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Editorial: Flagging of Merchant Ships

Chennai, 10 Feb 2021:

To promote flagging of merchant ships in India, in her Budget Speech, the Union Finance Minister Nirmala Sitharaman proposed to launch a subsidy support scheme of Rs 1,624 crore in global tenders floated by ministries and CPSEs over five years to Indian shipping companies.

She emphasised that this initiative would enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies’ share in global shipping.

India has 12 major ports — Deendayal (erstwhile Kandla), Mumbai, JNPT, Mormugao, New Mangalore, Cochin, Chennai, Kamarajar (earlier Ennore), V. O. Chidambaranar, Visakhapatnam, Paradip, and Kolkata (including Haldia) under the control of the Centre. These major ports handle about 60 per cent of the country’s total cargo traffic.

While welcoming the announcement by the Finance Minister, the local shipping industry in the Budget, sought clarity on how the scheme will be implemented and in what form the subsidy will be disbursed.

“An amount of Rs 1,624 crore will be provided over five years. This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies’ share in global shipping,” she added.

Indian flagged ships are, by law, required to hire only Indian nationals as crew. Fleet owners are clueless on what form the subsidy will come in, whether it will benefit the existing Indian shipping companies or whether it is aimed at incentivising foreign shipping companies to flag ships in India by setting up an Indian subsidiary.

India has allowed 100 per cent foreign direct investment in shipping since early 2000, but none of the foreign fleet owners has set up shop in India due to unfavourable tax and operating reasons. Lack of long-term, low-cost funds and long-term cargo support has been cited by fleet owners as the main reason for stalling the growth of Indian tonnage.

Currently, Indian fleet owners get a so-called right of first refusal (RoFR) to match the lowest rate offered by a foreign flag ship in global tenders issued by state-run firms for hiring ships under the chartering guidelines framed by the Directorate General of Shipping. Local fleet owners have to come within 20 per cent of the lowest foreign bidder, to get the right of first refusal.

The order of grant of RoFR was recently revised to give top priority to lndian built, lndian flagged and lndian owned ships followed by foreign built, lndian flagged and lndian owned vessels. The third priority will be given to lndian built, foreign flagged and foreign owned ships. However, all vessels flying the flag of lndia (but built in foreign yards) up to January 15, 2021, will be treated as lndian built vessels and get top priority while exercising the RoFR.

The subsidy scheme for ship owners will complete the Central government’s efforts towards encouragement and development of the lndian shipbuilding and ship owning industry as part of the Make in India and Atmanirbhar Bharat programme. In 2016, the government introduced a long-term subsidy scheme for ship yards under the shipbuilding financial assistance policy for a ten year period.

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