India’s ailing shipping industry: Will the government be able to revive it?

  • Less than 10% of its overseas cargo is being carried by India’s ships
  • India’s shipping industry is beset with problems ranging from poor connectivity to absence of incentives
  • Government planning to drive growth by setting up funds, introducing new subsidy schemes and drafting export policies

India’s shipping industry is going through a severe slowdown according to a recent study by the Export Import (Exim) Bank of India. It is indeed a matter of grave concern that for a country that boasts of an extensive coastline of 7,500 kilometres, the shipping industry transported a little over 160 million tonnes (mt) of cargo from 2012-13. That means only 8% of its overseas cargo is being carried by the country’s vessels. This figure has been falling gradually from a level of over 30% in the early 1980s.

India’s shipping industry is riddled with problems

Lack of consistency – 12 major ports come under the centre’s surveillance and about 60 active non-major ports come under the purview of states. Also, the state maritime boards which can control policy are not ubiquitous. As of now only Maharashtra, Gujarat and Tamil Nadu have a maritime board. Hence, there is no uniformity when it comes to developing coastal shipping across the 9 coastal states.

Poor connectivity – Another major hindrance that has a direct impact on coastal shipping is the lack of connectivity of non-major ports to road and rail networks. This is the result of the state and centre not being able to arrive upon a decision on the allocation of funds for connectivity to non-major ports.

Lack of incentives – Irregularity in the form of reserved berths and terminals means there is no incentive for small exporters and businesses to ship cargo.

Indian controlled tonnage scheme – It was at the behest of the shipowners that the government decided to introduce the “Indian controlled tonnage” scheme. This scheme allows domestic firms to own foreign flag vessels under certain conditions. The most confounding one is that that companies opting for the tonnage scheme should maintain their Indian tonnage at April 1, 2014 level. In other words, if the local tonnage is below the stipulated level, they will not be able to operate those acquired under the foreign flag. Also, a company would have to first go and buy a ship to register under the new category. A ship from its existing fleet cannot be flagged out.

Corrective measures being undertaken

The government is planning to introduce a subsidy scheme to enhance coastal shipping. Under the scheme, a subsidy of Rs 0.5 per tonne on bulk cargo, a rebate of Rs 2,000 per container for container cargo and an additional 20 percent rebate on vessel/cargo-related charges will be provided. The subsidy can be availed directly by shippers of general cargo such as salt, sugar, automobiles, fertilisers, tiles, cement, marble and foodgrain. An online portal will be built by National Informatics Centre which will automate the process of subsidisation.

The Export Import (Exim) Bank of India plans to set up a shipping fund with Rs 1,500 crore of capital support from the government to aid the ailing shipbuilding industry and strengthen its export potential. The fund will be utilised to finance the construction and refitting and repairing of ships. SME advisory services will also be offered by the export finance institution to aid small and medium enterprises in small cities and towns in exploring global markets and increase contribution of exports to the ‘Make in India’ campaign of the government.

The Exim bank will also help state governments that are found lagging in exports draft an export policy. Assam has already drafted one such policy with the help of Exim bank.

References:

http://economictimes.indiatimes.com/industry/banking/finance/banking/export-import-bank-of-india-plans-to-set-up-rs-1-500-crore-shipping-fund/articleshow/45223968.cms

http://www.thehindubusinessline.com/industry-and-economy/logistics/buy-a-ship-flag-out-and-then-seek-more-leeway/article6587591.ece

http://www.hellenicshippingnews.com/restrictive-conditions-make-indian-controlled-tonnage-scheme-unpopular/

 

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