In Budget 2012-13, the shipping ministry has got another year to figure out how it can raise Rs 5,000 crore through tax-free bonds.
The amount to be raised through the window was set last year for the development of major ports, but the option remained unutilised due to the absence of a financing body to raise the money for the port sector.
Among various options, including setting up of a Maritime Finance Corpo-ration, the ministry had proposed the money be raised by Jawaharlal Nehru Port Trust, Navi Mumbai. Officials said the Finance Ministry had not approved the plan on the grounds that the 1989-functional JNPT — the country’s largest container port — is not in need of these funds.
A senior government official said that the JNPT, spread over 10 square kilometres, was chosen because it is a profitable port. “If the tax-free bonds are raised by a loss making port then no one will buy these,” he added.
The raising of funds through this route could come in handy, especially since there has been a reduction of 25 per cent in the Budget allocation towards the shipping sector, with Rs 2,128 crore allotted this year compared to Rs 2,850 crore in 2011-12.
The overall allocation to the shipping and ports sector increased by 5.7 per cent, from Rs 5,367 crore in 2011-12 to Rs 5,675 crore for 2012-13. Higher allocations have been made to JNPT, Mumbai Port Trust and Dredging Corporation of India, aggregating to Rs 1,595 crore.
However, the shipping ministry could not spend 17.7 per cent of the total allocation of Rs 6,524 crore made in the last budget. Said an official: “There seems to be a lack of absorptive capacity in the sector, despite the need to spruce up port infrastructure because a number of projects are stuck.”
Besides the tax-free bond route, a push to the sector seems to be coming from fiscal incentives. Hemant Bhatt of Deloitte India said the reduction in withholding tax from 20 per cent to five per cent on extra commercial borrowings-related payments would help ports raise low-cost foreign debt. “One needs to analyse in greater detail the impact of introduction of a negative list of services (only 17 of them) being exempt from service tax to understand its impact on the ports sector, as cost comparisons of competing services will undergo a change,” the senior director of the audit firm told Business Standard.
Industry experts also feel the incentives given to the power sector such as tax free bonds, oil and gas pipeline projects to be eligible for viability gap funding and removal of customs duty on coal imports will make the import of these fuels cheaper and possibly increase the cushion in the supply chain to pay more to the logistics service providers.
“There are positive opportunities that could arise for the Indian shipping industry from the various initiatives announced for the power, steel and ports sectors,” according to A R Ramakrishnan, managing director, Essar Shipping Limited. “These initiatives will help the specific sectors in their ongoing projects and growth plans.”
