Financial Daily from THE HINDU group of publications
Monday, Feb 17, 2003
Tonnage tax a crucial issue Equally important is continuity in government policies
N. K. Kurup
MR Shatrughan Sinha would have never heard of tonnage tax before he entered the Transport Bhavan last month. Being a celebrity, the only tax, probably he would have ever worried about was income-tax. But as Shipping Minister, he now has no choice but to learn about it as tonnage tax is the hot subject being discussed by shipowners and the bureaucrats in the shipping ministry.
At his maiden meeting with shipowners in Mumbai last week, Mr Sinha promised to remind the Finance Minister, Mr Jaswant Singh, about the tax before the Union Budget. In any case, shipowners know well that even if the Finance Minister is in favour of tonnage tax, it may take some time to introduce it as legislative measures are yet to be in place.
But they liked the new Minister's receptive attitude and his interest in the subject. "He has no pretensions; he has the humility to accept that he is new to shipping; he understands the way the government works," said a shipowner.
Apparently, Mr Sinha has already cautioned them that in government it takes time to for any decision. "It took me six months (in the previous Health Ministry) to make a change in the OPD timing of government hospitals. It was a great task to convince officers in the Ministry that people do fall sick any time of the day," Mr Sinha told the shipowners.
Bureaucrats in the Shipping Ministry cannot be any different from those in the Health Ministry. And given the state of the shipping industry, Mr Sinha has a challenging task before him.
The size of Indian shipping tonnage has shrunk to the 1993 level. As on January 2003, the strength of the Indian fleet stands at 6.21 million grt, much below even the Seventh Plan target of 7 million grt. Of which ships engaged in international trade account for only 5.40 million grt.
What is more worrisome is the age profile of Indian fleet. At present, over 63 per cent of the Indian fleet is over 15 years old (34 per cent over 20 years and 29 per cent between 15 and 20 years).
Of the fleet engaged in overseas trade, over 32 per cent is over 20 years old. At least one-third of the Indian fleet has to be replaced in the next five years. This involves massive investment in foreign investment.
The share of domestic fleet in national cargo has been dwindling in the past few years. Nearly 70 per cent of the Indian cargo is currently carried by foreign flagships.
India is a major importer of crude and, this year, imports are expected to be over 70 million tonnes. Freight rates for crude tankers have been zooming in the past few months, mainly due to war fears.
Though war fears are now eased, the rates are unlikely to ease, at least in the next few months. This means India will have a large outflow of foreign exchange on account of freight on imported crude oil.
Though importance of shipping is being talked about, it is not amply reflected in the government policies. Even well-developed countries preaching free trade support their domestic maritime sector. This is because 90 per cent of international cargo moves by sea and nations having control of merchant fleet have an edge over others in dictating terms of trade.
A strong shipping fleet is considered significant even from the security point of view. It would not be an appropriate policy to subsidise any business, leave alone shipping. But the government can definitely help create a healthy environment for the domestic industry to compete in the intentional market.
Yes, tonnage tax is crucial to the industry. But that alone is not going to solve all the problems. There should be consistency and continuity in government policies. Mr Shatrughan Sinha appears earnest and committed. So was Mr Ved Prakash Goyal. He was very active and took interest in learning the issues affecting the sector. But he was moved out of shipping.
Nobody knows why he was removed and why Mr Sinha was brought in. Such frequent reshuffling of portfolios and transfer of ministers and bureaucrats is the misfortune of Indian industry.
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