Indian shipping has a remarkable history and heritage dating back to the Indus Valley civilization but it has failed to keep pace with modern developments.  The miniscule share of Indian shipping in the global context is a matter of growing concern. In 1998, India’s share in the world’s sea-borne trade of 5,070 million tonnes in 1998 was only 202 million tonnes, a mere four percent. And the situation is no better in shipping tonnage, in which India ranks seventeenth in the world. At 1998 end, the global shipping capacity was 500 million Gross Registered Tonnage (GRT), with India’s share accounting to only around 7 million GRT.

Today, shipping plays a vital role in India’s economy, as it handles over 90 percent of India’s foreign trade in terms of volume and 77 percent in terms of value. Of this, the 12 major ports account for 85 percent of the traffic and the balance is distributed between 243 minor ports dotting the 5700 km long coastline. In 1999-2000, the traffic handled by the major ports is about 272 million tonnes, an increase of over 8 percent compared to the previous year. In 2001-02, it is projected that the total traffic at all the Indian ports would be 424 million tonnes.

Despite the presence of private companies, foreign shipping companies dominate almost 70 percent of the Indian trade. The share is declining further and from 41 percent in 1987-88, the share of Indian flags in the country’s overseas trade has dropped to 30 percent in the late nineties.  Likewise, India’s share in general cargo traffic has halved from 24 percent in 1984-85 to 12 percent at present. The container traffic is almost entirely handled by foreign lines. Container traffic is very popular the world over with a share of 10 percent of the total traffic. But in India, it is only one percent.  Ironically, it is reported that even Indian container companies prefer rail to sea transport.

The Shipping Corporation of India (SCI), the country’s premier shipping company, is among the fifteen largest shipping companies in the world, controlling nearly 50 percent of the total Indian tonnage. The corporation has 114 ships with total capacity of a little over 5 million dead weight tonnage (dwt) and is planning to add 14 vessels at an estimated cost of Rs.5.67 billion. In the private sector, there are as many as 13 players, the major ones being Great Eastern Shipping, Essar Shipping, Varun Shipping, Peerless Shipping and Chowgule Steamships. Essar operates 38 ships with 1.4 million dwt and has ambitious plans to focus more on large-scale tonnage including LNG, LPG and coal.

The reasons for the decline in Indian shipping are easy to understand. Capacity of the domestic fleet has not kept pace with the growth in the country’s international trade. In 1985, India’s overseas trade was 80.78 million tonnes and the domestic fleet strength 6.32 million GRT, whereas today, the trade has grown to over 200 million tonnes, while the fleet strength is almost stagnant.

The working group on shipping constituted by the Planning Commission for preparing the ninth five year plan has proposed increasing the fleet strength to 14 million GRT, if Indian shipping industry were to sustain its 35 percent share in the overseas trade. However, due to financial, commercial and technical constraints, the ninth plan (1997-2002) targeted the expansion of Indian fleet to only 9 million GRT with a net addition of 2 million GRT and replacement of 1.7 million GRT of obsolete tonnage. Three years have passed, but there are no indications of attaining even this modest target. In fact, there has been some decline in the tonnage and as of June 1999, it was only 6.8 million GRT, before marginally edging upto 7.09 million GRT in March 2000.

Another disadvantage is the relatively high cost of freight associated with Indian shipping. In India, freight represents 10.32 percent of the CIF value of the goods shipped, while in developed countries it is only four percent. According to official estimates, the total freight bill in India is around USD 6 billion per year and this is expected to increase in the coming years. If the country achieves the projected 20 percent growth in foreign trade over the next five years, the ocean freight bill would amount to a whopping USD 15 billion in 2002 and some USD 20 billion by 2005.  It is, therefore, vital that Indian shipping must grow in size rapidly to prevent the huge outflow of foreign exchange.

There is a view that the incidence of taxation on shipping in India is higher compared to several other countries, especially with the loading of minimum alternate tax. This is perhaps one of the problems, which diminishes the competitiveness of the domestic shipping industry. More than 85 percent of the world shipping does not pay tax on income but on tonnage handled. The tonnage tax system is perceived to be nominal when compared to corporation tax.  It is believed that tonnage tax could help Indian shipping to face international competition and also diversify into capital intensive operations like liquefied natural gas transport. However, the downside is that shipping companies would be required to pay tax on the tonnage, irrespective of the profits earned and losses made.

The Government of India has framed policies and identified fresh initiatives with the aim of providing the required thrust to the domestic shipping sector.

· 100 percent investment by Non-Resident Indians in shipping with full repatriation benefits
· Automatic approval for foreign direct investment upto 74 percent in shipping
· Most of the types of ships like crude tankers, product tankers and bulk carriers have been brought under the open general license (OGL) to enable acquisition at competitive pricing
· For those categories such as barges, tugs and boats that are not covered under OGL, automatic approval is available for acquisition
· Freedom to Indian shipping companies for time chartering ships
· Shipping companies allowed to retain sale proceeds of their ships abroad and utilise the funds for fresh acquisition
· Shipping companies permitted to get ships repaired at any shipyard without seeking prior approval from the government
· Eliminate licensing requirement for shipping companies to operate linear services in specified routes

The shipping industry wants the government to accord it the infrastructure status like power, telecommunication, housing, irrigation and ports. Considering the key role of the shipping sector in foreign trade and the fact that it is a major source of foreign exchange (in 1998, about Rs.3,300 crores were earned/saved), this demand merits serious consideration. The grant of infrastructure status would result in the following benefits to the Indian shipping companies:

· Five-year tax holiday for profits, which can lead to acquisition of more ships
· Eligible for exemption from minimum alternate tax, and long-term capital gains · Access to rupee or foreign currency loans at lower interest rates from RBI
· Tax rebate for investors, which would lead to raising of additional funds from the market