India continues to have a minor share in the international shipping sector and has been forced to become a net importer of shipping services, especially ship financing.
This is despite the country having a large coastline, a growing domestic market and international maritime trade, deep-rooted maritime traditions and skilled seafarers.
The report, Ship Acquisition, Financing and Leasing (SAFAL), was submitted to the International Financial Services Centers Authority (IFSCA) on October 28, 2021 by the International Financial Services Centers (IFSC) Ship Acquisition, Financing and Leasing Development Pathways Committee.
The committee was constituted by IFSCA on June 24, 2021 under the chairmanship of Vandana Aggarwal with representatives from the Government of India, Gujarat Maritime Board, industry and finance experts and academicians.
Maritime transport is essential for India. Nearly half of India’s border is covered by the sea, with a coastline of some 7,517 km, with 12 major and 205 minor ports. In addition, India is strategically located on global shipping routes. The Ministry of Shipping has estimated that about 95% of India’s merchandise trade by volume and 70% by value is carried by sea transport.
India is highly exposed to ocean freight. Ocean freight is estimated at $85 billion annually. The share of Indian ships in the transportation of India’s export and import cargo was around 6.53% in FY 2019-20. It is estimated that every year India pays around $75 billion in ocean freight to foreign shipping lines. Therefore, India is well placed to increase its investment in the shipping industry, the report said.
As explained, the committee undertook a 360-degree review of the existing legal and regulatory regime in IFSC in India for ship procurement, financing and leasing, comparing it with those of leading global maritime centers.
He developed financial models to gauge the difference in costs, including capital and operating costs and tax costs, of doing this business at IFSC and these centers. He also identified the bottlenecks to realizing the growth story of the Indian maritime sector.
Further, it consulted widely with stakeholders to work out the changes required to establish a robust SAFAL regime in the Indian IFSC. For this, it also considered holistically the supporting linkages of shipbuilding, flagging, operation and repairs and recycling in the shipping value chain.
The committee presented the critical and necessary changes to bring this start-up company to the India IFSC. These cover legal and regulatory areas, direct and indirect taxation, ship financing and ease of doing business based on global best practices.
The report offers useful recommendations to realize the true potential of transforming the Indian shipbuilding industry. It believes that the time is ripe to impart brand value to Indian flagged ships. This can be done by gaining a share in global trade, securing lucrative transactions for the Indian market, promoting decarbonization and greening of blue oceans, and leveraging the India-IFSC Maritime to achieve the India Maritime Vision 2030 and beyond.
Essentially, the committee has found that the IFSC concept, designed for financial services, should naturally be extended to SAFAL products and services, including ancillary ones. This may involve reporting ship leasing or operational leasing of any equipment as a “financial product” to allow ship leasing entities to establish a unit in the IFSC.
A new category of “Indian IFSC controlled tonnage” has been proposed to be introduced with a global benchmark of regulation, tonnage tax and other fiscal and seafarers’ regimes, besides overcoming the pricing and other limitations of the current ROFR regime for import of bulk cargoes.
Changes in direct and indirect taxation have been proposed based on the competitive differences identified through the financial models developed for India-IFSC.