Priorities for the National Maritime Development Programme

1. Priorities for the National Maritime Development Programme S. Hajara, Chairman & Managing Director The Shipping Corporation of India Ltd. December 19, 2008

2. Importance of Maritime Sector • About 95% of India’s international trade by volume or approximately 70% per cent by value is seaborne. • Long coastline of around 7517 Kms studded with 12 major ports, about 187 non-major and private ports. • Directly caters to the country’s trade and also has multiplier effect. • In the recent past, growth of India’s cargo traffic has been much higher compared to the world average.

3. Indian Shipping Industry • In 2007, India ranked 15th in terms of its fleet size in gt by flag of registration constituting 1.18% of the world fleet. • Growth in national tonnage not kept pace with growing overseas trade - since 1995 to 2006, Indian tonnage has grown by only 17 per cent; whereas fleets of UK, Singapore, Germany and China grew by 179%, 136%, 102% and 39% respectively. • Indian lines’ share in country’s overseas trade has been falling and is at present just about 12%.

4. India – Need for a “Core Fleet” • A “core shipping fleet” - essential for the country’s international trade competitiveness, has a moderating effect on the country’s freight bill. • UNCTAD report - freight factor 4.8% for developed market countries, 7.7% for developing countries & 9.0% for India. • Indian shipping industry – a major earner/saver of foreign exchange & estimated to have earned/ saved Rs.11,850 crores in 2006-07. • A major portion of industry’s revenue percolates to build national assets and to fund domestic expenditure.

5. India – Need for a “Core Fleet” (contd.) • In addition to its multiplier effect on the economy, national fleet also helps in creating a large reservoir of maritime personnel, thus generating large scale employment. • TERI report – • for every addition of a GT to the national tonnage, the gross value added (GVA) to the economy is Rs.2211 per year; • 1% change in GT brings about a 0.0068% change in the country’s GDP. • Additionally, the national fleet gives the country strategic advantage in times of war/economic crisis, thus acting as a second line of defense.

6. Fiscal Regime for Indian Shipping • 100% foreign direct investments (FDI) in the shipping and port sectors. • Tonnage tax system introduced in 2004 brought down the tax liability of shipping companies at a level comparable to the international levels from the previous levels of corporate tax regime - over 2 mill. GT added to the Indian fleet since then.

7. Fiscal Regime for Indian Shipping – Why Still Uncompetitive • Various direct and indirect taxes have been levied on the Indian shipping industry distorting the level playing field for the Indian flag vis-à-vis its foreign counterparts. • The foreign shipping companies are operating from tax free jurisdictions whereas the shipping industry in India is exposed to 12 different taxes. Several direct and indirect taxes that have been levied on Indian shipping industry work out to nearly 9 per cent as against 0.5 per cent tax being required to be paid by shipping industry in most part of the world. • Thus, India has not been able to attract the international shipping companies to come forward and set up base in the country.

8. National Maritime Development Programme • The NMDP (unveiled in December, 2005) envisages an investment of Rs.1,00,339 crore to be spent in 387 identified projects in port and shipping sector spread over 20 years. • Some of the projects listed under the integrated programme are already under implementation. • The total investment includes Rs.55,804 crore for the ‘port sector ‘during the next six years to be funded through public private partnership (PPP). • Shipping and inland water transport (IWT) sector • Rs.44, 535 crore through budgetary support and internal and external budgetary resources. • Over a 20-year period (up to 2024-25) comprising 111 projects. • Activities include vessel acquisition by shipping corporation of India, maritime training activities, setting up of navigational aids and shipyards and promoting inland water transport, amongst others.

9. Need of the Hour – A Concerted Effort by Industry & Government • Industry – • Development of seafaring talent in the country • Improve track record in terms of safety, security and restriction of marine and air pollution by ships • Tonnage Acquisition • Government – • create a facilitative regime - taxation, cargo support, security of cargo & transportation, funding support and export incentive.

10. Taxes • Shipping is a truly global industry with no barriers for competition. • Indian shipping companies need a level playing field vis-à-vis their foreign competitors in terms of the fiscal regime. • The present slowdown makes a level playing field all the more essential. • A plethora of taxes are putting the Indian shipowners at a disadvantage by increasing the cost of input goods and services. Some key elements of taxes which need to be reviewed are as follows : • Service Tax • Sales Tax • Witholding tax on ECBs • Witholding tax on charter hires / rentals • Customs Duty • Excise duty • Income tax on seafarers income • MAT on profit from sale of ships

11. Cargo Support • USA and China have a proactive policy of cargo reservation for carriage of national cargo. • India’s strong cargo base can be leveraged to build a substantial Indian flag tonnage. • The Government controls substantial quantum of cargo through the PSUs. • India’s freight factor twice that of the developed nations, - largely because there is no substantial Indian tonnage to service the country’s transportation requirements. • Long term shipment contracts - An excellent method to derive mutual benefits for owners & charterer..

12. Cargo Support (contd.) • The Government should ensure long term contractual cargo support to Indian lines for Government/ PSU cargoes. • This will enable the Indian companies to invest into Indian flag tonnage and grow the Indian fleet. • This will also make shipping finance easier for Indian shipping companies. • Substantial presence of national fleet will help moderate country’s freight bill.

13. Energy Security • From the country’s security point of view , control of tonnage for the movement of critical cargo (such as crude oil , coal , fertilizers etc.) should be given due importance. • Many nations look at it as a national priority and control tonnage for movement of such critical cargo. • Large part of country’s requirement for energy being met through imported cargo - its security during sea leg needs attention. • Cargo support to Indian companies should be a natural consequence. • Urgent need to develop a national “core” fleet, particularly in the energy sector . • This core fleet could be used in case of national emergency and/or war to ensure energy security. • During peace times this core fleet could be deployed on long-term contracts with public sector units serving the commercial shipping requirement of the nation.

14. Access to funding • The current global financial markets scenario - extremely difficult to secure funding for acquisitions. • Increased funding cost - almost unviable to acquire & operate tonnage in the dismal freight markets. • Need for appropriate funding at moderate lending rates. • The utilization of India's foreign exchange reserves, through the India Infrastructure Fund. • The shipping & ports be granted infrastructure status. • Funding of around USD 20 billion required over 3 or 4 years just to maintain present share . • Global slowdown also presents opportunities for tonnage acquisition at competitive prices. • Creation of a shipping corpus – initially to the tune of Rs.10,000 crore – for providing soft loans to the Indian shipping companies. • Such combined proactive initiative by the industry and the Government will go a long way in ensuring the long term competitiveness of Indian shipping industry.

15. Export incentives • Cost of transportation is critical in the economic growth as it significantly impacts country’s export competitiveness. • Served From India Scheme (SFIS) - to encourage and enable exporters of services & shipping formed a part of it enjoying duty free entitlements. • The DGFT has now sought to restrict this eligibility to only those shipping voyages that call at an Indian port.

16. Export incentives (contd.) • Why SFIS for shipping – • Shipping – a global industry & all services of Indian shipping companies are rendered from India. • The definitions in the SFIS or GATT definitions, do not stipulate that "voyages" or "cargo" must emanate from or to India. • Export of services by an Indian shipping company for an international voyage not touching any of the Indian ports is same as the one touching Indian port as the ship is still registered in Indian, employing Indian crew, managed and operated from India, earning foreign exchange and is still under Indian Flag State Control. • All international voyages of Indian shipping companies should be eligible for SFIS so long as they satisfy the stipulation of earning free foreign exchange or its equivalent.

17. Concluding Remarks • The Indian shipping industry has an important role to play in growth of the Indian economy and trade. The combined effort of the industry and Government would ensure that Indian shipping industry emerges stronger and develops into a truly world maritime power.

18. Thank You