What’s in the news?
- The Union Cabinet has approved a scheme under which Indian shipping companies will be given a subsidy as they bid for global tenders for the import of cargo by the government or government entities.
- As part of the scheme, the central government will provide a subsidy of up to Rs 1,624 crore in the next five years to the Indian shipping companies.
Why do Indian shipping companies need a subsidy to compete with global players?
- There are some major reasons why the Indian shipping industry needs a subsidy to compete with the rates offered by foreign players. These are – lack of carrying capacity, inadequate large domestic ship manufacturing, or ship repair facility and international alliances by large shipping companies.
Lack of carrying capacity & Inadequate large domestic ship manufacturing
- India’s national fleet is proportionately small when compared with its global counterparts, despite the country having a 7,500-km-long coastline, a growing national Exim trade, and 100 percent foreign direct investment (FDI) in shipping since 1997.
- Currently, the Indian fleet comprises a meagre 1.2 per cent of the world fleet in terms of capacity. The share of Indian ships in the carriage of India’s EXIM trade has drastically declined from 40.7 per cent in 1987-88 to about 7.8 per cent in 2018-19.
- Historically, all the shipping infrastructure in India has helped foreign shipping liners. Foreign ship owners carry our inbound and outbound cargo. This is the case in container shipping too. Indian maritime business operators have preferred to be agents for foreign ship owners or container liners rather than becoming ship owners or container liners themselves. As a result, there is a wide gap between carrying capacity and multi-folded cargo growth in the country.
- While investment in the country’s ship building industry has increased since 2014-15, the lack of government policy focused on increasing investment in the country’s shipping industry, has limited the setting up of a large ship manufacturer in India.
- Private and foreign investment in the country’s ship-manufacturing and repair industry has also remained low due to high taxation on the country’s shipyards, high interest in working capital in India, and lack of bank guarantees.
- Most of the top shipping companies in the world have formed alliances to strengthen their balance sheets. Although this protects the carriers from potential capital issues due to vessel sharing and bailout agreements etc, it makes the industry less competitive for the customers.
- In addition, Indian companies are not a part of these international alliances due to their limited capacities and weak financial balance sheets.
- Foreign companies are able to take advantage of operational efficiencies, global clearances, and financial aid from their governments in order to provide better services at lower tariffs.