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Union Budget Boosts India’s Shipping Industry
Context:
The Union Budget 2025 has introduced measures to strengthen the maritime sector by strengthening its flagship programme named Sagarmala Programme which supports shipping, shipbuilding, and shipbreaking, however gaps remain.
Government’s Commitment to the Maritime Sector
- The Indian government has increased its focus on the maritime sector through policy initiatives and investments.
- The Sagarmala Programme is a flagship initiative aimed at port modernisation, connectivity, and industrialisation.
Allocation under the Sagarmala Project
- As of September 2024, 839 projects worth ₹5.8 lakh crore are planned till 2035.
- 241 projects worth ₹1.22 lakh crore completed.
- 234 projects under implementation, valued at ₹1.8 lakh crore.
- 364 projects under development, worth ₹2.78 lakh crore.
- Breakdown of investment:
- ₹2.91 lakh crore (50%) for port modernisation.
- ₹2.06 lakh crore (35%) for port connectivity.
- ₹55.8 thousand crore (10%) for port-led industrialisation.
- Remaining 5% for coastal community development, coastal shipping, and inland water transport.
Stagnation in the Shipping Industry
- Cargo handling growth: 1,071.76 million tons (2016-17) to 1,249.99 million tons (2020-21), a meager 2.85% annual increase.
- Vessels handled: Declined from 21,655 (2016-17) to 20,371 (2020-21), a drop of 5.93%.
- Indian-flagged ships: Increased from 1,313 (2016-17) to 1,526 (2024), growing 2.4% annually.
- Gross tonnage: 11.55 million GT (2016-17) to 13.74 million GT (2024), 2.5% annual growth.
- Fleet aging: Improved from 26 years (2022-23) to 21 years (2024) due to 34 new vessels.
- Global ranking: India dropped from 17th to 19th in ship ownership.
Reasons for Stagnation
- Investment not getting Translated: Increased investment in ports did not translate into shipping industry growth.
- Indian shipping losing market share:
- Foreign-flag vessels dominate Indian EXIM cargo transportation.
- Domestic cargo shifts to rail and road transport.
- Different needs of stakeholders: Shipowners and shipbuilders require distinct policies separate from port and terminal operators.
Challenges in Shipbuilding
- Shipowners’ Challenges
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- High capital costs and borrowing rates.
- Short loan tenures and rigid collateral requirements.
- Lack of flexible loan restructuring policies.
- Taxation disadvantages: 5% IGST on Indian ships, TDS on Indian seafarers’ salaries.
- Shipbuilders’ Challenges
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- Inadequate infrastructure for large vessel construction.
- High steel and component costs.
- Weak ancillary industries leading to dependency on imports.
- Custom duties on imported machinery and spare parts.
- Skill gaps affecting workforce efficiency.
- Delayed vessel deliveries, discouraging investment.
Key Demands of the Indian National Shipowners Association
- Maritime Development Fund (MDF) with adequate capital.
- Infrastructure status for ships.
- Removal of 5% IGST on ship acquisitions.
- Exemption of Indian seafarers from TDS.
- Long-term financing mechanisms.
Maritime India Vision 2030
- Aims to increase India’s global tonnage share from less than 1% to 5%.
- Shipbuilding target: Top 10 by 2030, Top 5 by 2047.
- Infrastructure enhancement for shipbuilding and repair.
- Strengthening maritime clusters.
- Policy focus on green shipping technologies.
Key Announcements in Union Budget 2025
- ₹25,000 crore MDF (49% from the government, rest from ports).
- Infrastructure status for large vessels.
- Extension of basic customs duty exemption on shipbuilding inputs.
- Revamped financial assistance policy for shipbuilding.
- Credit incentives for shipbreaking in Indian yards.
- Tonnage tax extension to inland vessels.
Gaps in Budget 2025
- MDF capitalisation unclear: Mobilisation timeline not specified.
- Insufficient tax relief: IGST on Indian ships and TDS on seafarers remain.
- Aging fleet replacement: No specific roadmap.
- Green technology investments require long-term funding.
- Shipbuilding incentives remain limited to large vessels.
Way Forward for the Shipping Industry
- Expand MDF to attract External Commercial Borrowings (ECBs).
- Remove tax disparities affecting Indian vessels.
- Strengthen shipbuilding infrastructure with subsidies for private yards.
- Encourage domestic production of ship components.
- Develop maritime clusters with integrated financing and research hubs.
- Enhance financing options: Provide 7-10 year repayment periods.
- Focus on green shipping initiatives for sustainability.
