Logistics

Shipping Minister Mandaviya revives debate on flagging ships in India

P Manoj Mumbai | Updated on June 21, 2020 Published on June 21, 2020

Minister of State for Shipping Mansukh Mandaviya   -  KR Deepak

Pulls out the revised ‘Make in India’ policy to promote the idea

The Shipping Ministry led by Mansukh Mandaviya is enticing global shipowners to flag their ships in India, reviving a much debated topic that has often lost steam over the lack of a level playing field and the high cost of operating a ship registered in the country, compared to those registered overseas.

The carrot dangled before global shipowners this time is the ‘Make in India’ policy that was recently revised for public procurement, among others, of all services. Under the revised policy, no global tender enquiry shall be issued, except with the approval of the competent authority, for procurement of all services with estimated value of less than Rs 200 crore.

Last week, Shipping Minister Mandaviya reviewed the Indian shipping industry’s preparedness to implement the government's cargo transportation policy. The Shipping Ministry estimates that the ‘Make in India’ policy will provide opportunity to at least double the number of Indian flag vessels employed in overseas trade in the immediate term - from the present 459 ships to at least 900 and more over a period of three years.

India allows 100 per cent foreign direct investment (FDI) under the automatic route in the shipping industry, but foreign fleet owners have so far shied away from setting up shop in India, citing an unfavourable tax regime and operating conditions.

The growth of the Indian fleet has been primarily affected by the lack of long-term bankable cargo contracts, the higher cost of capital, relatively higher tax incidence and an overall global slowdown in the shipping industry, according to the Shipping Ministry.

For instance, the difference in cost between a foreign flag container vessel and an Indian flag container vessel operating along the Indian coast was 41 per cent in favour of a foreign flag in 2015, according to the managing director at the Indian unit of a European container shipping company. “That’s not a level playing field at all,” he said.

“The government has to bring in a level-playing field. Indian flag ships need the support of the Government of India now more than ever,” he added.

A series of missteps taken by the government, including a planned tweaking of rules to avail of the right of first refusal (RoFR), available to Indian shipping companies in carrying cargo owned by state-run firms and allowing state-owned oil firms to move one-third of their annual crude imports on cost, insurance and freight (CIF) basis (wherein the shipping arrangement is the responsibility of the crude supplier) have led local fleet owners to say that the government was not interested in building a strong national fleet.

The plan to change the RoFR policy – by giving top preference to Indian-built ships in carrying cargo or providing other services such as dredging and offshore oil exploration support activities for state-run entities - has been stalled by a Delhi court on a petition filed by some of the local fleet owners.

Foreign ships carried 905.834 million tonnes (mt) or 92.9 per cent of India’s export-import (EXIM) trade of 975.542 mt shipped by sea in FY18.

India pays more than $52 billion in freight to foreign shipping companies annually, according to the Reserve Bank of India.

“I can’t think of a single maritime nation with this volume of trade – India does more than a billion tonnes of trade annually - not keen on building a strong national fleet. Countries such as China, Korea and Japan are going out on a limb to control more of their cargo through free-on-board (FOB) contracts to build a robust fleet,” said the managing director of a Mumbai-based shipping company.

In FOB contracts, the buyer is responsible for tying up the shipping arrangements.

Even a small country like Singapore, which does not have much trade, the way they try to attract shipping, shows how this industry can have multiplier effects - it creates services, helps insurance, a lot of spin-off benefits are there, he added.

Published on June 21, 2020
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