Cabotage relaxation should not hurt national interest

The controversy on relaxing the cabotage restriction, that is, allowing foreign flag vessels to carry cargo along India's coast, though not new, has been somewhat on a low key so far. Recently, however, it has gained importance, with the circulation of a report that the Union Government has virtually made up its mind on cabotage relaxation, to benefit the Vallarpadam International Container Transhipment Terminal (ICTT) at Kochi port.

Built (at a cost of more than Rs 3,000 crore) and operated by DP World, the Dubai-based international container terminal operator, Vallarpadam ICTT, it is reported, has not been doing too well due to want of cargo, thus proving earlier calculations wrong. Reports say that in the first six months, the throughput was less than 140,000 Twenty-Foot Equivalent Units (TEUs), substantially lower than estimated.

AVAILABILITY OF VESSELS

The authorities of Kochi port and DP World attribute it to inadequate coastal shipping facility. As they point out, the boxes transhipped by mainline vessels at ICTT don't get cleared promptly to other destination ports on the coast, as coastal vessels aren't easily available. For example, CMA CGM, France's number one container operator, reportedly withdrew from Vallarpadam and returned to Colombo, because containers delivered by it at Vallarpadam took more than 36 days to be transhipped to the destination port. There are several such instances.

But then, it is also conceded, such delay is inescapable, given the country's coastal container shipping capacity. There are 16 container ships carrying the Indian flag, operating on the coast, and 13 of them (totalling 12,156 TEUs), out of Vallarpadam. This is clearly inadequate for Vallarpadam to achieve the targeted 7.75 lakh TEUs in the first year.

No wonder pressure is mounting on the Union Government to relax the cabotage restriction, in the hope that such a measure will boost the throughput, as foreign flag vessels calling at Vallarpadam will also be able to call at other Indian ports. Few boxes will be lying uncleared at Vallarpadam, as a result.

The argument being proffered is this: For example, the Bill of Lading of the consignment booked at Hamburg for Kandla will show only the two ports. It is immaterial if the consignment is transported straight from Hamburg to Kandla or via Colombo or Kochi or Dubai. It is the prerogative of the shipping line.

REVIEW OF CABOTAGE

The Parliamentary Standing Committee of Transport, Tourism and Culture in its 170{+t}{+h} Report on Modernisation of Major Ports, presented to the Rajya Sabha recently, has suggested review of the cabotage restriction and taking of an appropriate decision in consultation with all the stakeholders, keeping in view the larger interest of the country's trade, as well as the Vallarpadam ICTT.

The Director General of Shipping, too, is believed to have expressed the view that while undiluted cabotage is necessary for protection of the country's non-container shipping , a “nuanced policy” is required for transhipment container shipping and, if necessary, the foreign flag vessels may have to be roped in. In other words, relaxation, if at all, should be limited to container shipping only.

So far, so good. But the arguments of the country's national ship-owners against the proposed relaxation are no less important. First, as it has been brought to notice, there has been no discussion at public forums on the merits and demerits of the proposed cabotage relaxation.

Such a public debate is critical to decide if any change in the country's law should be targeted to benefit a particular group, or will actually be in national interest. Besides, the relaxation granted to a particular port will have a domino effect, that is, other ports will also clamour for similar exemptions. Will it be good for the nation?

Another question being asked is: How come a reputed international container terminal operator like DP World failed to assess properly the business potential of the terminal well in advance — that is, before signing the contract? Was it so ignorant of the ground realities? If so, why should the country be made to pay for its miscalculation?

ECONOMIC REPERCUSSIONS

It might be noted that some relaxation of cabotage was announced as early as 2002. Shipping Development Circular No. 2, 2002, allows chartering of foreign flag vessels for participation in the country's coastal trade, provided no suitable Indian vessel is available. So further relaxation is uncalled for, it is argued.

A cost-benefit analysis, as the national ship-owners point out, will show that the economy, as a whole, will stand to lose, if further relaxation is allowed. Further relaxation may prompt foreign flag carriers to participate in the country's coastal trade in a big way, benefiting the trade, at least initially, but harming the long-term national interest.

The foreign flag vessels are not built in India, nor are they compelled to employ Indian crew, they pay no taxes in India and the profits earned from Indian operation will not benefit our exchequer.

Therefore, a thorough assessment of how the proposed relaxation will benefit the country's economy is urgently needed. Also, there should be a proper study of Indian shipping in the context of 100 per cent Foreign Direct Investment (FDI), already allowed in shipping. Further relaxation should not be considered unless these exercises are complete, it is emphasised.

As it is, Indian shipping is in a disadvantageous position vis-à-vis foreign shipping in many respects. The operating cost of Indian shipping is much higher than that of foreign shipping.

Also, many foreign shipping companies are much bigger in size and scale of operation than the biggest of the Indian shipping companies. Providing further encouragement to foreign shipping, therefore, will simply sound a death-knell for our national carriers, it is feared.

The imperative of a strong national fleet, it is felt, has to be viewed in the national context, covering national security, emergency, coastal security, local job opportunities and several such issues. It is not without reason that countries like the United States, China, Russia, Brazil and even smaller countries like Greece, Malaysia and Indonesia, among others, have stricter cabotage provisions than India. Indian ship-owners, therefore, are strongly opposed to any further relaxation of cabotage, without a national debate on the subject, with the participation of all concerned.

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