Commentary

Comprehensive Analysis of Union Budget of India 2021 in Maritime Eyes

By Amit Kumar

The eyes of 1.36 billion looked forward to our visionary Finance Minister Shrimati Nirmala Sitharaman on February 1, 2021. This Union Budget 2021 was way too peculiar than all the other budget presented to the Lok Sabha ever for not only it was wrapped up digitally in a ‘Made in India’ tablet instead of a ‘Bahi Khata’ (a ledger wrapped in red cloth) but also it held the subtle notes to spearhead the ambitious goal of India becoming economic superpower after reviving the dip owing to COVID 19 outbreak.

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Finance Minister Nirmala Sitharaman with digitally wrapped up Union Budget 2021

The distress and the greatest turmoil; the COVID brought to the maritime industry in the form of stranded crews on board due to international travel bans, the ever lowest happiness index of seafarers, employment crash, crippled cruise industry, and commodities prices going down the zero line had a lot to expect from Union Budget 2021. Fortunately, the Union budget 2021 was in line with the expectations of Indian Seafarers, and industry stakeholders. Moreover, the budget also happened to be in unison with the aspirations of the maritime students across the universities in the country.

An overview of Union Budget 2021 with regards to maritime perspective

The budget on Ports, Shipping, and Waterways firstly reflected that the major ports across the nation will be shifting from managing their operational services on their own to private partners who will manage it for them. For this set-up, seven projects worth more than Rs 2,000 crores will be offered by the Major Ports on Public-Private Partnership mode in 2021-2022. The inclusion of private players to manage the ports is a favorable move for the industry. These private players with their vast knowledge and the spirit of competency can change the complete functioning of the system, thereby amplifying its potential in shipment regulation. It can also play a role in digitizing the port facilities entirely and offering the consumers, ship-charterers, and brokers, and professionals a taste of the new methodology.

The ports are not viable to be listed on the stock exchanges until these are transformed into companies. This corporatization will allow the government to reap dividends from the major ports. The conversion of ‘port trusts’ into ‘port authorities’ implicates privatization of cargo handling terminals as well which are operated and regulated by the State-owned port itself. All this is because this whole system will project the ‘port authority’ as the landlord, a set-up followed all over the world where the publicly managed port authority will behave as a managerial body and the private firms will work on port operations, majorly the activities relating to cargo handling. The port acting as the landlord will seek a share of the revenue from the private firms. The ports owned by the Centre can be considered for privatization once they are corporatized.

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This favorable measure would help the industry to transform things for the better in bulk and containerized cargo handling. It can also instigate a fresh face-off with unions.

The second thing which has caught sight is the provision for promoting the flagging of merchant ships in India. The government’s decision of providing subsidies to promote the flagging of merchant ships will ease container shortage in the country due to irregularities in import-export throughout the globe which resulted in a hike in cost for both shipping lines and traders. Every merchant ship needs to follow the rules and regulations of the country where they registered themselves and are bound to sail carrying the flag of that country.

The scheme to promote the flagging of merchant ships by granting subsidies reinforced Indian Shipping Companies in global tenders glided by ministries and Central Public Sector Enterprises (CPSEs). An amount of Rs 1,624 crore will be invested for over five years. In the past, there have been occurrences of events where exporters waited for months to get the containers. The flagging of merchant ships will smoothen the availability of containers in the country and the subsidy will help in advertising new ventures. Ocean freight has increased twice because of the strict shortage of containers and is disturbing India’s exports in a considerable field of agricultural products such as rice, cotton, and engineering goods.

It is worth mentioning that restrictions owing to COVID-19 have greatly impacted the industry and there has been a huge hubbub on the supply-demand graph. Moreover, the maximum Marine Engineering, Nautical Science graduates seeking a career in the merchant navy are hired by foreign shipping companies and the graduates have to solely rely on them. This initiative by our government comes with greater training and employment opportunities for Indian seafarers along with boosting up shares of Indian Shipping companies by the fleet size in the global perspective.

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It is an undeniable fact that India is home to one of the largest ship-breaking facilities in the world and these facilities stretch over 150 yards along the coast. On average close to 6.2 Million GT is scrapped in India every year, which accounts for 33% of the total scrapped tonnage in the world.

Image Courtesy: Statista

As the new budget of the Indian government in 2021 suggests the ship recycling capacity of around 4.5 Million Light Displacement Tonne (LDT) will be escalated to double by 2024 and consequently more ships will approach India from Europe and Japan. Moreover, this also aims to furnish us with new 1.5 lakh jobs in the sector. For the Implementation of the ambitious plan to reach the apex of the ship-breaking and recycling industry, India has enacted the Hong Kong International Convention (HKC). Finance Minister Shri Nirmala Sitharaman in her budget speech also mentioned that around 90 ship recycling yards have already acceded to the HKC-compliant certificate.

When we look into the current scenario we can find that India recycles 70 lakh gross tonnage of ships per annum, and is responsible for recycling 300 of the 1000 ships which are demolished per annum globally. With this amount of ship recycling, India stands top in the four countries which account for 90 percent of ship recycled globally. However, countries like Japan Europe and the US were not sending their ships for recycling to India in the absence of ratification of a global convention. That scenario is set to change with the new budget. India aspires to grab at least 50 percent of the global ship recycling business as many countries will be sending ships here, after the Indian ratification of the global convention. The Act ratifies the Hong Kong International Convention and facilitating the environment-friendly recycling process of ships and adequate safety of the workers.

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The minister also remarked that with more ships coming to India, ship recycling contribution to the GDP will grow to USD 2.2 billion from the present USD 1.3 billion. After the budget was discussed several ship recycling players informed that the target of doubling the capacity is not only the requirement. Government has to provide trauma healthcare centers, medical waste disposal mechanisms, and conducive support from the financial institutions.

Logo of the Sea and Coast magazine

Mukeshbhai Patel, chairman of the largest Indian ship-recycler Street Ram Group informed BusinessLine that the European Union had conducted the site inspection and they have found some gaps in the medical waste disposal and trauma healthcare facilities in Alang area Gujarat. Patel also remarked that the ease of doing finance must be there for the players. Currently, shipbreakers are facing a lot of difficulties in securing bank finance. Banks ask for heavy collaterals, with increased charges for issuing a letter of credit. He also added the need for the reintroduction of the old policy which allowed the amalgamation of two plots into a big one. He said this would help to achieve the target of doubling the capacity.

The budget has aptly come in line with the expectations of the people, industry stakeholders, and youth’s aspirations and aims to boost the three important aspects of the Indian Maritime Industry: Ports’ renovation and smooth operation, flagging of merchant ships, and the ship-repairing industry. Inland Waterways and Shipbuilding have also been key areas of focus of the present government. Collectively, this could be a big stride on the way to establish India as a Maritime Superpower and bridging the gap between ‘developing’ and ‘developed’.

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(The views and opinions expressed are those of the author)

Author’s Profile

Mr. Amit Kumar is the Founder CEO & Editor in Chief of the Sea and Coast Magazine; India’s no:1 maritime magazine.

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