Context: The Union Cabinet chaired by the Prime Minister Modi approved a subsidy scheme for shipping companies during global tenders for import of government cargo.
Need

• The operating costs of Indian ships are thus much higher as compared to those of foreign ships.
• The Indian ships are less competitive while compared to their foreign peers and the Right of First Refusal (ROFR) policy has not been able to fuel growth of Indian tonnage.

About Scheme for Promotion of Flagging of Merchant Ships

• It provides subsidy to Indian Shipping companies in global tenders floated by Ministries and CPSEs for import of government cargo in the following manner:

For a ship which is flagged in India after 1st February, 2021 and is less than 10 years at the time of flagging in India:

• The subsidy support would be extended @15% of the quote offered by the L1 foreign shipping company, or
• The actual difference between the quote offered by the Indian flag vessel exercising ROFR and the quote offered by the L1 foreign shipping company, whichever is less

For a ship which is flagged in India after 1st February, 2021 and which is between 10 to 20 years old at the time of flagging in India:

• The subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company, or
• The actual difference between the quote offered by the Indian flag vessel exercising ROFR and the quote offered by the L1 foreign shipping company, whichever is less
• The rate at which the above subsidy support is extended would be reduced by 1% every year, till it falls to 10% and 5%, respectively, for the two categories of ships mentioned above.

For existing Indian flagged ship which is already flagged and less than 10 years old on 1st February 2021:

• The subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company; or
• The actual difference between the quote offered by the Indian flag vessel exercising ROFR and the quote offered by the L1 foreign shipping company, whichever is less.

For existing Indian flagged ship which already flagged and between 10 to 20 years old on 1st February 2021:

• The subsidy support would be extended @5% of the quote offered by the L1 foreign shipping company; or
• The actual difference between the quote offered by the Indian flag vessel exercising ROFR and the quote offered by the L1 foreign shipping company, whichever is less
• The provisions of the subsidy support would not be available in case where an Indian flagged vessel is the L1 bidder.
• The budgetary support would be provided directly to the Ministry/Department concerned.
• The subsidy support would be extended only to those ships which have bagged the award after the implementation of the scheme.
• The ships older than 20 years would not eligible for any subsidy under the scheme.
• The scheme would be reviewed after 5 years.

Significance of the scheme

• A strong and diverse indigenous shipping fleet will not only lead to foreign exchange savings on account of freight bill payments made to foreign shipping companies.
• It would also reduce excessive dependence on foreign ships for transporting India’s critical cargoes.
• Additionally, the scheme is likely to lead to increase in training opportunities and employment for Indian seafarers, increase in collection of various taxes, development of ancillary industries and improved ability to borrow funds from banks.
• Cadets wish to become seafarers are required to obtain on-board training on ships. Indian ships will therefore provide training slots for young Indian cadet boys and girls.

India’s shipping industry

• India's fleet comprises a meagre 1.2% of the world fleet in terms of capacity despite having a 7,500-km long coastline.
• The share of Indian ships in the carriage of export and import trade has declined from 40.7% in 1987-88 to about 7.8% in 2018-19.
• This has also resulted in an increase in foreign exchange outgo on account of freight bill payments to foreign shipping companies, which was at $53 billion in 2018-19.