Year 2012 has been a bad year for the Indian shipping sector. The coming year doesn’t look good either, as the government continues to ignore the sector, says Anil Devli, CEO of Indian National Shipowners’ Association. In an interview with Shubhashish, Devli says the government has done nothing to improve the prospects of the domestic shipping sector pinning its hopes on the 2013-14 Budget. Excerpts:
Do you think the government could have done something to save the Indian shipping sector?
Yes. The government could have hastened the cargo support policy. In shipping, what attracts companies is cargo. Our freight bill of last year was $18.6 billion. Today, only eight per cent of this cargo is being moved by Indian ships. If the government said all the cargo is to be ferried by Indian flagships, then shipping companies would have gone ahead and bought new ships and moved the cargo. One simple policy decision of long-term cargo support could have changed the fortunes of this industry.
You have been asking for this policy change for a long time.
Yes, we have. This is one simple thing we have been asking them to do for a long time.
What is the reason for this delay?
We don’t know why this gets delayed. We are told very often that one reason is that we are costlier than the foreign shipping companies. Indian companies are costlier because we are paying certain local taxes, something foreign companies are not paying. What makes us different are two things: Our cost of money and our cost of operations. If you are a foreign company seated in Europe, you get loans at Libor (London Interbank Offered Rate) plus one-two per cent. In India, the best Indian companies will have to pay interest rates of 12-14 per cent. So, in the first step itself, we have lost 10 per cent to a foreign company. Second, we pay duties on operations all over in India. There’s nothing wrong with it. We are not complaining about that. Simply put, if you are a foreign company carrying cargo to India, you don’t pay service tax. But the same freight, if carried by an Indian shipping company, will attract service tax. So, obviously, companies will chose the foreign shipping company. Therefore, when clients and the government tell us we are not competitive, they have to realise it is because we are paying duties here in India. If there were no duties, then we would have been as competitive as any foreign company.
Are you asking for abolishing these duties and taxes for Indian shipping companies or levying these taxes on foreign shipping lines operating in India?
No. I don’t think either can work. In the real world, we can’t expect not to be taxed. We just made a representation to the government on our pre-Budget demands. We told them you tax us but in a way where we become part of the Cenvat (central value added tax) chain. And, therefore, my input and output matches and I become revenue-neutral. We want easier access to funds. Just like the Rs 6,000 bond issue for the ports sector if they issue some kind of bond through the State Bank of India or Infrastructure Leasing & Financial Services Limited, or anybody, then Indian shipping companies can get foreign money at cheaper rates and can go ahead and buy new tonnage.
But there is also this criticism against Indian companies that they are not focusing on coastal shipping.
Until two years ago, all Indian companies were extremely serious about coastal shipping and started investing in that. As soon as the government of India saw this, they decided to impose duties on coastal vessels. How, then, do you operate? We did some calculations and found that if you want to transport 5,000 tonnes of cargo over 1,000 kilometres, which is 515 nautical miles, trucks consume 3.3 times more fuel than by ships. As many as 333 trucks are needed to transport the same amount that a single ship will do. Despite this, what kills us is that trucks get Rs 11 a litre subsidy on diesel, whereas we don’t get that subsidy. In addition, we pay duty on duty. Our diesel costs, hence, are much more than the road transport. So, how do you compete?
But despite all this, isn’t transportation by sea-route cheaper?
It would be, but then the government came up with countervailing duty which foreign shipping lines don’t have to pay. Containers were one area where Indian companies were doing good business, but they opened it up and gave away to the foreigners.
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So, the government is systematically killing opportunities for the local industry...
They are actually killing it. Under the provision rules in the service tax, which says that if a foreign shipping company is moving an Indian cargo between Indian cities, they don’t pay the service tax because their place of residence is outside India. But if an Indian shipping company was ferrying this cargo, then it will have to pay the 12.5 per cent service tax which makes it uncompetitive.
Even for international cargo between two countries, but ferried by an Indian shipping company, it has to pay the service tax in India.
But, then, the Indian companies have found a way out by transferring ships to their subsidiaries based in foreign lands...
That is what most companies have done, but is that what we want as a nation? Do we want to run our shipping companies by proxy? I find this very strange. Its like telling Maruti Suzuki that don’t set up a factory in India. Manufacture in Sri Lanka and export to India. What is the logic behind this? This is what we are unable to understand.
Are you hopeful that the government will listen to you this time around?
Wherever we went, be it the shipping, the finance ministry, or the Panning commission, we felt a positive vibe. They have understood the problem and I think one thing that appealed to them was that we did not ask for any tax breaks. We asked to charge tax, but at the same time make policies which will help us grow. I have a feeling that this year we will hopefully see something.
