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Indian shipowners call for fleet modernisation fund

Indian shipowners call for fleet modernisation fund
The share of Indian tonnage in the transportation of the country’s cargo has been dipping steadily over the years, from around 33% in the early-1980s to a current level of 8%. Continued slippage in the share of Indian shipping in the carriage of India’s overseas trade has resulted in increasing dependence on foreign flag ships for the carriage of overseas trade, and in turn has caused a drain on precious foreign exchange in terms of payment of freight charges.

With the average age of Indian ships touching 18.5 years, many of these vessels are becoming uneconomical to run, and often lose out to foreign flag flying modern, fuel-efficient ships that can offer more competitive freight rates.

 “Shipping, being highly capital intensive, requires huge funds for financing new acquisitions, depending upon market conditions,” says former Shipping Corporation of India (SCI) chairman Sabyasachi Hajara, who retired from the national carrier at the end of 2012.

 “Funds are mobilised largely through external commercial borrowings and internal generation. In the current depressed shipping scenario, it is uncertain how shipowners will be able to source the equity and debt requirements for vessel acquisition.

“As the shipping industry is in dire need of funds for acquiring modern tonnage, it is essential that the Indian government set up a ‘shipping modernisation fund’ to support the national fleet, enabling access to funds at reasonable rates.”

There is also a demand for customs duty exemption on vessels used in international commercial transportation and abolition of seafarers’ tax in order to retain talent. The industry has also felt the need for exemption from service tax on several inputs.

The 5% countervailing duty on foreign-going vessels on conversion for coastal trade is, from 1 April 2013, to be charged on proportionate basis, depending on the period for which the ship operates as a coastal vessel in India. The value shall be taken as the lease value when the import is against a lease agreement or contract.

The Indian National Shipowners’ Association (INSA) industry has also been demanding infrastructure status for the shipping industry as one of the steps to rationalise, strengthen and provide an environment conducive to the growth of the sector.

“In fact, the Indian shipping industry fulfills the characteristics of infrastructure as mentioned in the harmonised master list of infrastructure sub-sectors,” says Great Eastern Shipping’s chairman Kanu Sheth.

“Granting infrastructure status to shipping would mean reduced cost of borrowings to buy technologically advanced and environment friendly vessels, leading to increased trade volumes, and resulting in higher employment and higher foreign exchange earnings and savings.”