The Modi government aims to abolish cabotage rules, enabling foreign ships to operate along India’s coast without permits, in a significant shipping sector reform. This move, aligned with Finance Minister Nirmala Sitharaman’s Budget announcement, aims to boost coastal shipping but faces opposition from domestic fleet owners.
Cabotage Regulations
The Indian National Shipowners Association (INSA) plans to strategize in response to the government’s proposal to remove cabotage rules, discussed in an upcoming meeting. Currently, only Indian registered ships are allowed for cargo transport on local routes, with foreign ships requiring licenses from the Directorate General of Shipping (DG Shipping).
In 2018, some exceptions were made to this rule, allowing foreign flagged ships to transport specific cargo types without DG Shipping licenses, thanks to lobbying efforts from foreign container lines.
In September 2015, certain foreign-flagged ship types were permitted to engage in India’s coastal trade without DG Shipping licenses, marking an earlier relaxation of cabotage regulations.
Freight Rates
“Coastal Shipping will be promoted as the energy efficient and lower cost mode of transport both for passengers and freight, through PPP (Public-private-Partnership) mode with viability gap funding,” Finance Minister Nirmala Sitharaman said in her Budget speech to Parliament on 1 February.
Currently, coastal shipping only has a 7 percent share in India’s transportation modal mix.
The licensing condition, according to the Ministry, was earlier relaxed for certain types of specialized foreign flag ships due to non-availability of adequate number of such Indian flag vessels.
“This would encourage modal shift from road and rail transport to coastal shipping and eventually benefit the end users. Both the coastal trade and the transhipment of containers from Indian ports, have shown an increase subsequent to the easing of licensing conditions for plying of foreign ships for specified types of cargo,” the Ministry document claimed.
Development and Evaluation
Development of infrastructure on coastal routes, including evaluation of alternative routes, enhancement of existing ports/jetties, and creation of new jetties, are essential for successful coastal shipping and transportation of commodities like coal and fertilizers.
The plan, if and when implemented, will immediately affect a small number of Indian container ship owners/operators. “Fleet owners running other types of ships such as bulk carriers and tankers are protected to a limited extent by the right of first refusal (RoFR) policy for moving government-owned/controlled cargo. But ultimately, it is going to affect everybody,” said a fleet owner.
