Quite often I have been asked – Why most of the ship operating companies have their base set up in Singapore, Dubai or any other place but not in India. With a growing economy and a massive coastline of 7,500 KMs, the strategic location along most of the shipping highways and interspersed with more than 200 ports with a capacity to handle over 1500 million MT cargoes in 2020, it is obvious that India plays a vital role in global seaborne trade. Despite this advantageous position, we don’t have many shipping companies operating on Indian shores.

Now, this topic will have diverse perspectives and inputs. For example, a shipowner would want to speak about the tonnage tax and, a cargo trader would want to talk about the GST levy on Ocean Freight. On this platform, I would like to discuss the challenges of having a dry bulk ship operating company in India.

The first and foremost challenge is of taxation. Of course, it’s a very sensitive and most prevalent complaint across the industries. So why should the shipping industry receive special attention? The answer is simple.

Shipping is an international business and you need to compete with companies worldwide who have advantageous tax regime policies through which it is easier for them to offer competitive freight.

You do not get business based on your domicile but on how well-defined and sharp freight is offered.

The most common perception in Tax relaxation is that it's meant to be savings for the pocket, but the reality is tax should be levied in a way that it can be at par with the foreign counterparts. If the industry becomes competitive, one can get the business and generate income, from which it will not be a burden to pay the taxes from the profits earned. If one is not competitive, it becomes difficulty in generating business or even income which makes it difficult to pay taxes.

Consider this example, there is a freight tender of Indian Steel Major. All the shipping companies are invited to bid. A foreign company might not need to add TDS or GST calculations in their workings but if you are doing the business from India, you need to add the TDS/GST charges under RCM for all the Hire and Bunker remittances made outside the country. A simple calculation will show that providing a shipping service from an Indian company is at least 15-20% costlier compared to providing that same service in India through an international firm.

I am not disregarding the fact that we need to obey the rule of the land but the policy needs to be objective. Indian firms don’t have a scope to do business with the companies based out of their own country only because of these tax policies. Given the international nature of the shipping industry, the foreign trade policy and the taxation policy of India needs to be in sync. For a robust policy in the Indian shipping sector, the government need to spread its reach in both the international and domestic environment, while ensuring that the Indian shipping companies are taxed only to the extent that they continue to remain internationally competitive.

Probably this could be the reason why even after our government allowed Foreign Direct Investment (FDI) of up to 100%, not many international shipping companies have invested in India so far.

Now, the government undoubtedly, has made efforts to bring about the growth of the Indian shipping industry but these have been partly successful because of the basic cost structure which has not been conducive to its growth.

The second factor is the ecosystem. Any industry cannot work all by itself. It needs a seamless ecosystem to create a robust maritime fraternity to strengthen its value chain. Government must encourage shipping industry associations and other intermediate services providers, such as ship finance, marine insurance, maritime arbitrators, maritime law firms, a wider portfolio of shipbrokers, ship bunkering firms etc.

Emphasis must be put to create a credible dispute resolution centre of international standards. This vision could be farsighted but how about having our trading centres like those of Baltic and Singapore exchanges.

A good eco-system could be a multiplier in terms of more FDIs, more companies setting their shores in India and more job opportunities but above all projecting India as a major shipping powerhouse which it undoubtedly deserves.

The third and last factor is the manpower resources.

Unfortunately, in major parts of our country, shipping is understood as Merchant Navy which is ofcourse a respected profession but it is a small portion of the entire gamut of the industry. For our present generation, there is limited exposure to the world of chartering, ship brokering, paper trading, ship finance, maritime law etc. Seldom institutes are offering courses in these streams. Shipping has been traditionally been a people’s business, and much talent needs to be attracted if we want to count ourselves as an international maritime centre.

These are some of the factors conducive to the development of robust and sustainable shipping industry in India. As the country grows to be one of the major economies in the world, India will require a vibrant and strong maritime industry for economic as well as strategic reasons. In conclusion, it will generally depend on how the different stakeholders utilise the opportunities presented to them to transform the sector into an engine of growth for the country.

Thank you