The government deserves credit for its commitment to develop the maritime sector, largely neglected by predecessor governments. This is reflected in the expenditure on the government’s flagship programme, Sagarmala, which, as on September 2024, had outlined 839 projects requiring an investment of ₹5.8 lakh crore by 2035. Of these, 241 projects, worth ₹1.22 lakh crore, have been completed, while 234 projects, valued at ₹1.8 lakh crore, are under implementation. Additionally, 364 projects, with an estimated investment of ₹2.78 lakh crore, are in various stages of development.
Within Sagarmala, ₹2.91 lakh crore (over 50%) is allocated for port modernisation; ₹2.06 lakh crore (more than 35%) for port connectivity; ₹55.8 thousand crore (10%) for port-led industrialisation, the remaining 5% distributed between coastal community development, infrastructure for coastal shipping (not ship acquisition) and inland water transport.
India’s economy has seen GDP rising from ₹153 trillion in 2016-17 to ₹272 trillion in 2022-23 — an increase of 43%, growing at a CAGR of 7%, despite two years of COVID-19 related setbacks. The economy is projected to reach $3.7 trillion this year, $5 trillion by 2027, and $7 trillion by 2030.
During this period, India’s EXIM trade has also grown from $66 billion in 2016-17 to $116 billion in 2022, a cumulative increase of over 77% and an annual growth rate of 12.83%. India aims to boost exports to $2 trillion by 2030, to strengthen its global trade position.
The industry continues to face stagnation
Despite high economic growth and increased investments in the maritime sector, the Indian shipping industry has remained stagnant. According to statistics by the Ministry of Ports, Shipping and Waterways, the cargo handled at major ports has only marginally increased from 1,071.76 million tons in 2016-17 to 1,249.99 million tons in 2020-21 — a cumulative growth of 14.26% or an annual increase of just 2.85%. In contrast, the number of vessels handled at these ports has actually declined by 5.93%, from 21,655 vessels in 2016-17 to 20,371 in 2020-21.
In terms of Indian-registered ships, the number has increased from 1,313 in 2016-17 to 1,526 in September 2024 — a cumulative rise of 16.77% and an average annual growth of 2.4%. Over the same period, gross tonnage has grown from 11,547,576 GT in 2016-17 to 13,744,897 GT — a cumulative increase of 17.44% and an annual average growth of 2.5%.
A major concern has been the aging Indian fleet, with the average vessel age rising to 26 years in 2022-23. However, this has now improved to 21 years, with the addition of 34 relatively younger vessels (average age of 14 years) in 2024. In comparative terms, India’s global ranking in ship ownership declined from 17 to 19, highlighting the need for reforms.
Clearly, the assumption that increased investment in ports would automatically drive growth in Indian shipping has been proven wrong.
In reality, Indian shipping has continued to lose market to foreign-flag vessels in carrying Indian EXIM cargo and to rail and road transport for domestic cargo. The reason is simple: the needs of shipowners and shipbuilders are vastly different from those of port and terminal operators.
Multiple challenges such as in shipbuilding
Indian shipping faces multiple challenges hindering its competitiveness: lack of capital and high borrowing costs; short loan tenures, rigid collateral requirements requiring shipowners additional security instead of using ships as collateral; limited understanding of the industry’s cyclical nature, leading to inflexible loan restructuring policies; unfavourable taxation laws often favouring foreign-flag vessels over Indian vessels even within Indian waters; delays in repatriating funds for ship acquisitions; stringent regulatory requirements, and additional financial burdens on mandatory training of Indian seafarers and higher port charges, further eroding competitiveness.
In contrast, ships registered in tax havens or flags of convenience — benefit from easier access to capital, lower borrowing costs, lenient regulatory standards, concealed ownership structures, and minimal regulatory oversight. This makes Indian-flagged vessels significantly less competitive in global shipping markets.
Beyond capital constraints, India’s shipbuilding industry also struggles with: inadequate infrastructure for constructing large vessels; high input costs, particularly on steel; a weak ancillary industry leading to dependency on imports; customs duties on imported machinery and spare parts, increasing production costs, and skill gaps that limit workforce efficiency.
Additionally, funding challenges for shipowners and delays in new-build vessel deliveries deter potential buyers from investing in Indian shipyards, further weakening the domestic shipbuilding sector.
The Indian National Shipowners Association has for long advocated measures to ease capital constraints and eliminate discriminatory tax policies. Two key recommendations, i.e., the creation of a Maritime Development Fund (MDF) and granting infrastructure status to ships, were incorporated into the Maritime India Vision 2030. Additionally, industry stakeholders have been pushing for the removal of the 5% IGST on ship capital costs and the exemption of Indian seafarers from TDS requirements.
Except for tax-related relief, most of the industry’s long-standing demands appear to have been addressed in the Union Budget.
The government has announced: a ₹25,000 crore MDF; Infrastructure status for large vessels; facilitation of shipbuilding clusters; a 10-year extension of the basic customs duty exemption on shipbuilding spares and equipment; a revamped financial assistance policy for shipbuilding; credit incentives for shipbreaking in Indian yards, and an extension of the tonnage tax scheme to inland vessels.
However, the devil lies in the details. The government’s contribution to the MDF will only be 49%, with the remainder to come from major ports. It is unclear whether the ₹25,000 crore will be mobilised in a single year or over multiple years. Given the high capital intensity of shipping, shipbuilding, and port sectors, this amount may still fall short of industry needs.
The aging Indian shipping fleet requires urgent replacement, and greenhouse gas emissions reduction targets will necessitate investments in green technology. The sector requires long-term financing with lower interest rates and repayment tenures of 7-10 years. Additionally, India needs new shipyards to build large vessels and the expansion and modernisation of existing ones. Although Sagarmala has infused funds in ports, additional funds may still be necessary for modernisation, despite transitioning to a landlord model.
If the MDF is strategically utilised to attract external commercial borrowings (ECBs) at lower interest rates, it could help bridge the funding gap across the maritime sector.
Glaring tax disparities
The Budget appears to have missed a crucial opportunity to address the tax disparities that put Indian ships at a comparative disadvantage to foreign ships, even when operating along the Indian coast. Indian-flagged vessels are subject to a 5% IGST on purchase price, a levy not imposed on foreign-flagged ships. Additionally, Indian shipping companies must deduct tax at source (TDS) on seafarers’ salaries, whereas foreign vessels employing Indian seafarers face no such obligation.
The Budget 2025 is a promising step but must not become another half-measure in the name of shipping reforms. The industry needs decisive action, not just incremental progress.
Amitabh Kumar, a retired IRS officer, is former Director General, Shipping, Government of India. The views expressed are personal
Published – February 04, 2025 12:16 am IST
