Padmesh Prabhune –
The Forward Seamen’s Union of India (FSUI) is disappointed by the proposed relaxation in Shipping announced recently in the fiscal budget last week. The Finance Minister Smt Nirmala Sitharaman said, “Ownership, leasing and flagging reforms will be implemented to improve the share of the Indian shipping industry and generate more employment”.
Objecting to the proposed relaxation, Mr Manoj Yadav, General Secretary FSUI, the leading union of seamen with over 27,000 members in the shipping industry, has written to the Hon’ble Minister of Ports Shipping & Waterways (MoPSW) to reconsider its policy of liberalization of shipping rules such as cabotage law, inviting foreign shipping cartels to operate coastal routes, and instead address the disparities affecting the growth of Indian Shipping industry.
Mr Yadav said, “Instead of liberalization of Shipping rules such as the Cabotage law and inviting foreign shipping cartels to operate coastal routes, the government should try to promote development of shipping lines in the country to generate further employment opportunities for the Indian seafarers.”
According to Mr Yadav, the Finance Minister has once again reiterated government’s intent for further relaxation as she did earlier while presenting the interim budget then in February.
“On one side the Ministry of Ports, Shipping & waterways is promising to increase the Port capacities to handle increased Indian coastal and EXIM cargo, insisting Indian tonnage to go up to meet this demand, while on the other hand the Government says it will relax cabotage which is obviously in favor of foreign shipping lines; how fair is this?”, asks, Mr Yadav.
Whether the Cabotage law actually exists in ‘Shipping’ in India
According to Stalwarts, in the true sense there is no cabotage in India. Indian companies only have the right to match the lowest rate given by a foreign shipping company. Thus there is only the “Right of First Refusal” (ROFR) and not cabotage. Therefore, if the government of India wishes to do away with cabotage, what will the Government remove?
India’s cabotage laws had been in place since the 1950’s. In 2018, the government revised its position to allow for the transhipment of laden export and import containers, empty containers meant for re-positioning, agriculture, horticulture, fisheries, fertilizer and animal husbandry commodities on domestic routes without a license from the Directorate General of Shipping.
Mr Yadav further claims, “Foreign ships are being permitted to carry coastal container cargo without needing to take a license from DG Shipping as per Notification Order No.1, 2and 3 of 2018 issued by the Ministry of Ports Shipping & Waterways. This is done without any research and without any effort to look at data. The government is simply trying to help multinational shipping companies.”
He adds, “The Ministry of Ports & Shipping says that it wants to relax some rule that is going to the change the way of moving the cargo. Nobody knows what change it wants to do – however, it wants to make some changes, but in any way the transhipment of cargo will happen”.
Need for Proper Level Playing Field
Mr Yadav maintains that there is no level playing field for Indian Ships. Citing an example, he says “If an Indian company is to import steel into India there is customs duty on import of it, also if an Indian shipping company wants to import an accounting service from a foreign company, there is a GST and a tax that makes it non-competitive, and would rather go to a local company to take that service.
“Further, the cost of operation of an Indian flagged vessel always remains higher than its counterpart -foreign flagged vessel, thanks to skewed Indian taxation rules.”
There is disparity in cost of operations between Indian and foreign flagged ships which is solely due to duties and taxes which the Government imposes on Indian ships and not on ships belonging to foreign shipping companies.
Income Tax Hampers Employment on Indian Flag
While taxation outside India is not applicable to Indian seafarers employed on foreign flagged Ships, those employed on Indian flag vessels bear the brunt of tax on the salary paid by Indian shipping companies, as subject to tax deduction at source. Needless to say, any Indian seafarer naturally would rather join and work with a foreign company for the incentives.
Tonnage Tax
The introduction of a so-called tonnage tax for the local shipping industry in India has not achieved the desired result of significantly increasing Indian tonnage. The tonnage tax is not the only tax which is imposed on the shipping industry. In every other country where tonnage tax is prevalent, the shipping industry is required to pay only tonnage tax. No other direct or indirect tax such as GST is levied on shipping as in India.
The Indian government is committed to promoting coastal shipping “through PPP (Public-private- Partnerships) mode with viability gap funding” as announced earlier.
According to officials the new coastal shipping norms would promote the development of transhipment hubs in India. Currently, about 60 percent of India’s exports and import containers are transshipped through ports such as Singapore and Colombo. Indian traders use the Colombo, Salalah (Oman), Singapore and Dubai hubs for shipments, adding to their costs. This transhipment through ports outside the country involves not only huge expenditure but also an extra 7-10 days of transit time.
In support of their argument, it is stated that there is no Indian shipping company which is willing to deploy ships on the coast despite the privilege of cabotage, but the Government needs to look into the reasons why no Indian shipping company wants to operate on the coast.
Capt MM Saggi, former Nautical Advisor to Govt of India opined that cabotage is a complex issue. On one hand we need to support the growth of domestic tonnage to achieve capacity building and self reliance. On the other, the country cannot forgo the interest of Indian ports and Indian trade. If the cabotage protection is dispensed with and Indian coastal shipping cannot be protected by cargo support, then way forward could be to create a level playing field between Indian ships and their foreign competitors in terms of customs formalities, import duties on ships, seafarers taxations, taxation on fuel, duties on spares, other direct and indirect taxes, manning cost, cost of regulatory compliance and do away with processes and formalities which lead to avoidable delays.
If same can be extended, then a reasonable subsidy needs to be extended to domestic shipping. Extinction of Indian tonnage is not acceptable. In short the country needs to take a balanced approach and ensure that all associated sectors, be it shipping, ports or trade are allowed to flourish.
Marex Media