Reviving Growth: Initiatives to promote domestic shipping industry

Initiatives to promote domestic shipping industry

The Indian shipping industry continues to face difficult times. Shipping companies are being forced to contend with plunging profits and ever-widening losses resulting from a long spell of weak freight rates. The government, however, is trying hard to ensure (and subsequently sustain) sector growth through a slew of reforms. All aspects of the industry – shipbuilding, ship repair and shipbreaking, cruise shipping, inland water transport (IWT) and coastal shipping – are receiving increased government attention.

Size and growth

  • As of May 2017, India’s shipping tonnage comprised 1,325 vessels of 11.85 million gross tonnage (GT). Of these, 412 vessels of 10.33 million GT were involved in overseas trade, while the remaining 913 vessels of 1.52 million GT were engaged in coastal trade. Thus, of the total tonnage, that deployed for overseas and coastal trade was 87 per cent and 13 per cent respectively.
  • During 2013-17, the total number of vessels in the country increased at a compound annual growth rate (CAGR) of 3.25 per cent. In terms of absolute additions, 110 vessels of 1.48 million GT were added during the period.
  • As of December 31, 2016, while 18 per cent of the vessels are 0-5 years of age, a large part of the fleet (around 40 per cent) is over 20 years old.
  • Dry cargo liners dominate the fleet composition with 741 vessels, but their contribution to the total tonnage (in terms of GT) is only 19 per cent. These are followed by oil tankers with 150 vessels, with their contribution to total tonnage at 53 per cent.
  • With respect to IWT, the combined traffic on the three operational national waterways (NWs) and two state waterways increased at a CAGR of 32.7 per cent, from 30.06 million tonnes (mt) in 2014-15 to 52.93 mt in 2016-17.
  • Policy developments
  • In the past year, the government unveiled a number of initiatives to promote the domestic shipping sector. Shipping companies based in India have been permitted to acquire ships abroad and flag them in the country of their choice. The issuance of general trading licences to Indian flag vessels has been decentralised and the registration of ship-repair units simplified.
  • Shipping companies have been allowed to charge service tax at an abated rate of 70 per cent on freight income (at par with road and rail transport) and avail of central value added tax credit on input services, so as to offer services at lower costs.
  • The Merchant Shipping Bill, 2016, which proposes reforms on the registration of vessels, insurance of crew and security-related aspects, was introduced in the Lok Sabha in December 2016. Once finalised, it will replace the the Merchant Shipping Act, 1958, and repeal the Coasting Vessels Act, 1838.
  • Shipbuilding, ship repair and shipbreaking also received greater attention. Shipyards have been granted infrastructure status, with effect from April 2016. The Shipbuilding Financial Assistance Policy (which willl be in force for a period of 10 years [2016­26]) and aimed at encouraging domestic shipbuilding moved a step forward, with the release of implementation guidelines.
  • To reduce the cost of ship repair and dry docking, the central excise duty on capital goods, raw materials and spares used for the repair of ocean-going vessels has been eliminated. Thus, input procurement will be at a zero rate of duty from the earlier 12.5 per cent. Meanwhile, in November 2016, the Ministry of Environment, Forest and Climate Change issued environmental and coastal regulation zone clearances for a project for the upgradation of the Alang­Sosiya ship recycling yards, to be implemented with a loan from the Japan International Cooperation Agency.
  • In a major step to promote the use of IWT, the cabinet approved the allocation of 2.5 per cent of the Central Road Fund for the development and maintenance of NWs by amending the Central Road Fund Act, 2000, in May 2017. Meanwhile, a new draft Inland Vessels Bill, 2017, to replace the old act of 1917, has been prepared and is planned to be introduced in the monsoon session of Parliament.
  • The scope of the coastal berth scheme has been expanded and merged with Sagarmala. So far, Rs 1,520 million has been released for 16 projects under the scheme. In addition, cabotage has been relaxed for a period of five years for specialised vessels such as roll-on, roll-off.
  • In April 2017, the Union cabinet approved an MoU for passenger cruise services on coastal and protocol routes between India and Bangladesh for starting regular movement of passengers between the two countries.

The way forward

Given India’s natural advantages of being well placed on trade routes and with a long coastline and vast network of inland waterways, the shipping sector has significant potential. With a number of policy reforms under way, the government is determined to tap the sector’s potential to enable it to become an engine of growth. The timely implementation of the policies and plans could ensure the realisation of this potential. Having said that, the future of the domestic shipping industry will be to a great extent tied to the global environment