Q. As India celebrates 75 glorious years of its Independence, can you please describe how the journey for Indian ship owners has been since independence?

Ans : Indian shipping fleet have contributed to the Indian economy even before India attaining independence. Thus, it has been a partner to trade and supported the commerce of the Indian state in its good and bad times.

However, the growth of the Indian fleet has been stymied for reasons which relate to policy and not for reason of ability. This has led to an outflow to foreign ships in excess of US $ 50 Bn as freight, annually. There is need for the policy makers of the GoI to understand this challenge and swing into action, by taking policy decisions which will make Indian ships competitive.

The very existence of the Indian shipping industry secures the carriage and supply chains for strategic and food cargoes. The presence of Indian vessels ensure competitive freight rates to the Indian trade. This keeps Indian exports competitive and imports cheap. The absence of an Indian flag container fleet is an example of how the EXIM traders of India had to suffer by requiring to pay stratospheric freight rates.

Q. India presently ranks 17th amongst the world’s merchant fleet owning countries. What are your thoughts on how to improve our ranking, further making India a stronger maritime nation?

Ans : In general, any goods or services, can only be sold in India through a local establishment. Further, import of goods and services are discouraged and made less competitive through imposition of duties. However, in India shipping happens to be the sole exception to this rule. Today, it is cheaper to import shipping services into India than to provide them through a local company. This is the key issue which impacts the growth and investments into the Indian flag fleet.

Two things need to be done in order to attract investments in, and for the growth of Indian flag shipping:

Q. Indian trade depends a lot on foreign flag vessels whereas Indian flag’s share of carriage is down to below 8 percent. What support would Indian shipowners need to improve their share of carriage of Indian trade.

Ans : In FY21, more than 90 percent of Indian EXIM cargoes and 40 percent of coastal cargoes were carried by foreign ships. It is estimated that this led to a flight of more than US $ 50 Bn in freight. This net annual forex outgo of India needs to be reversed.

The national fleet is large enough to carry a fair share of India’s critical cargoes. However, at least 50 percent of India’s critical cargoes should be on Indian flag vessels. To achieve this, we foremost need a National Shipping Policy which would:

Q. The Right of First Refusal for Indian flags was a welcome move by the government. Similarly the cabotage rule has been favouring growth of Indian tonnage. In your opinion, how effective have these measures been in the growth of our shipping since independence?

Ans : I need to debunk once and for all that India practices ‘cabotage’ in shipping services. India does not have any cabotage rules which favour the Indian flag. Cabotage exists in the air, rail and road industry in India but not in shipping services. It is there for all to see. Only a local company can operate a domestic air service or a rail service or transport by road, but not shipping.

What the Indian flag enjoys is the ‘Right Of First Refusal’ (ROFR) given to Indian ships. Finally, that only means that in the freight bidding process if an Indian company is not the lowest bidder, it would have the option to be awarded the contract for transportation, provided that it matches the lowest rate as offered by the foreign shipping company.

What the ROFR mechanism completely overlooks is the fact that today foreign and Indian ships compete for the same Indian cargoes both coastal and EXIM despite the higher operating costs of Indian shipping companies – as a result of the duties and taxes paid by Indian shipping companies and other social contributions to the Indian economy, a cost which foreign shipping lines operating in India do not have to bear. The cost of funds for an Indian company is also higher than those of a foreign shipping company. Clearly under these circumstances, the ROFR has limited utility since it is nearly impossible for Indian companies to match the lower operating costs of foreign flag ships.

This was validated in 2020, as Indian oil PSUs opposed the government’s proposal to ask foreign ships to flag in India and then carry Indian oil cargoes saying that this would increase the cost of a foreign ship by more than US $ 3,000 per day.

Q. India implemented the tonnage tax regime in line with major maritime nations and this provided a major boost to Indian ship owning in the short term. However, few Indian shipowners still prefer to operate out of the tonnage tax regime. Can you throw some light on the same.

Ans : While India has a tonnage tax regime, the effective rate of taxation in India even under tonnage tax is far higher than that levied in other maritime nations. In addition, India has imposed the obligation of training fresh cadets in Indian shipping companies.

The shipping freight business is volatile, seasonal and cyclical, and therefore the world over, the profit on sale of ships is considered as a core business income and taxed at tonnage tax rates. However, India Minimum Alternative Tax (MAT) is imposed on the sale of a ship by an Indian shipping company, levied at a corporate tax rate. Further, an Indian shipping company has to transfer 20 percent of its book profit to the Tonnage Tax Reserve Account every year. This amount has to be utilised to buy new assets within eight years. When the money invested in the Tonnage Tax Reserve Account earns interest, that too is taxed at the corporate tax rate.

Depending on the business model followed, a company may choose to opt for the tonnage scheme, or not. However, as long as the primary issue of competitive impairment of Indian flag vessels continues to hurt investment in Indian flag, the usefulness of a Tonnage Tax scheme would naturally be limited.

Q. India is one of the major providers of seafarers to international shipping. There have been many good moves by Indian shipping companies in setting up training for young cadets and inviting talent to join the merchant navy. How has this evolved over the years and what would be the learnings other industries can gain from Indian shipping.

Ans : Even before it became a trend for industries to embark on skill development and training, the Indian shipping industry has been at the forefront of training not just seafarers, but also those ashore. It is the philosophy of INSA members to invest in the next generation. This has been done through the creation of the maritime training institute by INSA members.

Though there has been some uncontrolled and indiscriminate growth in maritime training in the last 10 years, the training schools that have been set up by marquee INSA shipping companies have historically churned out well trained, in-demand cadets. This, I believe has been the distinguishing factor that has led to a demand for Indian seafarers in all the big maritime flags across the world.

Q. There has been lots of development on marine fuels. What are your views on India becoming a major bunkering hub in the international market.

Ans : India definitely holds the potential to be a major bunkering centre for ships given the large number of ships which call Indian ports alone. However, India has not been at the forefront of policies which encouraged the growth of bunkering in India. Further, we have not been a leader in the research on marine fuels. Presently, the jury is still not out in respect of the final choice of green fuel.