Implementing the subsidy scheme for Indian ship owners, approved by the Cabinet on Wednesday to boost India tonnage, could falter as foreign fleet owners are expected to shy away from participating in global tenders issued by state-run firms and ministries.

Along with the right of first refusal (RoFR) available to local fleet owners in such global tenders, it will become unattractive for foreign fleet owners to participate, knowing fully well that the dice is loaded against them and may not want to waste time.

In the absence of foreign ship owners from the tenders, it will become difficult to compare the rates to calculate the quantum of subsidy as the scheme is benchmarked to the lowest rate quoted by the overseas owner. It is thus a key factor in implementing the scheme.

According to the scheme cleared by the Cabinet, for a ship that is flagged in India after 1 February 2021 and is less than ten years at the time of flagging in India, the subsidy support would be extended @15% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.

For a ship that is flagged in India after 1 February 2021 and which is between 10 to 20 years old at the time of flagging in India, the subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.

The rate at which the above subsidy support is extended would be reduced by 1% every year, till it falls to 10% and 5%, respectively, for the two categories of ships.

For existing Indian flagged ship which is already flagged and less than 10 years old on 1 February 2021, the subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.

For existing Indian flagged ship which is already flagged and between 10 to 20 years old on 1 February 2021, the subsidy support would be extended @5% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.

The subsidy budgeted by the government for five years is ₹1,624 crore.

The subsidy support is not available in the case where an Indian flagged vessel is an L1 bidder.

Foreign shipowners will have to register their ships in India (100% FDI is allowed in shipping since 1997) if they are keen on securing PSU cargo contracts.

Though applicable for an initial 5-year period, the scheme will also lose its charm when state-run firms such as BPCL are privatised as it deals with global tenders issued by central PSUs and ministries only.

The local shipping industry says that the time has come for foreign ship owners “to invest in the Indian flag since the competitive disadvantage (of the Indian flag) is considerably diminished”.

This is easier said than done as Indian ships are by law required to hire only Indian nationals as crew, which is considered expensive by a section of the global shipping industry.

To allay concerns of foreign fleet owners on higher manning scales on Indian ships, the Cabinet said that “steps are also being taken to rationalize the manning requirements on the ships by aligning them with international standards”.

The Cabinet has considered crude, LPG, coal and fertiliser cargo only to disburse subsidy. Of the ₹1,624 crore subsidy, spread over five years, ₹931.46 crore has been earmarked for crude while ₹520.76 has been set aside for LPG shipments.

For coal, the subsidy is ₹155.61 crore while for fertilisers, it is ₹16.23 crore.

The lower subsidy for coal and fertilisers is understandable.

With the government’s focus on domestic thermal coal production and increasing emphasis on climate change (through promotion of renewable energy), thermal coal imports have begun to decline. Likewise, the government’s focus on domestic fertiliser production especially urea, which used to be a major import commodity in the fertiliser basket in the past, has hit imports.

The subsidy support proposed to be provided to Indian shipping companies would enable more government imports to be carried on Indian flag ships, the share of which has declined significantly over the past more than three decades, according to the Cabinet.

This would require local fleet owners to buy more younger ships to service the contracts.

The subsidy scheme, according to the Cabinet, would also make it more attractive to flag ships in India as the current relatively higher operating costs would be offset to a large extent through the subsidy support.

“This would lead to an increase in flagging and would link access to Indian cargo to investment in Indian ships,” the Cabinet said.

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