We need to build an institutional framework of ties for coastal shipping to really takeoff.

Deepak Shetty, DG, Shipping & Additional Secretary, Government of India, Ministry of Shipping, tells Rouhan Sharma that the framework of a hub and spoke model under the Sagar Mala project can provide a fillip for cargo movement on the coastal and inland waterway routes.

Hasn´t the recent move to allow foreign vessels on our coastal waters created a condition where the domestic industry is not operating on a level playing field?
This goes back to September, 2015. That was a dispensation provided by the Government of India in relaxation to provisions of section 407 of the Merchant Shipping Act, which otherwise mandates or enjoins the issuance of a license by the DG Shipping. For every foreign flagship which comes in and operates in the coastal waters of the country, it is imperative by statute that they should come to the DG shipping, obtain a license after seeking a No Objection certificate from the Indian National Ship Owners´ Association (INSA).

That´s the procedure and that´s been done away with by one stroke of the pen for categories of vessels which are highly specialised where even INSA, which is the most representative and the largest body, were very clear in their view that in the next 5-10 years, they do not have capacity to be able to cater to this category of vessels. This is all high technology, which, for various reasons, Indian ship owners do not see value in at this time and they feel they will not be able to get into these business areas anytime soon in the next five-10 years. Taking them on board, it was decided if for the next five years the requirements could not be met and serviced by the Indian industry, then we need to open it up for foreign players. This is a non-competitive field, in that sense.

Why do ships plying the coastal route have to go through customs?
There is a requirement for conversion. There are two categories of licenses for any Indian ships. You can have a completely ocean-going or foreign-going voyage which does not do the coastal run or, alternatively, somebody can take a license purely for coastal. The third, which is the most popular category, is both ocean-going and coastal. Now, that is not legitimising the fiscal relief. The customs will come into play and say it´s a foreign going ship and has duty-free bunker. When you ply the Indian waters, that benefit of duty in the bunker which is available only to ocean-going cannot be availed when you go coastal.

However, you can convert it. That´s a regulatory check which they exercise and as long as you ply the coastal waters, you pay duty for whatever bunker is consumed. The moment you exit, you reconvert back into ocean-going. You pay duty only on the coastal leg and if there is residual fuel that you have used from the ocean-going leg, then you get the benefit of a refund. That´s something which they are addressing under the fiscal regime and it falls under the Customs Act and the Central Excise Act. We cannot intervene in that. More than the duty part of it, I think there are issues pertaining to conversion and reconversion procedures because of the delays and the interface that is happening based on an individual level with the officers, which is not completely electronic today. These are the challenges which we have raised. There was a committee which was headed by my predecessor and with which I was very closely associated. In November 2014, we submitted a report to the Finance Ministry through the Shipping Ministry. There were about 37 recommendations which we made entirely pertaining to customs regulatory debottlenecking. This is one of them. We said that the Central Board of Excise and the Ministry of Finance must address this and rationalise to the extent possible. This is an ongoing effort. They are looking into it. Some of them have come through and some are still being addressed.

In the case of Link Shipping, why did they not receive the rebate of Rs.3,000 per car as was notified in a scheme in 2015 to promote coastal shipping?
That was an incentive that was initially designed purely as a concept. However, there was a clear decision taken that incentives are in the form of subsidies. Subsidies are not the best thing to happen in today´s regime. We want to do away with subsidies because otherwise, subsidies start becoming habit-forming. It is true that this was conceived; it was thought of but it has not gone through. That´s a simple bottleneck. One is looking at addressing the tax elements to rationalise these issues. That is a better way to do it structurally and more enduringly than a subsidy.

What is the progress on the Indo-Bangaldesh protocol route?
The Indo-Bangladesh agreement on coastal shipping on Indian waterways was inked on June 8, 2015. The challenge was that this was to be rolled out only on the basis of what are called river sea vessels (RSV). It was identified that keeping the topography and the terrain as well as the draft constraints in mind, RSV is the best category to use. RSVs come in four categories of which the fourth type is best, being all-season, all-weather, day and night operational vessels.

The two countries decided that it will be RSV type IV which will be invariably used. In exceptional cases, on a case-to-case basis, if the two DGs agree, then it could probably scale down to type III for rare occasions. The question is we needed to ensure there is an imperative form of maritime safety. Even for RSVs, somebody has to certify the build of the vessel for the purpose of stability. We are comfortable as we have the Indian registrar of shipping, the classification society which certifies all our RSV vessels anyways. The challenge for Bangladesh is that they don´t have a classification society. They have smaller outfits within their DG Shipping office. Initially, there was hesitation as to how to accept this standard, because worldwide there are classification societies which have expertise in certifying the stability of a ship. We have to be very cautious here while we are promoting this. We have to be mindful of the fact that there cannot be situations where there can be vessels which may sink and create problems on all sides later.

The second challenge was to enthuse business communities on both sides to see that there is a business opportunity. We are also looking at shipping cargo to other ports so we can divert it to the north-eastern states. This is what we wanted to build upon. I am happy to say we made a conscious effort in campaign mode wherein we have conducted four workshops since January to propagate this. The first one was on January 21 in Mumbai, January 25 in Paradip, January 27 in Kolkata and February 5 in Visakhapatnam, which I had chaired. We have identified two ports; Paradip and Vizag from our side and at least in Vizag, there is huge enthusiasm. There are already acquisitions of RSVs; people have started to look at this as an opportunity. As is the case with any bilateral agreement, it takes some time for the information to be disseminated and for people to understand the business dynamics and see whether there is value in this as a business proposition. Suffice to say, I think there is enthusiasm.

Last but not least, the idea was also that for the purposes of transshipment and aggregation, we want to draw in our cargo which is mostly getting aggregated either in Colombo or in Singapore. If we pull this back, then Vizag could potentially become a hub for transshipment and aggregation purposes.

Finally, what are your views on what you think will be the enablers for coastal shipping to really make a bigger contribution to the movement of freight?
The clear answer to this is that the primary framework will be the hub and spoke model under the Sagar Mala. Unless we are able to move industrialisation closer to the coastal areas, consolidate industries there so that it´s easy to ship, why would somebody sitting in Delhi think of moving his cargo off the road and bringing it suddenly to a port? It doesn´t make sense. The challenge is to get industrialisation hubs, which is what Sagar Mala seeks to do over time so that there is aggregation of cargo which makes it viable for it to be moved along the waterways, whether coastal or inland waterways, depending upon the location.

An illustration I can provide is the movement of raw cotton. This is an area we have done fairly significant work in the last two years. Raw cotton – primarily Shankar 6 variety – is the most popular for the purposes of weaving in Tamil Nadu, a major textile centre. This is grown almost entirely in Gujarat and 90 per cent of the consumption requirement for raw cotton are met from here. This cotton is shipped out of Madhura and Triphala. It is primarily taken through the roads. Since November- December 2014, they have made significant progress in incentivising people to come and take the coastal route. Today, there are three or four companies already who have started moving cargo along this route. What used to be a modest 500 containers has now gone close to about 5,000 containers which is getting moved out. These are 40 feet containers as this cotton is typically shipped in that form.

We are targeting 41,000 FEUs, i.e., aggregate 60 lakh bales which is likely to be moved and which has picked up as an off-take demand during the cotton season from October to April annually.

This time, we had a bit of a challenge because the quality of cotton deteriorated very sharply in Gujarat because there was adulteration. However, this is just an aberration. So, there are ongoing dialogues. What is needed is to build bridges between the shipping communities, coastal shippers; you need volumes and for both ways. The challenge is raw cotton moves down but what do you get on the return leg? I have been taking meetings at my level with the textile ministry officers, the Southern Indian Mills Association (SIMA) based in Coimbatore which represents the cotton textile industry over there and INSA. I had the benefit of being the additional textile commissioner in one of my earlier deputations. I was there for over five years. So, I have steered this and I am happy to say SIMA has now committed at least 25 per cent of return traffic by way of made-ups and ready-made garments so that at least there is viability along the way back. You can´t come empty.

The bottom line I want to emphasize is there is an ongoing dialogue with certain groups of producers, shippers and the shipping companies. We need to build these institutional framework of ties for coastal shipping to really takeoff.