India’s Maritime Sector, Challenges and Government Reforms

Context

• The Indian government has demonstrated a strong commitment to developing the maritime sector, which had been largely neglected by previous administrations.
• However, despite substantial investments, the shipping industry continues to stagnate, losing market share to foreign-flagged vessels and other transport modes.
• The Union Budget 2025 has introduced some reforms, but critical issues, particularly tax disparities, remain unresolved.

Stagnation in the Indian Shipping Industry

• Low Growth in Cargo and Vessel Traffic: Cargo handled at major ports increased by just 26% from 1,071.76 million tons (2016-17) to 1,249.99 million tons (2020-21) (Annual growth: 2.85%).
  • The number of vessels handled declined by 5.93%, from 21,655 (2016-17) to 20,371 (2020-21).
  • Indian shipping continues to lose market share to foreign-flagged vessels for EXIM cargo and rail & road transport for domestic cargo.
• Lack of Competitive Financing & High Capital Costs: High borrowing costs and short loan tenures discourage investment.
  • Rigid collateral requirements force shipowners to provide additional security instead of using ships as collateral.
  • Banks lack an understanding of shipping cycles, leading to inflexible loan restructuring policies.
• Tax & Regulatory Disadvantages for Indian Ships: 5% IGST on ship purchases (not applicable to foreign-flagged ships).
  • TDS on Indian seafarers’ salaries, while foreign ships employing Indian seafarers are exempt.
  • High port charges & additional financial burdens for Indian shipowners reduce competitiveness.
• Over-Reliance on Foreign-Flagged Ships: Indian shipping companies struggle to compete globally, leading to loss of market share.

Challenges in Shipbuilding & Fleet Modernization

• Aging fleet: The average vessel age was 26 years (2022-23), which improved to 21 years (2024) with only 34 new vessels added.
  • India’s global ranking in ship ownership fell from 17 to 19.
• Infrastructure gaps for large vessel construction.
• High costs of shipbuilding due to import dependency for key components (steel, machinery, spare parts).
• Customs duties on imported shipbuilding equipment increase costs.
• Skill gaps in the workforce limit shipbuilding efficiency.
• Limited Investment in Green & Digital Technologies
• Global shipping is shifting toward green energy & digitization, but India’s investment in eco-friendly vessels & digital logistics remains low.
• The lack of incentives for LNG-fueled or hydrogen-based ships hinders sustainability goals.

Government Reforms & Budget 2025 Announcements

• ₹25,000 crore Maritime Development Fund (MDF) (49% government-funded, rest from major ports).
• Infrastructure status for large vessels.
• Creation of shipbuilding clusters.
• 10-year customs duty exemption on shipbuilding spares & equipment.
• Revamped financial assistance policy for shipbuilding.
• Credit incentives for shipbreaking in Indian yards.
• Extension of tonnage tax scheme to inland vessels.

Unanswered Questions

• Lack of clarity on MDF funding (single-year or multi-year allocation?).
• ₹25,000 crore may be insufficient given the capital-intensive nature of shipping & shipbuilding.
• Need for long-term financing:
  • Lower interest rates.
  • Loan repayment tenures of 7-10 years.
• Urgent fleet replacement & green technology investments are required to meet GHG emission targets.
• Need for new shipyards to construct large vessels and modernise existing ones.

A Step Forward, But Not Enough

The Union Budget 2025 introduces some much-needed reforms, but funding uncertainties and tax disparities threaten to undermine progress. To truly revitalize the maritime sector, the government must:

• Ensure long-term financing at competitive interest rates.
• Expand MDF funding to meet industry needs.
• Invest in new shipyards & modernisation of existing ones.
• Remove tax disadvantages for Indian-flagged ships.
• Promote shipbuilding competitiveness through lower import duties and skill development.

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