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September - 2009 - issue > India Road Ahead
Sailing-through-a-Rough-Weather
Shri S.Hajara
Tuesday, September 1, 2009
The shipping sector plays a pivotal role in the economic development of the country and is extremely vital for the strategic reasons of energy as well as maritime security. The importance of this sector is very well proved by the fact that 95 percent of the country’s trade by volume and 70 percent by value is moved through sea routes.

Today, the Indian shipping industry tonnage has reached the mark of 9.45 million GT. However, the growth of Indian tonnage has not kept pace with the growth of India’s overseas trade. In fact, over the years, the growth of the Indian fleet has remained sluggish and its share in carriage of the country’s overseas trade has gradually diminished from 40 percent in the year 1987-88 to as low as 9.5 percent in 2007-08. On the other hand, the volume of the country’s overseas trade has grown significantly at a compound annual growth rate of about 7.7 percent. In order to maintain the share of the Indian shipping fleet at a level of just above 10 percent, the shipping tonnage would need to be doubled in the next 4-5 years. Therefore, the need to augment India’s tonnage is quite pressing and the Indian tonnage has to grow.

Presently, the Indian shipping industry is passing through a very peculiar situation wherein the augmentation of tonnage is of utmost importance to maintain its stake in the overseas trade; but access to funds for acquisition of tonnage has become a huge challenge due to the global financial crisis.

Normally, a shipping company invests about 20-25 percent of its own funds and the balance is raised from the financial markets. However, unfortunately, today the normal route of financing i.e. through external commercial borrowing from the commercial banks abroad has almost dried up. Many developed countries have come out with bailout packages for their banks and financial institutions. But these countries ensure that the loans sanctioned are only for supporting the projects that are based in their territories or the ones that are promoted by their own citizens. A compounding factor is that the Indian banks, in general, have never had any appetite for shipping finance. Hence, in the present situation it is virtually impossible for Indian shipping companies to raise loans at competitive rates for acquisition of tonnage.

It is learnt that the Chinese government is supporting its ship owners through local banks for expansion of their fleet. Further, the Korean government has also set up a shipping fund to help Korean companies, which are in distress, for building ships. In a similar way, the Indian government should also set up a fund specifically for the shipping industry, from which Indian shipping companies can draw loans at competitive rates compared to the foreign banks. Besides, the government can incentivize the Indian banks to lend to the Indian ship owners.

The Indian shipping industry is also being rendered somewhat uncompetitive due to the taxation which is close to 9 percent inclusive of indirect taxes as compared to 0-1 percent tax on shipping in most of the other maritime nations. The government should also address these fiscal issues so as to revitalize the Indian shipping industry by providing a level playing field vis-à-vis its international counterparts.

Many countries are today looking inward and have made a policy to protect their turf entirely for their indigenous industry. Recently, Indonesia has completely reserved their coastal cargo for their own flag. I feel that India should impose a similar trade barrier to control cargo as well as to reserve cargo for the Indian fleet.

I am hopeful that the government will address the issues of the shipping industry as a priority and the measures taken would help the industry to grow rapidly and retain its stability in the unstable waters of international shipping commerce.

I am sure that the Indian shipping industry, with its spirit of entrepreneurship, can emerge as one of the leading shipping industries in the world if supported by a conducive policy environment.

Shri S.Hajara, Chairman & Managing Director, The Shipping Corporation of India
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