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Post at: Jan 14 2022

Ship Acquisition; Financing and Leasing (SAFAL)

Context

  • On 28th October, 2021 the committee for development of Avenues for Ship Acquisition; Financing and Leasing (SAFAL) from GIFT (Gujarat International Financial Techcity) IFSC (International Financial Services Centres) in India has submitted its report to International Financial Services Centres Authority (IFSCA).

About the Committee Formation

  • It was constituted by IFSCA in june 2021 with the representatives from the Government of India; Gujarat Maritime Board, industry & finance experts and academicians.

Objective

  • The committee has an aim to remained on enabling cost-effective and competitive delivery of shipping services on of ships owned and leased from India offshore IFSC, which is on par with overseas competitions.

What is Ship Acquisition & Financing

  • This process consists of the development and production of a ship and its systems by organizations bound into a structure by existing laws, regulations & practices.
  • Ship financing term referring to the financing of maritime projects, encompasses not just the shipping, but also the other subjects like ports, shipyards and containers. 

What Reports Says/Report’s Highlights

  • India’s Smaller share of the international shipping sector—Despite its large coastline growing domestic and international seaborne trade deep rooted maritime tradition and skilled youth, India continues to have smaller share of the international shipping sector and thus country becomes the net importer of shipping services.
  • What to do­

    Committee has outlined the crucial and necessary changes that must be made in order to bring this greenfield venture to India’s IFSC.

 

  • These includes legal and regulatory issues; direct and indirect taxation, ship finance and ease of doing business, all of which are based on international best practices like Japan, China, South Korea.
  • It concludes that the time has come to give Indian flagged vessels a brand value.
    • This may be accomplished through carving out a share of the global cross trades, securing profitable transactions for India’s marketplace.
    • It will succeed in the sagarmala programme and intends to improve India’s water ways enhance the shipbuilding sector, promote cruise tourism.

Importance of Shipping Industry

  • With 12 major and 205 minor ports India strategically located on major shipping routes throughout the world.
  • Maritime transport is projected to account for 15 percent of India’s goods trade by volume and 70 per cent by value.
  • The annual value of seaborne freight is projected to reach $85 billion.
  • In financial year 2019-20 Indian ships carried around 6.53 percent of India’s export-import cargo.
  • India is anticipated to pay $75 billion to foreign shipping companies in seaborne freight each year.

Measure Taken by the Govt?

  • Subsidy support to Indian shipping companies by providing 1624 core over a period of five years for the promotion of flagging of merchant ships in India.
  • For promoting tonnage under Indian flag and ship building in India, the right for first refusal in chartering of vessels through tender process has been revised.
  • Ship building financial assistance policy (2021-25)under which Government approved the grant for financial assistance to Indian shipyard companies.

Challenges
Institutional Challenges

  • The rigidity of the Indian Bureaucracy and its reluctance to give up central adds to the delay.
  • Lack of single window clearance system has made it challenging for shipping companies in India.

Infrastructural challenges

  • The cycle time of Indian cargoes has tendered the uncompetitive on a global scale.
  • Development of road network, electricity and overall infrastructural development is also the need of hour.

Financial challenges

  • The burden of taxes like custom duty on Bunkers, landing fees, Income tax etc.
  • Shipping companies in India not have access to any major government schemes that have been available to other channels.

Slow process

  • The shipment procedures is quite cumbersome in comparison to other modes of transportation this, in turn, water valuable shipping time and labour time which goes into the logistic process.

Vessel size

  • The size of vessels are getting bigger due to rise in demand for shipping services. Many ports in India are struggling to keep up and many of these vessels cannot be called on into most of the ports.

Conclusion—A promising future

  • As India grows to be one of the major economies in the world. It will require a vibrant and strong maritime industry for economic as well as strategic reasons. Therefore, 2022 is going to be view as the year of enabling the maritime’s sector transformation. It seems, India is one of the cusp of major maritime revolution which will play out over the next couple of years.

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