New Delhi, By Rohit Vaid, IANS, 30 November 2014

The government plans to remove the 25-30 percent customs duty levied on fuels used by Indian ships and ease other logistical hurdles to push for more usage of the sea route for both domestic and international cargo, official sources said.

The move follows Shipping Minister Nitin Gadkari’s plans to develop the sector that is seen as essential in providing the much-needed connectivity for Prime Minister Narendra Modi’s ‘Make in India’ campaign to transport goods manufactured in India in a cost-effective way.

“We have managed to convince the finance ministry’s revenue department to relax the 25-30 percent tax on fuels used by trans-shipment ships sporting the Indian flag when they ferry items to and from Indian ports,” a senior official told IANS, not wishing to be named.

“During a presentation we made recently, the prime minister apparently was surprised that such a levy was being imposed. He was in favour of removing such a tax, which is more of an irritant than any revenue-generating proposition,” he said.

Officials said the immediate impact of such a move will be a revenue loss of just around Rs.60 crore per annum but its potential in driving the use of sea route for moving goods for domestic and export markets is seen at an additional Rs.1,000 crore.

Shipping Secretary Vishwapati Trivedi also hinted at this possibility. “Our mission is to make a sustained effort to help the shipping industry overcome issues like funding and logistics so that dispatching goods from India becomes easier,” Trivedi told IANS.

In spite of India’s total exports topping $314 billion, and 45 percent of it by sea, any or every cargo coming and going from India is trans-shipped to mega hubs like Colombo or Singapore where mother ships weighing 165,000 tonnes or more are loaded.

Trans-shipment means a cargo first moving to a port nearby in smaller ships and then loaded to a larger “mother” ship for the final destination. This, despite the fact that India has 12 major and 187 minor ports located around the 7,517-km long coastline of the country.

“There is a strong linkage between the relaxation of cabotage (or shipping from port-to-port) rules and developing the Indian ports to become trans-shipment hubs — similar to Singapore and Colombo,” said Samar Nath, chief executive of DHL Global Forwarding.

“This could lead to larger ships to be brought into India as a trans-shipment hub. These do not operate in India currently,” Nath told IANS.

Trans-shipment of goods adds to the overall cost of shipping from India, making a cheap industrial base like India lose its competitive advantage. Currently, 45 percent of India’s trade is trans-shipped through ports at Colombo, Salalah and Jebel Ali.

“An Indian trans-shipment port will be able to capture the market share for containers that are otherwise handled from competing international ports. This will entail huge cost savings,” said Adil Zaidi, director, government and transaction advisory services with Ernst and Young.

With the development of a trans-shipment port and entry of larger ships, the per unit cost of the export-import sector is expected to come down, benefiting both the trade with lower costs and the customer in competitive pricing, experts said.

” ‘Make in India’ is a great initiative but it will not deliver as expected unless logistics costs come down,” Julian Michael Bevis, senior director, group relations in South Asia, The Maersk, a global trade and shipping conglomerate, told IANS.

“Very large container vessels will continue to dock elsewhere so long as legislative and other related environment in India does not promote the development of hubs.”

(Rohit Vaid can be contacted at rohit.v@ians.in)