Subsidy between 5% to 15% will be provided depending on when a ship was flagged in India and how old it is

In a move aimed at promoting the flagging of merchant ships in India, the Union Cabinet has cleared a proposal to provide a subsidy to Indian shipping companies.

The subsidy amounting to Rs.1624 crore will be provided to these companies in global tenders floated by central government ministries and enterprises for import of cargo.

As per maritime norms, a merchant ship can be registered in a country of choice. But it then needs to carry the flag of that particular country and follow it's rules and regulations.

To promote the registration of ships in India, different levels of subsidy ranging from 5% to 15% will be provided to Indian shipping companies. This is meant to offset the advantage foreign shipping companies enjoy since lower operating costs enable them to submit lower bids in response to global tenders.

The subsidy, which will depend on when a ship was flagged in India and how old it is now, will be available for the next five years, according to details provided by the Union Cabinet in a press release on Wednesday.

Indian flagged ships mandatorily engage Indian crew and comply with Indian taxation and corporate laws. The operating costs of Indian ships are thus much higher as compared to those of foreign ships.

The foreign voyage cost of operation of an Indian vessel is higher by around 20%, the release pointed out.

The move will result in a larger and healthy Indian fleet which will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies' share in global shipping.

Currently the Indian fleet comprises of a meagre 1.2% of the worid fleet in terms of capacity. The share of Indian ships in the carriage of India's EXIM trade has drastically declined from 40.7% in 1987-88 to about 7.8% in 2018-19, the press release said.

The scheme had been announced by Union Finance Minister Nirmala Sitharaman in her Budget speech on February 1 to address the cost disadvantage suffered by Indian flag ships.

Explaining the process envisaged under the new scheme, the release said that registration shall be done online within 72 hours like the world's best ships registries. This will make it easy and attractive to register ships in India and thereby aid in boosting the Indian tonnage.

In addition to this, it is intended to provide 30 days to any in-flagging vessel to replace the crew on board with Indian crew.