India, a significant maritime nation, has well recognized the role of shipping in the development of trade. Maritime transport is an essential infrastructure for socio-economic development of the country, with carriage by sea constituting approximately 95% of India’s international trade by volume, and 68% by value. Ranking 15th in the world in terms of shipping tonnage, India has the largest merchant shipping fleet amongst developing countries.
The economic viability of coastal trade is influenced by the availability and safe carriage of long haul bulk commodity traffic over long distances. The potential growth of coastal shipping can be effectively tapped if suitable policy measures are adopted to improve commodity traffic through coastal vessels, at competitive costs.
Under Indian Cabotage Regulations, movement of coastal trade is reserved for Indian flag vessels and operation of foreign vessels in Indian waters is restricted.
While Indian flag vessels may be owned only by Indian entities, under the extant exchange control laws, foreign entities may invest upto 100% in Indian ship owning and ship-operating companies. Such companies enjoy privileges granted to any Indian company and may acquire ships flying the Indian flag with 100% overseas debt/equity finance.
Indian regulations require all Indian ships and foreign ships chartered by Indian shipowners, to acquire trading licenses from the Director General of Shipping, prior to proceeding to sea.
Although foreign vessels are permitted to ply in the coastal trade of India under license, in practical terms, attaining such a license is difficult inasmuch as the foreign companies are required to establish non-availability of Indian Flag vessels that meet with the specifications of the foreign vessels seeking the license. Moreover the license is of a temporary nature and upon renewal, similar compliances may be required.
With relaxation in Cabotage laws for container vessels and lash barges to attract foreign mainline vessels and decontrol of freight and passenger fares to promote coastal trade, the stringent Cabotage regulations are now being liberalized.
Though Cabotage regulations are implemented to provide safe, reliable and cost-effective transportation options to shippers and assure maritime capability, the complete relaxation or repeal of such regulations could threaten domestic tonnage by opening the door for carriage of coastal cargo by foreign flag vessels.
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Nishith Desai Associates is a research-based Indian law firm with offices in Mumbai, Silicon Valley, Bangalore, Singapore, Mumbai BKC, Delhi and Munich that aims at providing strategic, legal and tax...
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