High tax regime hurting Indian shipping sector

Even at 82, K.M. Sheth spends more than eight hours in the office, six days a week. The sprightly gentleman has been in the shipping business for over six decades, including the last 21 years at the helm of Great Eastern Shipping Company, the country’s biggest private sector shipping firm.

By any yardstick — age, experience or achievement — he is the undisputed captain of the subcontinent’s shipping, and his track record sets him nautical miles ahead of the others. Great Eastern is probably the only Indian shipping company that has steered through the rough seas that have swamped the sector since 2008 and kept its mast high and continues to remain in the black.

Sheth is proud of his company’s growth over the years, but is aghast at the state of Indian shipping.

“I’m very disheartened to see the way the Government is handling the shipping sector. The administration is indifferent to the industry. We are unable to understand what the Government wants and what its policies are aimed at,” he told Business Line .

Weak Government policies Sheth, who is greatly respected in the industry for his knowledge of shipping, feels the Government policies and tax structure have made Indian shipping uncompetitive globally. “Shipping is a global business. Unless the Government follows the global rules of the game, Indian shipping will not become globally competitive,” he said.

What are these rules of the game?

In most countries shipping enjoys a relatively low tax regime. This helps the industry grow. But in India this is not the case. While foreign ships carrying Indian cargo pay no tax or low rate of tax, Indian ships carrying the country’s own cargo are subjected to a variety of taxes, he points out.

The two taxes hurting shipping the most are the service tax (12 per cent) and tax on seafarers’ income. “We are losing experienced seafarers to foreign flag vessels because there they get tax-free salaries”.

In 2004 the Government introduced tonnage tax for shipping firms, replacing corporate tax. That helped the Indian fleet grow by 15 per cent over the next couple of years. But the benefit was offset by the subsequent introduction of other taxes. “Today we pay a dozen taxes and how can we become globally competitive in a high-cost high-tax environment?” he asks.

Countries such as Singapore, Greece or Norway, which do not have major national cargo, could develop large shipping fleet only because of tax incentives, he said.

There is no such support for shipping in this country. “So, if India wants to develop its shipping and make it globally competitive, it has to create an environment conducive for it. And that is possible only if the Government follows the global rules of the game,” he asserts.

What irks Sheth most is the Centre’s apathy towards the shrinking share of national bottoms in the country’s cargo and the increasing outgo of foreign exchange on account of freight bill. “At one time, Indian ships were carrying nearly 35 per cent of the national cargo. Today our share is less than ten per cent,” he said.

Last year, the outgo on account of freight bill was estimated at $50 billion. This is not a small amount when the country is trying to reduce its current account deficit, he pointed out. “Today, our tonnage is a drop in the ocean. It is a shame that the merchant fleet of a major maritime country, like India, with a growing ocean trade, accounts for only 1.5 per cent of the world tonnage,” said Sheth.

According to Sheth, those in charge of the shipping portfolio in the Government fail to understand the industry’s problems. A major issue is the lack of co-ordination between the Shipping and the Finance Ministry.

But the Government itself is in the shipping business. It runs Shipping Corporation of India (SCI), the largest company in the country. How can one say the Government is not interested in shipping?

Poor outlook “If you ask me the Government has no business to be in business. Look at SCI, which is three times bigger than Great Eastern, but financially it is not in a comfortable situation. It has been operating without a fulltime chairman for more than year. This will not happen in the private sector,” he said

Globally, shipping industry has been facing rough weather since 2008, following the economic slowdown. The bearish freight market has been further hammered by the excess supply of shipping tonnage. However, there has been a marginal improvement in the past couple of months.

Will the trend continue? What is the outlook?

The recent increase in rates could probably be a winter spike. “During winter, there is increased movement of oil and dry cargo that nudges up demand for tonnage.”

Sheth is quite bearish on the prospect of Indian shipping. Local lines have been passing through difficult times. Higher operating costs and lower revenues make the going tough. A couple of companies have already wound up operations. “The near term outlook for Indian companies appears to be not so good.”

For a man whose old-school conservatism and astute financial management has won him grudging appreciation from his peers in India and around the world, Sheth remains a shrewd businessman with an uncanny sense of pulse for the undercurrents and the opportunities.

The inborn talent was nursed and nurtured from an early stage, when his parents pulled him out of college and sent him to the Mitsubishi Shipyard in Kobe, Japan, where the family had ordered a new ship. It was a move forced by the family’s business interests.

Sheth was quick to prove his mettle when he returned after two-and-half months with a new jewel for the family business — the Indian agency for a large Japanese shipping company. It is this streak in him to spot and grab opportunities that has highlighted his long, successful career and sets him apart from his peers.

No wonder, while other Indian lines were struggling to survive, Great Eastern has fared better.

Secret sauce? Is there any other secret behind GE Shipping’s success?

“There is no secret. The management is totally involved round-the-clock in running the business. If my opinion is crucial for something, I could be woken up even at midnight. We are active on the shop-floor. We are also totally transparent in all our dealings. We do make mistakes, but we learn from that.”

It was under Sheth’s command that Great Eastern started offshore supply service. In the 1980s ONGC was hiring only foreign OSVs. “It was a difficult task to convince the then ONGC Chairman S.P. Wahi that Indian ship owners can acquire and operate offshore supply vessels.”

But he couldn’t succeed in his effort to get into liner shipping. His application for a membership to the Karmahom Conference (association of liner shipping lines) was opposed by its Indian members in the late 1980s.

Today he has no regret. On the other hand, he has had the last laugh as one of the Indian liner operators became bankrupt and sunk a decade ago. The other two are struggling to keep their vessels afloat.

> kurup.nk@thehindu.co.in

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