4th February 2025 (12 Topics)
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Some wind behind the sails of India’s shipping industry
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Context
India's maritime sector, particularly its shipping and shipbuilding industries, faces multiple challenges despite government investments. The Sagarmala project has made significant strides in port modernisation, yet the Indian shipping industry has remained stagnant due to various structural and financial issues. The Union Budget 2025 proposed new initiatives, but key challenges persist, especially concerning tax policies and capital constraints.
Sagarmala Programme and Investment Overview
- Sagarmala Project: The government’s flagship Sagarmala programme has outlined 839 projects requiring Rs 5.8 lakh crore by 2035, with significant investments in port modernisation, connectivity, and port-led industrialisation.
- Expenditure Breakdown: Over 50% of Sagarmala’s investment is allocated to port modernisation, 35% to port connectivity, and 10% to port-led industrialisation.
- Economic Growth and EXIM Trade: India's economy grew by 43% from 2016 to 2023, with an increase in EXIM trade, but stagnation persists in the domestic shipping industry.
Stagnation of Indian Shipping Industry
- Low Growth in Cargo Handling: Despite high investments, cargo handling at major ports grew only marginally by 14.26% from 2016-2021, and vessel traffic declined by 5.93%.
- Indian Fleet Aging: The average age of India’s shipping fleet increased to 26 years by 2022-23, affecting competitiveness. However, newer vessels were added in 2024 to reduce this age.
- Competition from Foreign Vessels: Indian vessels continue to lose market share to foreign-flagged ships, largely due to financing challenges, higher operational costs, and tax advantages for foreign ships.
Challenges and Budgetary Proposals
- Capital Constraints and Tax Disparities: Indian shipping faces high borrowing costs, rigid loan policies, and unfavourable tax laws, making it less competitive compared to ships registered in tax havens.
- Shipbuilding Sector Struggles: Inadequate infrastructure and high input costs, particularly on steel, further hinder the growth of India’s shipbuilding sector.
- Union Budget 2025 Proposals: The government proposed a Rs 25,000 crore Maritime Development Fund (MDF) and tax relief for shipbuilding, but industry stakeholders believe the fund may still fall short due to the high capital intensity of the sector.
Practice Question:
Q. Discuss the challenges faced by India’s maritime and shipping industries despite the Sagarmala programme and other government initiatives. How can policy reforms address the stagnation in Indian shipping and shipbuilding sectors?
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