Why India needs a strong shipping fleet under her flag

Capt BK Tyagi

Importance of Shipping in India can be perceived from the fact that nearly 95% of the India’s trade by volume and 68% by value is carried through Sea transportation. In addition, Shipping, as second line of defense has a very strategic importance in Nation building as the vessels are not just relied upon for ceaseless cargo movement even during Emergencies or Wars, but to also serve as a Military auxiliary in time of crisis, be it carrying out rescue operations or supporting relief operations.

In the current times when India is looking to expand its footprints deeper into Maritime Industry through its multi-pronged initiatives (such as Sagaramala, Gati Shakti, National Logistics Policy etc) to bring down the logistics cost from 14% to single digit and cutting its carbon emissions to Net zero by 2070, it becomes more vital that an ecosystem is developed that supports and augments the performance of Indian Shipping Industry, including Overseas, Coastal and Inland Waterways.

The ecosystem includes Ports’ Infrastructure & Capacity development, Supportive Regulatory Frameworks, Financial Inclusion, Regional Connectivity, Cargo Assurance etc. The cycle of this favorable ecosystem wouldn’t complete unless India adds more ships to its fleet, under its flag, given the current geopolitical compulsions. Currently, India has a mere fleet of 1522 seagoing vessels as on 31.12.2022 with total capacity of 20.6 Million DWT. On comparing vessels of 1000GT and above, Indian fleet accounts for only 1.2% of World total DWT tonnage.

India’s import and export of crude oil, coal, LPG, Chemicals, Iron, Steel and coal are carried on foreign-owned vessels and the share of Indian ships in carriage of Indian Export-Import Cargo languishes below 6 percent. The share of Indian Ships in India’s Overseas Trade during 2020-21 fell to 5.62% from 6.5% in 2019-20 & 7.8% in 2018-19 as per data from INSA, Annual Review Report 2022. This share is also constituted mainly of POL Products (~10.44%), followed by Container (3.81%) and Dry Bulk (2.83%).

Indian GDP has shown a remarkable growth in all dimensions, but Indian Fleet has not been in sync with the growth of the country’s GDP. This has severely impacted the Nation even during Covid-19 pandemic when there was acute shortage of container vessels and our exporters were suffering immensely. SCI during that time tried to pacify the situation by deploying its vessel for EXIM trade, but had India been equipped with a stronger fleet then such situation could have never arisen.

Having a strong fleet with vessels under its own flag will help India enormously. Some of the major benefits are as follows:

1)            Countries with more registered shipping vessels under their flag have more say in the IMO matters and regulatory decision making at the Apex body of Maritime Sector.

2)            Ease in implementing regulatory controls and checks.

3)            More revenue and job opportunities for the country.

4)            Achieving Self-sufficiency (Atmna Nirbharta) in meeting the requirement of water-borne commerce (domestic and EXIM)

5)            Mitigation of impact of geopolitical issues on India’s seaborne trade that poses a risk to the smooth supply chain

6)            Augment country’s development of shipbuilding and ship repair capabilities

However, to reap the above benefits, it is important for the country to understand and excel on the factors that impact decision making of shipping companies in choosing a flag state for their merchant shipping vessel. These include ease and cost of registration, multiplicity of regulations and compliances, simplified tax regime, ship finance and other government incentives etc.

Government of India has already been working in this direction of increasing more Indian built and Indian flag shipping vessels and taken many major steps, such as:

(i)            Revision of the criteria for Right of First Refusal (ROFR): This will promote demand of Indian built and Indian flag vessels as the Indian built and Indian flag vessels will have the priority in chartering and will also provide additional market access and business support to ships built in India.

(ii)           Ship Building Financial Assistance Policy (2016-2026): Government of India has approved the Financial Assistance Policy for Indian Shipyards on 9th December 2015, for grant of financial assistance to Indian Shipyards.

(iii)          Subsidy support to Indian Shipping Companies: GoI introduced a scheme for the promotion of flagging of merchant ships in India by providing Rs.1624 crore over a period of five years as subsidy support to Indian shipping companies in global tenders footed by Ministries and Central Public Sector Enterprises (CPSEs).

(iv)          Protection to Indian Flag vessels during engagement of foreign ships: For coastal trade of India, entities (Indian or Foreign) are required to have a license under section 406 of MS Act, 1958 issued from DGS, which is issued to foreign entities only after ensuring that no Indian vessel is available for such trade.

Having a bigger national fleet would definitely provide economic, commercial, and strategic advantages to India. A strong and diverse indigenous shipping fleet will not only lead to foreign exchange savings on account of freight bill payments made to foreign shipping companies but would also reduce excessive dependence on foreign ships for transporting India’s critical cargoes. This will also act as a booster to the development of ancillary industries in Indian Maritime Industry and will lead India to become an Advanced Maritime Nation.

Marex Media