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India: ‘Govt is subsidising foreign shipowners by easing cabotage rule’

The Centre will lose revenue by allowing foreign ships to carry cargo on local routes through the recent relaxation in cabotage rule together with a move to scrap the ROFR, a top shipping industry official has said.

Besides, these decisions will not fetch lower freight rates for Indian charterers and consumers, Atul Agarwal, a former president of the lobby group Indian National Ship Owners Association (INSA), told BusinessLine, countering the Shipping Ministry’s argument that the decisions were aimed at reducing logistics costs.

The cost of operating an Indian flag vessel is reckoned by the local industry to be some 20 per cent more expensive than a foreign flag, mainly ship due to higher bunker rates, crew taxation, Goods and Services Tax etc. By giving them entry to operate along the coast, the government is subsiding foreign flag ships to the extent of 20 per cent because the government will not be collecting the 20 per cent, mostly in taxes, from them.

“You are giving that benefit to them. I’m not looking for any subsidy from the government. My argument is, I don’t want the government to lose that money. I want the government to levy that 20 per cent on him. You allow him to come on the Indian coast, please collect the 20 per cent from him.

“I’m prepared to compete with him on merits. I’m competing with him even today and matching their freight. But, don’t make it an uneven playing field for me in future. The government should collect revenue from him,” Agarwal said.

Foreign flag vessels, according to Agarwal, will not make the freight cheaper. They will charge the same freight. Charterers will still pay the same and foreign flag vessels will make more money. So, the government is not subsidising either the Indian shipowners or the Indian consumers, but the foreign flag vessels.

“The government is giving a 20 per cent subsidy to encourage foreign ships. As it is, how much EXIM cargo are Indian ships carrying? Eight per cent or even less. You are removing the ROFR so that foreign flag vessels get the balance eight per cent. If I had a 92 per cent share of India’s EXIM cargo, then I would have been the one setting the freight, not at eight per cent. I don’t have the power to do it. So, am I dictating anything?” Agarwal argued.

‘A myth’

“It is a myth that if you allow foreign ship owners on the coast or if you remove the ROFR, freight rates will come down. On the contrary, the rates will go up. One hundred per cent,” Agarwal asserted.

And, nobody will realise that the government has indirectly subsidised foreign ships. The total collection of taxes from the shipping industry — both direct and indirect — will not be more than ₹8,000 crore. But in the accounts of the government, there is no separate shipping sector. No one will be wiser that the government lost this revenue. No one will understand that the government has subsidised foreign ship owners, he said.

Forex outflow

The decision, he fears, will lead to greater outflow of foreign exchange.

“By encouraging foreign ship owners on the coast, are we not encouraging more out flow of foreign exchange. Most of my earnings, even if it is in foreign exchange, is retained within India – salaries goes to Indian crew and operational expenses in the office goes to Indians. What will the foreign ship owner do with his earnings. He will take them away. So, what is the benefit to India? Nothing,” he adds.

Source: The Hindu Business Line

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