Thursday, 14 October 2010

Shipping needs 55,000 crores to stay afloat.

The shipping industry and the Ministry of Surface Transport have asked Finance Minister Pranab Mukherjee to consider subsidies to the 35,000 crore maritime sector, media reports say. Although the country’s tonnage has grown today to more than 10 million gross tonnage (GT), with a record 63 new ships totalling nearly a million GT being added to the Indian fleet since January, Indian shipping share in its own domestic maritime trade has plummeted to 8 percent, and India’s share of global tonnage is just 1 percent. These, and the cost of operations, are the main issues that the industry wants to address.


The 8 percent figure is half the 2009 share and has prompted the industry to lobby the Finance Ministry for subsidies once again. "Subsidies will definitely help us and Indian shipping. Out of the 9.45 gigatonnes of shipping capacity, about four million tonnes will need to be scrapped and replaced by 2012," says Mr Sabyasachi Hajara, CMD of SCI. His company, which has approval for a stake sale recently, is looking for interest subvention similar to the Technology Upgradation Fund that has been raised for the textiles industry; a portion of the loan interest for upgradation is borne by the State as per the scheme.

Indian companies say that they would buy more ships if the climate for investment was better and a level playing field ensured. At present, only 10 per cent of the India's exim cargo is carried on Indian ships. “Our operating cost is nearly 30 per cent higher than that of foreign flag vessels,” says Mr Anil Devli, CEO of the Indian National Shipowners' Association (INSA). Indian flag vessels pay a service tax of 13.2 per cent which foreign ship’s do not. Moreover, crew working on foreign vessels do not pay income tax: all this results in the market being tilted in favour of foreign ships.

Amongst these grievances, the industry is now seeking an acquisition fund of 400 crore that would be interest-subsidised. INSA estimates that the total cost of replacing Indian tonnage is a staggering Rs. 55,000 crore, given that the average age of the Indian ageing fleet is down to 18 years today; half the vessels are older.

"The fall in share of Indian shipping companies is alarming. Indian ships are considered more expensive than foreign ones, but our companies are heavily taxed," said Atul Aggarwal of INSA to the newsmagazine Tehelka; the organisation also wants Cabotage rules to be strictly enforced by Indian authorities, thus protecting Indian bottoms.

Government officials admit that finance for shipping remains a problem in India. With banks not keen on offering loans for new acquisitions and with little government support, shipowners are in a difficult situation. Indian companies are obviously keen to exploit the low acquisition prices presently prevailing in the global market but are hamstrung by lack of funds. Even so, many, including SCI and Great Eastern, are going ahead with ambitious expansion plans.


Shipping tonnage has grown steadily in the last seven years after the advent of the Tonnage Tax: From 6.94 million GT in April 2004, it stands at 10 million GT- 1029 ships- today, a smart rise by any standards. As of September 1, 2010, 1,029 ships totalling 10.10 million GT were registered under the Indian flag. About two thirds of these- 693 ships- are coasters. “Moving from single-digit gross tonnage to double digits is a significant achievement. However, this tonnage is peanuts when compared with that of the other maritime nations such as Singapore, China, and Japan,” said Devli, quoted in the Hindu. “It is a paradox that Indian ships do not carry the bulk of Indian cargo,” he added. “The government must adopt a policy of ‘Indian cargo for Indian ships.’”
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