More than 25 Indian shipping companies have appealed to the Prime Minister, Narendra Modi, seeking his urgent intervention to prevent a crises in the Indian flag shipping industry; arising as a fallout of the Notification No. 2 of ‘Make in India’ dated 13th February 2019, issued by the Ministry of Shipping, Government of India and Circular No. 2 of 2019 issued by the Director General of Shipping, Mumbai. The impact of these government circulars is expected to shut down the industry and is expected to take away business from the Indian shipping companies, lead to idling of ships, loss of employment for Indian seafarers and a debt crisis for companies and Indian banks.
The crux of the problem is that the circular equates a foreign ship taken on hire with a ship actually owned under the Indian flag by an Indian company. Secondly, it gives priority in getting government contracts for transportation to ships which have been for years flying a foreign flag only because they were, at some time built in India. Indian flag vessels have been enjoyed the Right of First Refusal (ROF) which enables Indian ships to match the lowest rates quoted by a foreign vessel and take that business. This has aided growth of Indian fleet since it helps to ensure that no Indian asset remains idle. The right has been taken away and given to foreign ships.
The ship owners feel that they are being told that investing in ships under the Indian flag is a mistake and they are being penalized for operating as Indian companies. It seems that the loss of jobs on shore and at sea as well as the potential NPAs do not seem to bother the Ministry and the DG Shipping who will reward foreign ships at the cost of Indian shipping companies.
The total size of the Indian fleet is estimated to be approximately valued at Rs. 70,000 crore in all.
“While we applaud the intent of the notification in respect of incentivizing ship building in India, we are concerned that the notification and the circular issued by the Government of India is detrimental to the survival of the Indian shipping industry. It removes the Right of First Refusal (ROFR) available to the Indian flag vessels which enables an Indian flag vessel to match the lower rates given by a foreign flag vessel so that the Indian business is available to Indian flag vessels,” the memorandum said. The memorandum further says that given Mr. Modi’s vast experience in dealing with the maritime trade, which is evidenced by the growth of the industry in Gujarat, the shipping industry expects him to realise the gravity of the situation and take necessary action.
The notification and circular indicates that the Ministry and the DG Shipping favours those who temporarily hire foreign flag assets and remit money out of India rather than those investing in the Indian economy with a USD 15-50 million asset. If this policy is continued, the Indian flag ships will soon disappear to be replaced with foreign owned foreign flag vessels fear the owners.
Mr. Sachin. K. Kshirsagar, Director, SS Offshore Pvt. Ltd., one of signatories of the memorandum added that the Government gives preference to foreign flag vessels built in Indian yards but not owned by Indian companies, over Indian flag.” However, none of the 25 Indian shipping companies believe that this has the blessings of the PM which will directly lead to shutting down of Indian shipping companies, cause loss of thousands of jobs and would have an impact on the food and energy security of India. This action also has the ability to create potential NPAs for Indian banks,” he said.
The memorandum also applauded the Government for promoting the Sagarmala concept, which was expected to lead to the growth of the Indian shipping industry. However, the controversial notification and the circular gives preference to ships previously built in India even though their owners may or may not have opted to operate the ship under Indian ownership or flag. “This definitely does not serve the purpose of ‘Make in India’ as ships already ‘Made’ in India have been given preference which does not incentivize future shipbuilding in India,” the memorandum said.
Captain Vikas Vij, Managing Director, I-Marine Infratech (India) Pvt. Ltd., another of the signatories, added that the ship owners of the country completely support the Prime Minister’s effort towards Make in India. Such changes can be simply done through a well-thought policy intervention and but not policies which will destroy the Indian shipping industry and impact the life and the livelihood of several small Indian entrepreneurs who have put in a lot of capital and investments over the years.
The loss of business by Indian companies accompanied by loss of jobs of Indian seafarers worry not only the owners but even those employed in such companies. “I am not understanding how the government seems to be not bothered about us small people who are going to be most affected if the company shuts down” said a Senior accountant working for one of these companies who refused to be identified. The Indian ships provide guaranteed employment to about 25,000 Indian seafarers who face the prospect of losing their jobs in addition to their counterparts employed in offices and ports. “What would be graver is the fact that Indian shipping companies will become financially weaker and will impact the Indian economy and lenders,” Mr. Sachin. K. Kshirsagar added.
In order to be able to achieve a positive conclusion to this issue, the memorandum appealed the Government to accept and appreciate that the Indian ship-owners fully support the use of Indian shipyards for new buildings based on fair performance in terms of quality of workmanship, time taken to build ships and other commercial terms.
“We hope that the PM is able to get a chance to look into our grievance while he is busy with the elections” said Mr. Vij. In this background, the memorandum appeals to the PM to consider changes to this Circular No.2 of 2019 and that the right to cargo should be granted on the basis of the following priority namely 1) Indian-built Indian flag vessels (provided the shipbuilding order for such a vessel has been placed with an Indian shipyard on or after the date of the circular 2) Foreign built Indian flag vessels 3) Foreign flag Indian built vessels (provided the shipbuilding order for such a vessel has been placed with an Indian shipyard on or after the date of the circular) 4) Foreign flag foreign built vessels and 5) All hired/chartered vessels by an Indian company or individual.
