Shipping Overview

A string of initiatives

The Indian shipping industry continued to face challenging times in the past one year. Shipping companies and shipyards witnessed a fall in freight rates, decline in revenues and fewer shipbuilding orders. On the positive side, the government increased its focus on the promotion of the Indian shipping industry to create a level playing field between domestic and foreign companies. The development of the recently declared 106 new national waterways (NWs) is expected to provide a major boost to the inland waterways segment.

Size and growth

  • As of December 2015, India’s shipping tonnage comprised 1,246 vessels of 10.51 million gross registered tonnage (GRT). Of these, 373 vessels of 9 million GRT were involved in overseas trade, while the remaining 873 vessels of 1.51 million GRT were engaged in coastal trade. Thus the tonnage deployed for overseas trade was 85.7 per cent of GRT, while 14.3 per cent was for coastal trade.
  • During the past five years (2011 to 2015), the total number of vessels in the country  increased at a compound annual growth rate of 2.7 per cent. During 2011-15, 123 coastal vessels of 454,000 GRT were added to the fleet.
  • As per the latest estimates available (December 2015), around 40 per cent of the fleet is over 20 years of age. Of the remaining fleet, 21 per cent is 0-5 years old, 17.3 per cent is 6-10 years old, and the remaining is spread almost equally across the age groups of 11-15 years and 16-20 years.
  • Fleet composition shows that the maximum number of vessels (706) comprised dry cargo liners, followed by oil tankers (139). In terms of GRT, the maximum tonnage of 5.57 million tonnes (53 per cent of the total tonnage) was in the oil tanker category, whereas dry cargo liners, despite accounting for the highest number of vessels, contributed only 16.8 per cent (1.77 mt) to total tonnage.
  • In terms of use of inland water transport, combined traffic on the three operational NWs increased at CAGR of 3.3 per cent from 4.92 mt in 2010-11 to 5.5 mt in 2014-15. In 2015-16 (till December 2015), these waterways carried 3.38 mt of total traffic.

Policy developments

  • In the past year, the government initiated several reform measures to promote the domestic shipping industry, primarily shipbuilding.
  • In December 2015, the Cabinet approved a shipbuilding financial assistance policy for Indian shipyards for contracts signed during the 10-year period, 2016-26. It also mandated that all government departments and agencies including central PSUs have to provide the right of first refusal to Indian shipyards while procuring or repairing vessels meant for government or their own use, till 2025, after which only Indian shipyards would build and repair vessels.
  • In another attempt to promote the indigenous shipbuilding industry, in November 2015, the government exempted customs and central excise duty on inputs used in ship manufacturing and relaxed the limitation on operating shipyards, under the customs control aspect of Section 65, Customs Act, 1962
  • With effect from September 2, 2015, the government relaxed the cabotage rule for a period of five years for special vessels which are in short supply in the country, such as roll-on, roll-off (ro-ro), hybrid ro-ro, ro-ro-cum-passenger, pure car carriers, pure car and truck carriers, liquefied natural gas vessels and over-dimensional cargo or project cargo carriers. With this relaxation, vessel operators will be allowed to bring foreign-flagged vessels in these categories to ply on coastal routes.
  • At the state level, the Gujarat government announced the Ship Recycling Policy, 2016 on January 19, 2016, which aims to revive the ship recycling industry at Alang. The government has rationalised most of the charges payable by plot holders and allowed them flexibility in resizing, realigning and readjusting plot sizes, as per the requirement and size of vessels.
  • To promote ease of doing business in the sector, in Union Budget 2016-17, the government issued simplified procedures for tax compliance for shipyards while procuring duty-free goods for shipbuilding and ship repair.
  • The inland waterways segment also received a big boost in the past year. The National Waterways Bill, 2015, aimed at developing additional 106 inland waterways in the country, was passed in the Lok Sabha and the Rajya Sabha on December 2015 and March 2016, respectively. The bill identifies 106 inland waterways across 24 states, to be developed as national waterways.

The way forward

Government-initiated measures and incentives are likely to act as a stepping stone and pave way for the development of the domestic shipping industry. However, there are still some issues that require immediate government attention. These relate to the lack of multimodal connectivity, high port- and vessel-related charges as well as a complex tax structure.

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