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The Changing Sea Landscapes in India

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The Changing Sea Landscapes in India
By: Prasanna CP
November 24, 2020
All Articles by: Prasanna CP       View Profile
  • Contents

With the need for port led development is now being better understood in the recent times in India, various designated areas led development models were being implemented in India.

  • Traditional Models - focusing only on manufacturing and storage facilities largely for export promotion. Examples: Export Processing Zones (EPZs), Free Trade & Warehousing Zones (FTWZs) and Customs bonded Warehouses.
  • Comprehensive Models – With larger zones including manufacturing, logistics, commercial and residential activities in relation to their authorised operations. Examples: Special Economic Zones (SEZs), National Investment and Manufacturing Zones (NIMZs) and Coastal Economic Zones (CEZs).

These zones (non-exclusive) essentially have geographically separated-fenced area and customs, separate tax and other benefits for units located within the area, single management or administration, streamlined procedures etc., They are set up by governments to increase trade, investments and create jobs for the prosperity of the Indian economy.

On the other hand, ports are gateways to/ from the hinterland and, focus on enabling cargo and passengers to move in and out as efficiently as possible. Approximately 95 % of India’s merchandise trade (by volume) passes through sea ports. Hence the approach towards their development is vital and yet complimentary.

Current Challenges

  • Operational efficiency of Indian ports has improved over the years but still lags behind the global average.
  • Turnaround time (TAT) at major ports was approximately 2.5 days in 2018-19, whereas global average benchmark is 1-2 days.
  • Last mile connectivity issues to the ports is one of the major constraints in smooth movement of cargo.
  • Around 87% of Indian freight uses either road or rail for transportation of goods. A significant share of this cargo experiences “idle time” during its transit to the ports due to capacity constraints on highways and railway lines connecting ports to production and consumption centers.
  • Although water-borne transport is much safer, cheaper and cleaner, compared to other modes of transportation, it accounts for less than 6% of India’s modal share.

Project Sagarmala

With the foundation laid down at Maritime Indian Submit 2016, The vision of Sagarmala programme is to optimize the logistics cost for exports, imports and as well as the domestic cargo movements with minimal infrastructure investments.

Development of port-proximate industrial capacities near the coast in future, is a step towards achieving its vision which paved the way for evolution of new concepts in India such as Coastal Economic Zones (CEZs) (also referred as Costal Employment Zones), Port-Linked Industrial & Maritime Clusters and Smart Industrial Cities.

Maritime subsidies on the way

As per the International Transport Forum’s case specific policy analysis report on maritime subsidies, the maritime subsidies can be classified based on the recipient.

  1. Producers subsidies – The ship owners, operators providing maritime services being recipient of the subsidies
  2. Consumer subsidies -  The consumers of maritime services such as shippers or passengers

We will restrict of focus only to the producer subsidies as it is the common global practice, on the other hand the consumer subsidies are seems to be quite rare in usage.

To get investors for the ambitious Coastal Economic Zones (CEZs) scheme, the Ministry of Shipping is in the process of consideration along with other ministries for tax concessions on the lines with what is available for special economic zones. In the Sagarmala newsletter it is mentioned that “To help grow this industry (international cruise tourism) from its nascency to maturity a number of fiscal incentives in the form of tax rebates etc., are being contemplated”

The producer subsidies can be in the nature of direct subsidies which involves direct transfers of funds and they are budgetary expenditures by governments or it can be a tax expenditure (also referred to as tax revenue foregone) which refers to favourable fiscal treatment given to the shipping sector that resulting in revenue foregone or it can be in the form of other government revenue foregone which is similar to tax expenditure, except that it applies to other government revenue, such as tariffs, fees and charges or it can be their combinations.

Classification of subsidies

Enterprise income

Labour related

Capital

Energy

Infrastructure

Knowledge support

Direct Subsidies

Operation subsidy

Subsidy for war-time availability of ships

State as owner or shareholder

Training subsidy

Crew travel and relief costs

Grants to acquire ships

Scrap-and-build grants

Interest rate subsidies

Grants for Green shipping, Conversion to LNG, LNG bunkering

Shore power

Bunkering infrastructure

Port infrastructure

Pilot project grants

Technology grants

Maritime cluster grants

Tax expenditures

Corporate tax exemption (tonnage tax)

Business tax exemption (Tax holidays)

Dividend tax reduction

GST zero rate benefit

FTP incentives

Personal income tax exemption

Foreign earnings deduction

 

Capital gains tax exemptions

Accelerated depreciation

Reduced tax for ship lease

Exemption of:

- Fuel tax

- Electricity tax

Electricity below cost-price

 

 

 

Other government revenue foregone

Debt write-off state-owned shipping firms

Recapitalization of  shipping banks

Social security exemptions

Social costs of automation

Customs duties exemptions for ship construction inputs

Favourable buy and lease back

 

Port fee reductions

Canal fees

 

Current status - Expected announcements 

The inter-ministerial committee under the support of NITI-Aayog stated that the institutional framework for development of CEZs would be similar to the institutional framework adopted by DMICDC (Delhi-Mumbai Industrial Corridor Development Corporation) for development of industrial corridors and industrial node. Further as a reply to a RTI query, the shipping ministry said that the government is taking inputs from various stakeholders like state governments and central ministries based on which an institutional framework for CEZs will be finalized.

We can expect an announcement soon regarding the CEZs and maritime clusters under the umbrella project of Sagarmala, possibly covering the following terms.

  • Responsibility and institutional structure for developing and implementing the CEZs
  • Providing legal status for CEZs and CEUs (Costal Economic Units – specific industrial estate projects proposed within CEZs) or assessing the amendments required, if any, to confer benefits under the SEZ Act for qualifying CEZs
  • Appraisal of fiscal incentives to developers and units in CEUs such as tax holidays, benefits under indirect taxes and FTP
  • Examining the reforms needed on aspects of ease of doing business to compete with global manufacturing locations, e.g., labour laws, currency convertibility, Customs, approval and inspection procedures, single window clearances for export and import transactions

 

By: Prasanna CP - November 24, 2020

 

 

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