Chaturvedi, MD, The Transport Hub, said cargo should go where cost was low and this would be in the best interests of trade.
Currently, foreign shipping lines carry India freight worth $52 billion a year. If 10% of that comes to Indian shipping lines, the domestic industry would have business of $5.2 billion which is enough to revive the sector, industry sources said.
“The government continues to handhold the road and rail sectors with special rates and policies by promoting and directing cargo. Shipping needs similar policies and support along with a consistent policy environment,” INSA said.
The plan expenditure in shipping in the last 25 years has been 1.78% of railways, 2.3% of road and 16% of port allocation.
