Summary
Shipping Industry requested Shipping Ministry for financial aid and cargo support. It is unlikely to be accepted in the current economic scenario.
Analysis
Financial incentives are in the purview of Finance Ministry. Shipping ministry does not have reserved funds to lend it to the shipping sector. It can, at max, propose soft loans which are unlikely to solve problem of shipping industry in India. Anything more than that has to go to the finance ministry, which is already troubled by rising fiscal deficit and ongoing subsidy to popular industry such as fertilizers, diesel, etc. Finance Ministry is unlikely to award shipping industry any financial aid
Cargo support to the shipping companies can be provided by introducing cabotage laws to the existing system. But cabotage laws can be implemented in case of coastal trade. It is difficult to do so in case of overseas trade. Government can reserve cargo in coastal trade, as the port of loading and unloading lies in the same country. But in case of overseas trade, say import of coal from Australia, export of Iron ore to China/Japan or import of crude oil from Middle East or Nigeria, it will be difficult for Government of India to ask the importer or exporter to use Indian flag ship only. United States, which has one of the most stringent Cabotage law for coastal shipping by the name Zones Act, has not been able to reserve cargo for US registered shipping companies.
In an open market, if government asks even the state owned enterprise such as Hindustan Petroleum, Bharat Petroleum or Steel Authority of India to use Indian flag ships for their cargo at a premium charter rates. Should government compensate them for added cost of shipping? If shipping companies get cargo at a premium price, their loss has to be taken by somebody else. Who will it be Charters or Government? The request of Shipping Industry is in their interest, but is difficult to be implemented in current scenario.
Anand Sharma consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
