What is the big deal about Indian flag ships: Shipping Secy

P Manoj V.Sajeev Kumar KOCHI | Updated on August 12, 2018

Gopal Krishna, Secretary, Ministry of Shipping   -  Bijoy Ghosh

Build and flag in India is the right approach, not import and flag, says Gopal Krishna

Steadfastly arguing for scrapping the restrictive practices that have pulled down the sector, Shipping Secretary Gopal Krishna says that Indian shipping cannot be the preserve of a few fleet owners. Excerpts from a conversation.

What is your assessment of the cabotage relaxation announced in late May?

I can say with some delight that while we were taking these decisions, we were also mindful of the fact that there could be disruptions on some sectors. Overall, we were sure it would be benefiting the entire logistics sector.

There was some apprehension and that still remains from specific sectors.

And, when we first got the data on how it has been evolving, we fond that there had been some very good changes. We have data for May, June and July. The relaxation order was issued end of May. And, data show that each month, substantial number of containers, both empty and laden, are getting transhipped. It’s been written and talked about that only empty containers are getting transhipped. It’s not a fact.

In June, about 3,000 laden containers got transhipped from Indian ports. In July, it was close to about 5,500 containers. Each month, we are finding that the numbers are increasing. By the end of the year, we estimate that practically 10 per cent of what was being transhipped outside the country, we will be able to pull them back to Indian ports.

Everything was designed from the perspective of the end consumer, which is the trade. The trade has been saying for a long time that the costs are high. Then, we have the huge logistics sector consisting of forwarders, whose business cycle depends upon the quantum of cargo. If you see at a national level, about four billion tonnes of cargo gets moved from one part to another, all the modes put together. Four billion tonnes is a huge quantum.

Is there some cause for worry?

There are two very disturbing aspects. There has been a reverse modal shift from railways to road. Four years back, about 37 per cent of this this was being transported by railways. Last year, it has come down to 32 per cent.

So, if we see, there is a huge opportunity. The Railways is losing this opportunity as the road sector is transforming itself in a rapid way. We started with 15 km of highways per day, we are now reaching 30 km and soon we’ll be able to touch 45 km a day. We started with four lanes, there are parts which are transforming to six lanes and there is already talk of 8-laning a lot of sections now.

There are three competitive sectors- road, rail, coastal/inland waterways.

Road is transforming itself phenomenally. Railways is badly stuck-up. There is very little investment in new lines. The problem is that Railways’ emphasis on passenger traffic is age old, we can’t change that emphasis because it is the transporter for the nation.

Shipping, unfortunately, has not changed.

If you see the figure for shipping, in the 1980s, of the total EXIM trade, about 40 per cent of that was in the hands of Indian flag ships. Today, it has come down to 6 per cent.

We were too regulated. There are some vested interests and lobby groups. We don’t allow capacity to build in the country and everything has to be captured by a few. Let me make it very clear, all the policy interventions we have taken in the past have failed miserably.

We are now touching rock bottom. We have to really change the course of this, the downhill has been too fast.

Ten years back, container transhipment was only 25 per cent. Today, they are touching close to 40 per cent.

Can the country afford, a big country, a huge trading nation with EXIM cargo of about 1200 mt, afford to send its own cargo to foreign countries? None of you would subscribe to the fact that our own cargo goes to foreign countries for aggregation.

So, in any type of analysis, it is the shipping side which is the problem/bottleneck.

The railways is choked. And, if we don’t open-up shipping, then freight moves cargo. That’s the fundamental theory of a free market economy.

We have GST, e-way bills and check posts are going away. So, automatically, if you don’t change, don’t bring change in policy, bring change in the shipping sector, everything will start moving through roads. It will be costly, trade will get badly hit. And, therefore, these changes will come.

We can see positive signals from the transhipment of containers after cabotage was relaxed.

What about other sectors such as fertilisers and food?

In fertilisers, in spite of so-called availability of ships, of the total immediate opportunity of 10 mt, we are not able to move even 0.5 mt by coastal shipping and waterways. So, obviously, there is some problem.

There would be policy problems at the level of freight and how we pay freight. We have not incentivised movement of various kinds of cargo. Now, with fertilisers, we are trying to see how to unbundle the policy logjam so that there is ease in the movement of fertilisers and we are very hopeful that in the next one month, we will be able to resolve this policy logjam which is there in the fertiliser sector. And, we are pretty sure that by the end of the year, at least 3 mt of fertilisers will move by coastal shipping and waterways.

The other set of changes that we brought about were in the agriculture, horticulture and fisheries sectors. There, my assessment is, the movement is going to be a bit slow because there is no organised trade which is taking care of these sectors. It will take some time, even though, we have started discussions with the Food Corporation of India (FCI), but that is going to take time.

What’s in the offing policy-wise for shipping?

I must admit that there are certain other aspects which we feel are constricting the Indian shipping sector per se and there is a need to have a re-look and open-up that sector.

While commonly that is also called cabotage, I will not really call it cabotage because cabotage is essentially allowing one’s own line to operate on the coast. But, this entire sector of Indians having ease in chartering of ships has distorted the chartering business. And, we in government are responsible for that. Our regulator has been responsible for that. We started with this whole concept of Right of First Refusal (RoFR). There was an economic logic to keep a band of 10 per cent price range (to trigger the RoFR), which was raised to 20 per cent and then, 3-4 years back, we have done away with any kind of band.

Imagine, we as individuals, when you are doing business, such kind of policies where you have un-banded or unopened RoFR. It is very restrictive. No good bidder will ever think of coming and bidding. So, we are trying to see how to tackle this whole issue of RoFR.

More important than RoFR, is the issue of taking a no-objection certificate (NOC) from local fleet owners. Imagine any of us, if we have to hire a taxi, we have to take an NOC from the next taxi stand. I can’t hire a taxi without taking an NOC from the next taxi stand. How inconvenient it would be.

Each time, I’ve to set up an industry, steel plant, I’ve to take an NOC from the existing steel mill owners. Those are restrictive practices. We have to just tear them apart. We have to just create a whole set of entrepreneurial class in India. Indians with very low asset base, they have to come into this sector. We have created a large number of bottlenecks for Indian entrepreneurs to enter this sector.

The kind of system that we are operating with is actually going against Indians coming into this vibrant sector. We have stopped entry of our own people coming into the sector. We have to slowly do away with these so that large number of Indians with very low asset base can enter this sector.

See what has happened to our IT sector and e-commerce sectors. Indians have survived and have taken us to great heights, there the requirement of asset base have been very low.

But, buying ships require huge capital….

While I agree that ships require large amount of capital to buy, why should I buy ships? What is the requirement to buy. If the market for chartering or leasing of ships is opened up, why do I need to buy ships? Why do I say that the cost of capital is very high? Why should I have to take capital? So, we have to tackle these things in the times to come so that we create a new class of entrepreneurs to enter the sector.

I tell you, it’s difficult to ply passenger ships along the coast. We have failed again and again. We tried to open a route from Mumbai to Mandwa, not a single operator came. Because, there aren’t too many players in the sector.

There was a ro-ro service from one part to another in Kochi. That was stopped, we can’t find a ro-ro operator, where are we?

Shipping has to re-invent itself. Shipping has to open up. Shipping cannot be the preserve of a very few; shipping cannot be in the hands of a very few.

Shipping has to expand itself really widely and then entrepreneurship will come out and lead to a very vibrant sector.

What made you ease cabotage?

The whole kitty that can be moved on waterways and coastal shipping is very big. Today, only about three per cent moves by coastal shipping and waterways. It’s too less considering that we have a large coastline and a very big waterway system. Opportunity is big. If we open-up the sector, I’m pretty sure that the Indian tonnage will rise much faster than it has risen in the past because the kitty is very big. Some odd foreign line will come into the sector, but largely, it will be Indian-owned domestic sector.

Look at the Indian shipbuilding industry. If you see, lot of restrictions have led to a back effect on the shipbuilding industry in India. Our shipbuilding industry is in a huge problem, most of the yards have closed down.

This is because we are giving too much importance to flagging and tonnage rather than building in India. The easy way out for the industry is to import ships and just flag in India. You have to again think very differently. You have to build and flag in India. That would be the right approach. Importing ships and flagging in India is not the right approach for India.

The whole intent behind removing the restrictions is to see that the shipping sector grows in a much more faster manner than it has been in the past. If I ease you out on chartering of ships, that’s the way, we start building more ships.

Are you going to make it mandatory for Indian owners to build their ships in India?

Today, I’m giving all the emphasis on Indian flag. What’s the big deal about Indian flag when all the ships they own are built outside India? If I put the Indian flag on a Mercedes car, will it become Indian? No.

Tomorrow, you hoist a British flag on your house. Will I call you a Britisher? No.

This flag thing is a very big myth that is being created.

But, the decision to build ships in India will be a factor of pricing of ships?

If you open-up, prices will come down. In two months, I’ll tell you how many laden containers have moved. This could be the first year after 10 years that actually transhipment will come down. How much benefit it will give to Indians?

Imagine the workers. Who benefits if the eco-system develops?

When transhipment of containers take place in the country, where does the employment gets created? India.

But, foreign lines are not mandated to hire or train Indian crew?

Do you know how many seafarers are there in the country?

About 150,000…

And how many are hired by Indian flag ships?

Uh… I’m not sure

You don’t know the figure that’s the problem. Out of 150,000 seafarers, 135,000 seafarers are hired by foreign lines. I require employment. What’s the big thing about the flag.

Published on August 12, 2018

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