The fleet size of the Indian shipping sector has aggregated to 20.54 million deadweight tonnage (dwt) with a fleet of 1,520 ships (as on December 31, 2022). India is ranked 18th with respect to flag of registration by dwt, and 19th by carrying capacity in dwt and accounts for about 1.3 per cent of the total global dwt. This is a miniscule number considering that India’s global trade is inching towards $2 trillion with a robust desi shipping fleet missing in the country.
Maritime transport accounts for 95 per cent of India’s trade (by volume) with its neighbours. But, the number of ships under the Indian flag of registration is quite low with the Indian cargo being carried by more foreign flag vessels. Further, two companies — Shipping Corporation of India Ltd (SCI) and The Great Eastern Shipping Company Ltd — together contribute around 45 per cent of the total industry tonnage and can be considered as representative of the Indian shipping industry.
According to a CARE Ratings report, India’s shipping fleet is primarily dominated by crude and product tankers at 57 per cent; dry bulk carriers at 16 per cent and container at 5 per cent.
Jagannarayan Padmanabhan, Senior Director and Global Head for Transport Logistics and Mobility, Crisil, says multiple factors have plagued the Indian shipping industry, with many of it being structural in nature.
India contributes to less than 3 per cent of the world trade and hence, the bargaining power, in terms of origin or destination of cargo, is limited. This makes it very difficult to build an industry of scale. “We are not able to have a robust shipbuilding industry due low labour productivity, high cost of capital, higher costs due to lack of scale and availability of parts,” Padmanabhan added.
Varun Gogia, Assistant Vice President, ICRA Ratings, says both SCI and GE have a long and established track record in the industry. SCI in particular has built its asset base with support from the Government of India.
But, Indian companies have not invested in owning a fleet. The variability in the charter rates and unavailability of an active ship financing market has kept the growth of India’s fleet size subdued. The tax advantage offered by neighbouring markets like Singapore have attracted Indian companies to build assets under the Singapore flag. Availability of crew is also easier due to a more advantageous tax regime for Singapore flag vessels vis-a-vis Indian flag vessels, inducing Indian companies to purchase ships under Singapore flag.
More private players are not investing in ships due to an underdeveloped ship financing market and shipbuilding ecosystem; volatility in charter rates and unattractive taxation regime, he said.
According to Pushpank Kaushik, CEO of Jassper Shipping, it is important for regulators, stakeholders and industry players to strike a balance between encouraging healthy competition and fostering industry growth while avoiding the potential drawbacks of excessive dominance. The government must also encourage Indian companies to invest and become a maritime-dominant country. They can take inspiration from countries like Vietnam and Greece on how to provide financial support to MSMEs and let them grow into global maritime players, he said.
Brimming with potential
India’s shipping industry has incredible potential for growth. With the right investments, it can truly flourish. By addressing the current challenges in the sector, India can pave the way for a brighter future. While there may be some hurdles to overcome, such as limited investment and ageing vessels, these challenges also present opportunities for innovation and positive change, notes Kaushik.
To encourage private players to buy more ships and ply on the Indian shores for Indian cargo, the government should provide attractive tax incentives to encourage private players to invest in the shipbuilding sector. This would help boost manufacturing and employment, and ultimately reduce the huge demand-supply gap in the Indian shipping industry.
In addition, the government should facilitate access to financing for private players. It should also provide guarantee and easy, long-term credit facilities for buying new ships and plying them on the Indian shores, he said.
On its part, the Centre has said that it is committed to increasing the share of Indian shipping in international trade. It has revised the tender process for granting the ‘Right of First Refusal’ in chartering vessels with the aim of increasing tonnage under Indian flag and shipbuilding in India. It is also providing various subsidies and shipbuilding financial assistance to the private sector, which are yet to be fully leveraged, said sources.
Thanks to Air India and IndiGo, a strong ‘desi’ fleet of aircraft will dominate the sky in future. On similar lines, a strong ‘desi’ fleet is required to dominate the international waters.