Alchemy of Indian Shipping

Article No – 1

 

Unchain me

 

An industry transforms to higher levels, when there are subtle changes in the prevalent basic belief systems. It takes time - some times prolonged periods, for the decaying collective belief systems to look up. Little changes lead to gigantic strides. When we look at the Indian IT industry today with pride, we see those subtle changes from a handful of Indians in the Silicon Valley. They excelled there and brought home the belief system that – India can. And India could. Fortunately for us, the outmoded government bureaucracy and its Draconian tax policies were slow to understand the dynamics of these knowledge products moving across boundaries invisibly – along with the tunnel of money. This gave enough time for the industry to thrive and create a belief system or collective confidence that Indians are one of the best in new technology. The government benefitted from the outcomes and therefore is encouraging its growth.

 

Indian shipping industry on the other hand started developing contrary belief systems. With the fall of Scindia and many other Indian shipping companies, there set in a general diffidence that still smothers us down. Most of us fully understand the reasons of our bureaucratic processes & misplaced tax systems scuttling our cyclic shipping industry. Even today the changes introduced are far too cosmetic and out of time. No one complains. Its despondency & a decaying belief system.

 

Indians have the reputation of being good in global shipping for a long time. They are the brains behind many of the global players. India has an immense chronic need for shipping its own cargo - meaning a robust home demand. The talk about the length of the coast line and strategic national need has become a cliché, to the extent that the government is digging up some Sethusamudram to facilitate this, while grossly misreading the real needs. We have the know-how, the brains, and the demand. Capital is not hard to get when the rudiments are so endearing. SCI has happy feet to dance around with tax payer's money. Others have taken to flagging off or shifting money and employment bases to more conducive places. We lose our money and employment to other nations. Some of us notice and shrug it off as "Chal ta hai".  However, there is a need to talk. Talk about the problems and solutions in the same breath. I believe that talking with candour only, shall kill this despondency and bring in subtle changes to our belief system. And I would love to talk about the real bottle-necks, in small steps from my subsequent issues.

 

Capt PS Rath

CEO, Econship Pte Ltd

(I shall be glad to have your views on psrath@gmail.com)

 

 

Article No – 2

 

The Largesse Of Reverse Tango:

 

The know-how, the skills at a fraction of global price, the demand, the attitude, and the strong will to excel are the basics of shipping industry. They are in bountiful in our country. What stop us are our Tax laws and intrusive shipping policies.

 

Taxes are important. No doubt, government needs more taxes to fill its budget deficits. However, it needs to think on how to increase the tax basket and the collections. Tax is an extremely powerful & potent weapon. This can make or break an industry. Fortunately for us, most of our industries are being happily nurtured with a series of healthy tax initiatives. And, unfortunately our shipping industry is being constantly bludgeoned under its hammer.

 

Every industry is peculiar in its needs and deliverables. So is our shipping. Shipping is an industry that can hardly be contained to any country's boundaries. Ships can be sold and purchased while being in neutral territories. The shipping revenues can be paid or received in any place of choice. The smart ship owner can shift his operational or financial centre to any place he likes. The result is that most ships have ghost offices in Panama, Liberia, or any off-shored location. 

 

As a populous and developing nation we have a huge need for shipping services. We are buying this with immense outflow of hard currencies. At the same time, our export of this service is far too insignificant. Net result is a massive outflow of hard currency and Indian shipping being labelled as a sick child in comparison to other industries in India and shipping industry in many other countries like China or Singapore. Our dependence on foreign shipping keeps mounting. That brings into fad - the much clichéd strategic and defence perspective. We look more inwards and keep digging rocks and stones in Sethusamudram or tighten the screws on Cabotage. It's like creating our own sand trap. The harder we try, the deeper we sink.

 

Let's see, what our taxation does. It penalises export of Indian shipping services & encourages import from outside. If you are a ship-owner, you need to pay service tax on your hire earnings, income tax or tonnage tax with lot of strings attached, import duties, VAT, tax burden of the Indian seafarers and so on. However, if you bareboat your ship, you shall be exempt from service tax. Similar is the case if you own containers. If you buy your shipping service from outside, the case is simple. You pay in foreign exchange. The Foreign Service provider is not taxed.

 

What needs to be done is to reverse the tax system in Indian shipping. Importation of foreign shipping services needs to be taxed to bring in government revenues, amounting to same as the government is getting by taxing Indian shipping today. Any shipping service by an Indian entity should be treated as pure export. Instead of taxing, export subsidy needs to be provided. Even shipping service provided by a domestic shipping entity for domestic movement of cargo should be treated as deemed export and similar export incentives should be awarded. This is perfectly in line with our current policy of pushing exports. This way the government would be an enabler rather than an intruder. The country would no longer need a Draconian Cabotage law like Joan's Act of USA. Instead of spending hard currency, we would earn them. This policy shall broaden the tax basket and even deepen it. FDIs would pour in to Indian shipping. Lots of jobs shall be created in India. A range of ancillary shipping services like ship repairs, ship management, ship chartering, supplies & husbandry, and even ship financing shall bloom in India, bringing in a whole of taxes for the government and jobs for the people – not to forget the hard currencies. Isn't this surprising that our Shipping Ministry makes no bones about this and instead perpetuates the evils of the past?

 

Capt PS Rath

CEO, Econship Pte Ltd

(I shall be glad to have your views on psrath@gmail.com)

 

Article No – 3

 

The Silent Cow:

 

Imagine a world, where 30% of ships are registered in India. Imagine Mumbai, Chennai, and New Delhi bustling with shipping executives scurrying among their sky-scrapers. Imagine all the back offices of large shipping lines being housed to majestic glass towers in a far suburb of Chennai. Imagine International Shipping Parks being developed in all the cities in India. Imagine Mundra and Cochin being the largest transhipment and logistics hubs in Asia, replacing Salalah, Jebel Ali, Colombo, Portklang, & Tanjung Pelapas. Imagine miles of ware-houses in the ports connecting to the SEZs and sea terminals. Imagine a line of gigantic vessels rolling out of the ship-building yards in Mangalore, Tuticorin, Vishakhapatnam, and Paradip. Imagine tens of thousands of specialised Indian seafarers flying in and out to man the ships of the world. Imagine Hong Kong and Shanghai shouting aloud the excessive government subsidy given by the Indian government to its ship-builders, not taxing the ship owners enough in India and stealing away the jobs from them. Imagine India breaking all scales in global shipping. Imagine all the international newspapers shouting at India's green incentives as covert attempts to control the seas.

 

These may sound like today's romantic fantasies. However, in the deepest recesses of our suppressed psyche, they are our uninhibited aspirations, endowed with the brains and grains of shipping. What prevents the miracle?  The answer lies partly in - what we were, where we are, and the confusions of where we want to be in another five years, ten years, and twenty years from today. We need some one to understand our tortuous past and define where we stand today. We need some one to articulate our future and lay the road-map. We need the likes of a Manmohan Singh, Nitish Kumar, or Narendra Modi to be at the helm of our industry - for some time at least.  Even though we have a dedicated Shipping Ministry, we have not had the good fortune to have a Minister worth his salt. It's not surprising that the fringe elements of politics and bureaucracy get the portfolio of shipping. They behave even more peripherally by engaging themselves in inconsequential and arcane issues like Sethusamudram or inaugurating new deliveries for SCI in a competing country like Korea or China. Fortunately for us, our central policies are no more the screws to pin industries down. The febrile political will has cut across all ideological differences to see growth at any cost - even at the cost of soaring inflation. Export incentives have become common place and common sense.  But for us in shipping there surfaces no tangible transformation, unlike Education, infrastructure, automobile industry, and IT. It's so encouraging to see Railways and Aviation Ministers to crackle at the Finance Minister to roll down tax quantum in their sectors. Other more powerful ones are doing their manoeuvring from behind the scene to push their constructive agendas on their sectors. Shipping Ministry is like a silent cow, ready to regress under the aging and despondent cabals of vested interests. There is no force from outside or within to compel timely and exacting changes.

 

We need the sparks from a good leader to ignite the process - the process of treating shipping as export of services.  And bring in hard currency, rather than buy shipping services with hard currency. Create opportunities and jobs.  With healthy central policies in place to fight for more exports and growth, all we need is a roaring tiger - not a silent cow.

 

Capt PS Rath

CEO, Econship Pte Ltd

(I shall be glad to have your views on psrath@gmail.com)

 

Article No – 4

 

Take Back What Was Taken From Us:

 

Can we architect a strong national shipping like China or Singapore with our policies still anchored stoutly to the 18^th century? Have we not tried in vain for more than half a century and failed miserably?

 

"The Government tariff policy deliberately discouraged Indian ship-owning since , from 1812, the general import duty on goods brought into the country in Indian ships was raised to 15% as against 7 ½ % in the case of British ships." – Radhe Shyam Rungta in 'The Rise Of Indian Business Corporation In India 1851-1900'

 

The Scindia Steam Navigation Company Ltd was set up in 1919 to benefit from the after-war demands of Word War I. The British laws scuttled all hopes. In 1923 the company signed a ten-year agreement with Lord Inchcape of P&O and British India, which restricted Scindia to coastal trade only. 5^th April 1964 was the 1^st National Maritime day commemoration of 5^th April 1919 – the day SS Loyalty of Scindia, set sail from Bombay. Ironically, all Government subsidies and loans failed to resuscitate the Scindias back to life after that. The story of Indian shipping continues thus forth.  

 

It's high time to change our policies of penalising Indian ship owning and rewarding foreign shipping. Protections by Cabotage, strengthening of Unions, and myopic policy tinkering like tonnage tax, though intended to help the industry were in fact too & little too late to have any desired effect. The shades of colonial policies continue to stunt any progress. The realities are the flags of convenience with practically no taxes, massive subsidies being doled out to ship buildings and ship-owning by the governments in China & South Korea, off-shoring of ship registrations, tax holidays to shipping companies by some governments, & loose implementation of IMO rules and regulations by governments and classification societies etc. In such a situation, shipping industry can not be compared with any other service exporting industry in India. Unique problems need unique solutions. Our shipping Ministry needs to understand the realities and formulate pro-growth policies. At the same time, these policies should not curtail the quantum current tax collections from shipping. This can be done, if we can devise a way to tax the shipping services procured from foreign ships and exempt tax, if Indian shipping services are used.  The point of tax should be at the commodity carried, not on the service. This is how the British crushed Indian shipping in 1812.  This is pay-back time, by reversing the policy.

 

 

Article – 5

Corruption & Indian Shipping:

 

"Corruption in India is like its weather. Every one talks about it and does nothing about it." This in fact dwarfs in comparison to the numbering by the Transparency International. I hear this in all possible rhetoric, from outside as well as within our country - as one of the principal reasons of our appalling & numbing failures. There may be grains of truth in them, but it's an unintended propaganda in its true form & essence, to hoodwink India into opening its markets to the west blindly, like what Argentina or Russia did.

 

From an economic stand point, there is scarce any difference between corruption and tax. The fact that tax goes to the Government and the corruption to its representatives, largely due to the Government's own or collective ineptitude, doest not alter the economic truth. As long as corruption is predictable (as is tax), it distorts the market in a positive or negative way, as does the tax. When corruption becomes unpredictably extortionate, the market is slaughtered. That's exactly how it differs from legitimate tax and needs to be understood.

 

Indian shipping industry is plagued with insensible tax and corruption, squatting on insensitivity to the industry's health, from times immemorial (The Arab middlemen, The Marathas, The Portuguese, The Moguls, The British, and most ashamedly the Government of free India) – therefore this wasted and stunted state of affairs! It looks impossible to disarm the historic tax beast or corruption monster - in the short term at least. However, it's ripe time to comprehend and discuss openly, our corruption empire consisting of both predictable and unpredictable elements.

 

The predictable elements are in fact quite benign in economic terms, though not to be condoned as a way of our lives. We pay Rs 50/ or thereabouts per shipping bill endorsement, IGM filing, TP endorsement, Bond cancellation, Rs 1000/ to Rs 10000/ per Income Tax clearance per vessel call  and similar amounts on all contact points with the customs, port, Income Tax and other government departments. These are just a few examples, as the list is really a long one. They are more or less predictable in nature. You may add a certain percentage as brokerage for the middlemen if you have to us them. Everyone does not have direct access to the government officer who collects the bribe. So middlemen are necessary. If you add up the small sums at all points of contact with the government agencies, it amounts to a tidy sum – albeit a predictable fixed cost. Business can be planned because the amounts are known. In addition, there is certainty of availing these facilities, because there are many middlemen vying to be of service at a competitive price.  It's almost a free market. There is no virtual barrier to new entrepreneurs. The system is efficient and tends to stay rigid to new changes or ideas. Unfortunately, this is where it is most visible. There is constant attack from media, western vested interests, and at times from the economy for short-term gains.  The result is that this segment gets bludgeoned into being more behind the curtain or less free to market. The length and depth of middlemen increases from both the end-users and the government. As an example, we have DRI to police the customs and smaller middlemen in large numbers converge to a single node to pass the money. Computerisation of approvals are attempted to shorten the distance between the user and government agency. Since the implementation is done by the interested parties, the new contact points go remote from the contact points. All these add to the quantum of money, insidiously thwarting growth. In my views, this aspect of the corruption regime should be left free and fair to the market. This will cut the quantum and encourage business

 

The element of the Unpredictable Corruption needs to be brought into focus and actioned to eliminate market inefficiency. As an example – if you want to change registration of a ship from Panama to Indian, apart from the predictable fees and bribes to DG officials, you have to negotiate with the officials for the certifications, modifications, and repairs at every stage. There start the extortions. The ship is delayed in repair-yard and may be asked to change more steel. The officials put forth their prices by comparing the loss of the ship-owner due to the delay. At times the assumptions of the losses are bloated beyond reality. The owner deliberates to cough up disproportionately more than his losses on account of the delay. The tug of war prolongs for months at times. As you can imagine the market is slaughtered. Above is just one small example. There are innumerable ones haunting us in our shipping. The government and the public needs to first convert the Unpredictable Corruption to Predictable ones. Then free up the Predictable one to such an extent that it becomes open & visible to all, including the Government at the top. The business barriers would crumble and fall. The government would clearly see its loss and set systems to grab this surplus as tax and pay part there of to its servants as bonus or salary to buy cooperation. A win-win for all without any rancour or violent change.

 

Capt PS Rath

CEO, Econship Pte Ltd

(I shall be glad to have your views on psrath@gmail.com)

Alchemy of Indian Shipping

 

Article No – 6

 

The Green Seductress and the Red Monster:

 

The TVs, the radio, and the Newspapers were trying to out-scream each other to observe Earth Hour by switching off lights. India is one of the Greenest nations from times immemorial living on thrift and vegetables. Even today, the durations of power failures dwarf the periods when you actually get them, barring a handful of places. Why do we chase this Green Seductress while the Red Monster (Red Tape) keeps gnawing at our guts of growth – especially Indian shipping industry?

 

We need to have a Red Day to rally against this Red Tape that keeps wasting us from within, rather than running gung ho over the Green Enchantress of the fossil guzzling SUVs of the US or the factories of China. The Red Monster works its way with layers of half-truths

 

-         Remote & fuzzy admission of market reality through committee reports or internal dossiers, those hide more and reveal less.

-         Ostensible policy measures not addressing the reality, but addressing populism.

-         Pretentious rules and regulations supporting various narrow interest groups in the guise of congruence with Policy.

-         Diverting attention or placing the blames on outside elements for the failures. Validating forcefully through committee reports when required.

-         A state of denial. Comparisons with self in a typical solipsistic bent of mind, while ignoring the outside changes.

 

Our system of imperial bureaucracy muddles with the facts that our country has the best possible elements to house the world shipping. It taxes our industry punitively in the name of generic tax system, when Panama stares us into our eyes. It tightens our Maritime Training system exceeding the grudging standards of STCW and Manila stares us on our faces. CDCs are made harder & exceedingly expensive to get for the seamen. Some one else gets our jobs.  It mimics Joan's Act blindly, in the name of protecting domestic tonnage. It taxes handsomely the seafarer's wages on its own flag, while making it free on foreign flags. Its 10.2% service tax lease-incomes on ship-owning or container owning makes them prohibitive. Its monopoly and taxes on bunkers makes places like Singapore and Fujairah thrive at our cost. It breaks its head to build bigger port capacities or Sethusamudrams to siphon money out of the projects, while letting our industry crawl on its knees. No doubt we need bigger port capacity to sustain our growth. Don't we need a strong Indian tonnage to use it? We are purchasing our national shipping needs from foreign companies with hard currency and not giving export status to our shipping. The tyranny of the Red Monster goes endless. We are chasing the Green Enchantress with borrowed money from the west and allowing the Red Monster to enslave us and our industry. It would be a grand day, when we observe Red Day to bring in public the awareness about the insidious monster.