The move to end an important support extended to Indian shipping for close to two decades on carrying cargo bought and sold by state-run firms is likely to take the wind out of the sails of local fleet owners. The Centre is set to pull the plug on the right of first refusal (RoFR) given to domestic shipping companies which allows them to match the lowest tariff quoted by a foreign line in a tender and take the contract. While the logic behind the Centre’s thinking is not clear, it is perhaps the clearest indication yet that shipping, ironically led by a go-getter minister Nitin Gadkari, has no role to play in the government’s scheme of things. This follows an earlier blow from the Centre’s decision to ease the cabotage rule to allow foreign flagged container ships to carry exim transshipment containers and empty containers for re-positioning along the coast. The cabotage relaxation was later extended to agriculture, horticulture, fisheries, animal husbandry commodities and fertilisers.
The RoFR policy provides cargo support to Indian shipowners and promotes their participation in the trade, while ensuring that no extra financial burden is levied upon the charterer or consumer. Scrapping the support would only benefit foreign ship owners. As things stand today, foreign fleet owners carry as much as 92 per cent of India’s exim trade shipped by sea for which the freight outgo is a whopping $52 billion, all paid in precious foreign exchange. Over the years, successive governments have failed to recognise the importance of a strong and robust shipping fleet to the country’s economy including its employment potential. Wrong policies and absence of fiscal and financial support have rendered Indian shipping a marginal player on the global stage.
Maritime nations have used their cargo base to boost their respective shipping industries by strictly enforcing cabotage — the sovereign right of a country — provisions. The US, the European Union, Australia, China, Brazil, Malaysia, Indonesia, Canada and Nigeria are a few shining examples. But Indian ship owners face multiple challenges such as tax on seafarers, higher cost of borrowing, restriction on hiring foreign crew and the extra burden of 5 per cent GST. The PSU cargo support was a boon to Indian shipping companies who invested large sums of money to expand their fleets over the past few years, taking advantage also of the prevailing low ship prices. If this is taken away, there will be no incentive left for an Indian shipping company to remain flagged in India. Indian shipping is facing an existential crisis at a time when the government is chanting the ‘Make in India’ mantra to boost local manufacturing and is promoting the ambitious Sagarmala programme for port-led industrialisation. The decision to do away with the RoFR appears illogical and needs to be reconsidered.