v INTRODUCTION
v PRESENT STATUS OF INDIAN SHIPPING
v MAJOR PROBLEMS
v CONCERNS AND CHALLENGES BEFORE INDIAN SHIPPING INDUSTRY
v RECENT TRENDS OF INDIAN SHIPPING
INDIAN SHIPPING ON A NEW WAVE IMPACT OF TONNAGE TAX
TAX PROBLEM NOT FULLY ADDRESSED - SALE OF AGED SHIP
REDUCTION IN FOREIGN EXCHANGE OUTFLOW NUMEROUS INCIDENTAL BENEFITS
IMPACT OF CHINAS GROWTHFUELS EARNINGS OF INDIAN SHIPPING COMPANIES
MORE INDIAN SHIPS USED IN GLOBAL WATERS DUE TO MISMATCH
FUTURE TRENDS IN FREIGHT RATES
v FRESH CHALLENGES AND OPPORTUNITIES AHEAD
NEW REFINERIES REDUCES DEMAND NEW SHIPPING OPPORTUNITIES
IMPORT OF LIQUEFIED NATURAL GAS (LNG) IN PIPELINE NON-AVAILABILITY OF VERY LARGE CRUDE CARRIERS
(VLCCS)
v CHECK YOUR UNDERSTANDING
v REVIEW QUESTIONS
It is all Champagne time for Indian Shipping industry, now. Indian Shipping industry has stagnated for years together, continuously. All of a sudden, there has been sunshine to the industry from the financial year 2004, largely, due to the initiatives taken by Government to rejuvenate the sagging industry. Now, Indian Shipping industry is poised to compete with international shipping lines to capture its due share in the growing international market.
PRESENT STATUS OF INDIAN SHIPPING
India has 12 major ports and 185 minor/intermediate ports. Over 90 per cent by volume and 70 per cent by value of India’s overseas trade, aggregate of exports and imports, is carried out through maritime transport along its 7,617 km long coastline. India has the largest merchant shipping fleet among the developing countries and its merchant shipping fleet ranks 18th in the world, in terms of fleet size. Another silver lining is the average age of the India’s merchant shipping fleet is only 12.7 years as compared to the international average of 17 years. But, India’s share, sadly, constitutes only 1.45% of the world’s cargo carrying capacity.
As on April 1, 2005, India has a total of 686 ships comprising 8.01 million Gross Tonnage (GT) and 13.28 million Dead Weight Tonnage (DWT). The Shipping Corporation of India (SCI), the country’s largest carrier, owns and manages 82 ships with 2.54 million GT and accounts for 40 per cent of national tonnage. India is also among the few countries that offer fair and free competition to all shipping companies for obtaining cargo. There is no cargo reservation policy in India.
Indian shipping has remained a deferred subject till independence. Only after independence, the development of shipping has attracted the State policy. The subject of Shipping, in the beginning, has been dealt with by the Ministry of Commerce, till 1949 and subsequently, in 1951, it has been shifted to the Ministry of Transport and Shipping. In 1947, the Government of India has announced the National Policy on Shipping, aiming at the total development of the industry. In order to accelerate the developmental efforts, the necessity for a centralised Administrative organisation has been felt. Accordingly in September 1949, the Directorate General of Shipping with its Headquarters at Bombay has been established with the objectives of promotion and development of Indian Shipping industry.
MAJOR PROBLEMS
The slow progress in tonnage acquisition and growth have been mainly due to: • Lack of fiscal incentives to remain internationally competitive.
• Prevailing market condition is depressed and charter/freight rates have fallen considerably, especially in the dry-bulk and liner sector.
• Considerable changes in the trade pattern that has compelled the major carrier, SCI to abandon many of its projects.
CONCERNS AND CHALLENGES BEFORE INDIAN SHIPPING INDUSTRY
As per the report prepared by Indian National Ship owners Association (INSA), the main concerns of Indian Shipping Industry are:
(A) Falling Share of Indian Industry
The falling share of the Indian shipping industry in Carriage of India’s total overseas sea-borne cargo has been a cause of concern. The declining trend has relegated India’s position in the world maritime trade. The share of Indian ships in the overseas trade is at a meager 15 per cent during 2002-03, while foreign ships carried 85 per cent of India’s overseas trade, as per Shipping Ministry’s report for 2003-04. In other words, foreign carriers transport major cake of India’s overseas trade as high as 85%. Surprisingly, the reason is inadequacy of ships in India.
(B) Stagnant Tonnage Capacity
Even in 1980, the Indian maritime industry has realised that Indian fleet expansion had come to an end. The so-called Golden Age has lasted from 1959 till about 1975 when Indian shipping tonnage has gone from a paltry figure of 0.59 million Gross Registered Tonnage (GRT) to 5 million GRT. But, from then on tonnage has stagnated.
Progress of Tonnage Acquisition Programme
Item 2000 (Mar) 2001 (Mar) 2002 (Mar) 2003 (Mar) 2004 (Mar)
Total tonnage (million GT) 6.912 6.816 6.820 6.177 6.944
No. of Ships (Total) 510 557 562 616 639
Source: Report prepared by Indian National Ship owners Association (INSA).
The tonnage at the end of the Sixth Plan period has failed to cross even the more modest figure of 7 million GRT. The country has fared no better in the next Plan and even the lower figure of 7 million GRT has proved elusive. For a short time, in 1996-97, the 7 million GRT has reached. But, the Indian fleet has soon slipped to the 6 million GRT. Until the end of 2003-04, the Indian fleet has not crossed the 7 million GRT barriers, hovering uneasily at about 6.90 million GRT.
(C) Inadequate Competitiveness of the Indian shipping industry
There are certain aspects of operating costs, which place Indian shipping companies at a disadvantage vis-à-vis their foreign counterparts. They are:
(i) Insurance: Indian ship owners are statutorily required to insure their fleet for hull and machinery with Indian insurance companies. The premium rates (fixed by the tariff advisory committee) have traditionally been much higher than those prevailing internationally.
(ii) Depreciation: The rate of depreciation as applicable to the shipping industry is 25%. By contrast, vehicles such as trucks, buses and heavy vehicles are permitted 40% depreciation rate. There is a strong case for removing this inequity by raising the depreciation rate to 40% as it would help companies build up reserves in profitable years to finance fleet replacement and growth.
(iii) Tax regime for Indian shipping companies: Indian shipping companies have been subject to corporate tax (35%). The effective rate of taxation has been among the highest in the global shipping industry; around 94% of world shipping is under a very low tax regime. Approximately 15% of world shipping is owned by a group of countries that offers corporate tax along with an optional tonnage tax system where the tax liability in either case works out to 1% to 2% of the taxable income. Indian shipping has been denied this option, all the time. This has been the real grouse of Indian shipping, all along.
There is a need for removing distortions in the above areas to make the Indian shipping industry more competitive.
What is Tonnage Tax?
Many maritime nations have introduced tonnage-based taxation, earlier. India has joined the band late by introducing Tonnage Tax in the financial year 2004-05 to make the industry globally competitive, at least, now. It is a scheme of presumptive taxation. The notional income arising from the operation of a ship is determined based on the tonnage of the ship. If a ship has the capacity up to 1000 tonnage, the ship’s daily notional income is Rs.46 per 100 tons. The daily tonnage income is multiplied by the number of days the ship operates. The notional income is taxed at the normal corporate tax rate applicable for the year. A company may opt for the scheme and once the option is exercised, there is a lock- in period of ten years. If the company opts out, it is debarred for re-entry for ten years.
RECENT TRENDS OF INDIAN SHIPPING 1. Indian Shipping on a New Wave
A booming freight market and recent introduction of a Tonnage Tax regime have caught the shipping industry on a high wave, with the Indian fleet tonnage crossing the magic figure of 8 million GRT (gross registered tonnage) mark as on April 1, 2005, for the first time ever. Indian tonnage as on June 1, 2004 has been 7.05 million Gross Tonnage (GT), which has increased to 8.01 million GT as on April 1, 2005.