With Indian ships carrying just 7% of EXIM trade, tonnage augmentation offers a pragmatic path to $16B in savings and strategic influence.
India’s merchant fleet today carries barely 7% of the nation’s vast EXIM trade, leaving the bulk of freight earnings in foreign hands. In a sector where global peers leverage tonnage for trade security, employment, and strategic influence, India’s under‑representation is both a vulnerability and an opportunity.
That’s why expanding Indian shipping tonnage isn’t just strategy—it’s necessity. Here’s how India can anchor its future in global trade.
1. Basic principle of tonnage growth: Tonnage augmentation must give some tangible benefits to the flag state as well as to shipowners opting to register with flag. Policies should create a win-win for both ship owners and flag state to ensure successful tonnage augmentation.
2. Motivation of Open Registries: Small nations like Panama, Liberia, Marshall Islands attract ships via low/no tax, flexible crewing, global management, and minimal regulatory burden. Revenue from ship registry and related services is substantial for small economies and hence a ship registry is a big attraction.
3. Intentions of Singapore, Hong Kong, and Similar Flags: Require shipowners to have offices locally. This creates employment, provides opportunity to service providers. They too attract tonnage by offering low or no tax. At the same time these flags have high credibility and efficiency, thus minimising Port State Control issues.
4. International and Offshore Registries: Secondary registers like Norwegian International Register retain national tonnage owned by their own nationals by giving them more operational freedom and tax benefits, subject to limited national obligations, almost at par with open registries. They have more credibility thus less port State Intervention and easier finances.
5. State-Owned Tonnage: Countries like China maintain large state-owned fleets to secure EXIM trade, strategic needs, capacity building, employment generation and benefit from multiplier effect of large tonnage on its economy.
6. Objectives of Indian Shipping Tonnage Growth: Trade security, energy security, capacity building, strategic needs, self-reliance, training, employment generation and create opportunity for shipbuilding, ship repairs, chartering, ship broking, ship repairs, ship management, ship agency, ship financing, H&M insurance, third party liability insurance & legal services to mention a few.
7. Other Benefits of Larger Indian Tonnage: Foreign exchange saving, reduces exploitation by foreign flags, rationalises freight, lowers logistics and transaction cost, improves export competitiveness and enhanced global maritime influence.
8. Fair Share of Indian Tonnage in EXIM Trade: Current Indian tonnage share ~7%; target: Initial target can be to have adequate tonnage to carry 40% of EXIM cargo to balance the cargo distribution between exporting country, importing country and third party (40:40:20).
9. Estimated Freight Earnings and Foreign Exchange Savings due to augmented tonnage: EXIM trade ~USD 1,000 billion; freight at 5% ~USD 50 billion. Increasing Indian tonnage share to 40% could earn ~USD 20 billion in freight, present earning approx 3.5 billion, augmented freight and foregn exchange savings approximately USD 16.5 billion annually.
10. Employment Opportunities: Raising cargo share from 7% to 40% could create a nearly six-fold increase in employment both onboard, ashore and in ancillary services.
11. Incentivising Long-Term Contracts: Long-term contracts (preferably over ship’s life) assure employment thus comforting ship financiers who can lend money at more competitive rate. Freight or charter hire can be linked to regional freight index making it a fair deal for ship owner and vessel user on long term without dispute in freight rates.
12. Facilitate Bare Boat Cum Demise (BBCD) Vessel Registration: This would enable rapid fleet expansion under Indian flag without major upfront capital. Cargo preference benefits offered to Indian flags can also be extended to BBCD vessels thus making BBCD route acquisition of Indian tonnage attractive.
13. Indian International Register: Attract persons of Indian origin to register their ships under Indian International registry. Give them same freedom and tax benefits as available to open registries. In addition, give them some cargo preference along with Indian registry and BBCD vessels to make registry with Indian International Register attractive.
14. Offer tax exemption as compared to subsidy: Subsidy for tonnage augmentation needs to be budgeted. This can be challenging as there are more compelling and competing needs. More over actual tonnage augmentation cannot be predicted. Hence subsidy is not a sustainable model. Instead, exemption / subvention of direct and indirect taxes on ship and related services may work better. Present revenue from ships under Indian flag and related services is negligible and hence projected loss in revenue is only notional.
15. Link tax and cargo support with National interest: Gradually link tax exemption / relaxation, cargo support or any other benefit extended to ships of national registry, BBCD and international registry to National Interest such as using vessels built in India, having vessel repaired and dry docked in India, using Indian crews on board, having offices in India, using Indian banks for ship financing, using Indian insurance, and allied services to mention a few.
16. Make services rendered by India flag more efficient: Streamline, outsource and where required benchmark regulatory processes to make Indian flag more efficient without compromising the quality to make it more attractive.
Marex Media