Millennium Post

Need an effective trade policy

India is losing heavily to foreign shipowners and service providers by way of freight and insurance cost

Need an effective trade policy

India's nearly trillion-dollar foreign trade seems to be benefiting foreign shippers, shipowners, seafarers, and insurance companies more than the local service providers. Foreign vessels are reportedly carrying over 90 per cent of Indian cargo. The shipping industry is equipped more with bulk carriers than modern container vessels. The share of Indian ships in the carriage of export-import cargo is well below 10 per cent. Over the last 25 years, India's planned expenditure on the shipping industry was just 1.78 per cent of those on the railways and 2.3 per cent on the roads sector. With almost zero budgetary support to Indian shipping in the last 25 years and policies that put local shipowners at a disadvantage compared to foreign shipping lines, the amount remitted out of India as freight alone was a whopping $52 billion, according to the Indian National Shipowners Association (INSA). Few will disagree that such a practice can't and shouldn't continue in the interest of India's foreign trade as well as the country's maritime security. The world over, merchant vessels are considered as a country's second line of defence.

Little is known about what is causing the diminishing role of India's merchant marine industry, which showed a big promise in the 1970s after the country successfully fought at the United Nations level to establish a cargo sharing formula on a 40:40:20 basis under the International Maritime Conference (IMCO). The government took a series of policy decisions to raise the country's shipping tonnage. India shared cargo with Russia (then USSR) and set up a 50:50 joint venture shipping company with Iran. Instead of carrying 40 per cent of its export-import cargo on their bottom, today Indian flag carriers may be lifting just around eight per cent of the trade. Thus, the country is losing heavily to foreign shipowners and service providers by way of freight and insurance cost. Once the country's leading shipping lines such as Scindia Steam Navigation and India Steamship turned sick for want of cargo, after the collapse of Indo-USSR Rupee-Rouble trade. Ironically, Indian shipping suffered as the country's foreign trade expanded.

Bolstered by Rupee downturn, the export of goods from India during the current financial year is forecast to grow up to 20 per cent to earn close to $350 billion. At the same time, there is no sign of the country's imports getting squeezed. Imports are growing at a much faster pace in USD terms despite the falling Rupee that is making imports dearer in the local currency. Quizzically, the continuing expansion of the country's import-export trade is financially benefiting mostly the overseas shippers, shipowners, seafarers, and cargo insurers. This should be a matter of big concern. India is losing a lot of foreign exchange to overseas parties on its foreign trade. These negative less-visible developments on the overseas trade front are due to the absence of a comprehensive foreign trade policy for years. The trend has progressively weakened the domestic service providers such as Indian shipping, insurance companies, and Indian seafarers. Foreign sellers and buyers have been dictating terms on Indian buyers and exporters on which shipping line they should ferry their cargo and which insurance company they should deal with for goods insurance. Globally, the most preferred practice in foreign trade by a nation is: to buy f.o.b. and sell c.i.f. That is to lift imports on its own vessels to earn freight and insure the cargo by its own insurance companies to pocket insurance fees. Unfortunately, India is mostly following the reverse practice to benefit foreign buyers and sellers and their nominated insurance companies.

By 2022, India's overseas trade is expected to top the trillion-dollar mark as the economy is projected to grow at the rate of 7.5 per cent annually in the next few years. But, how much of the country's growing foreign trade is benefiting Indian shipowners, local insurance companies and seafarers? To be honest, very little. Foreign shippers or exporters to India prefer their own national flag carriers and insurance companies to ship their cargo to and from India. India imports and exports, mostly on f.o.b. (free-on-board) basis. In the process, the country loses millions of dollars to foreign shipping companies and insurance firms while our own shipping companies struggle to stay afloat without enough cargo in their bottoms and India's state-owned general insurance companies fail to get their due share of cargo insurance. Are the policymakers bothered? Probably, not. They may not be even looking at the situation on a total perspective to formulate a trade policy that ultimately benefits all Indian stakeholders to expand the services sectors connected with India's import and export trade. The biggest beneficiaries of India's foreign trade are foreigners, who are in control of almost every aspect of India's fast-growing international commerce.

For long, domestic ship owners and seafarer unions have been demanding a level playing field in the country's foreign trade. They are constantly fearing that the government may further relax norms for foreign vessel operators transporting domestic cargo. INSA, as well as India's seafarers' unions, have been telling the government to act matter-of-factly to protect the domestic trade against foreign vessel owners. They were particularly upset with the government decision allowing foreign vessel operators to transport containerised cargo meant for import or export within ports located in Indian territory. However, more than the micro-level management of issues concerning the country's foreign trade, it may be time that the government takes a concerted policy decision involving heads of all concerned ministries such as shipping or surface transport, commerce, finance, industry, and labour to ensure that India's growing foreign trade benefits local services providers to the maximum extent. The country's own transportation industry and those connected with it should reap the maximum benefit from India's growing foreign trade and not otherwise.

(The views expressed are strictly personal)

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