Budget for 2022-23: The center is considering setting up shipping lines

The cost of delivering Indian exporters to most destinations has more than doubled in the last year and a half after the Covid outbreak, reflecting a global trend.

As exporters grapple with global container shortages and exorbitant transportation costs, the government is exploring a proposal to expand tax and other incentives to attract major players to establish shipping lines in India, official sources told the FE.

Incentives could be announced in the upcoming Budget for 2022-23, with the consent of the Ministry of Finance. Ministries of Trade and Maritime Affairs have learned to consider different options; some officials are studying an attractive Irish tax model for shipping companies. When the proposal is ready, the approval of the Ministry of Finance will be required.

The cost of delivering Indian exporters to most destinations has more than doubled in the last year and a half after the Covid outbreak, reflecting a global trend.

Given the state Shipping Corporation of India (SCI) covers less than 5% of the domestic market of approximately $ 100 billion, is not in a position to ensure the orderly development of the delivery cost curve. As such, the government has now put SCI up for sale.

Another source said the government could extend the Transport and Marketing Assistance (TMA) scheme, aimed primarily at agricultural exporters, after March 2022. Under the scheme, which reintroduced this fiscal system with more coverage and more support, the Center is compensating exporters a certain share of transport costs. Aid rates have been increased by 50% for exports by sea and 100% for air.

In addition to the emerging risks of the new Covida strain, increased shipping costs and the unavailability of adequate containers remain the biggest challenge facing Indian exporters as they seek to reap the benefits of renewed industrial demand in advanced economies in recent months.

Many global shipping companies are registered in Ireland because they adopt a liberal tax regime for them. For example, shipping companies in Ireland pay a tax based on the tonnage of the fleet, as opposed to the corporate income tax. This, combined with a low, general income tax rate of around 12.5%, usually keeps their tax liability lower than in many other countries. Similarly, there is no tax on capital gains available on board.

“Encouraging the establishment of shipping lines in India, and even the production of containers, would be a key step towards self-confidence in this area. “China has invested huge funds in the production of containers and is now reaping the benefits, although it is also facing increased costs,” a senior government official told the FE.

Ensuring reasonable shipping costs remains key to achieving India’s lofty $ 1 trillion export target to FY28. Excessive costs of delivery of damage mainly to small and medium exporters. The country delivered $ 291 billion worth of goods in fiscal year 21 after the pandemic hit supply chains. In the current fiscal sense, it is on track to meet an ambitious $ 400 billion target as demand for goods from key markets remains strong.

To be sure, shipping costs have risen around the world and India is no exception. In fact, costs in China have grown at a much faster pace than in India, analysts say. According to sources, Chinese suppliers lure large ships with higher transportation costs. However, given Beijing’s huge secret subsidies, the competitiveness of its exporters remains intact. So, the Indian government must find ways to soften their blow, say domestic exporters.

In its submission to Finance Minister Nirmali Sitharaman in December, the Federation of Indian Export Organizations (FIEO) said exporters had allocated about $ 65 billion for transportation in 2020, which is likely to exceed $ 100 billion in 2021, given the increase. Since SCI is being uninvested, the government should encourage large entities to build an Indian shipping line of global prestige, the FIEO said.

Given the government’s goal of increasing exports of goods to $ 1 trillion by fiscal year 28, this exporter’s shipping bill will only grow. So, even if such a shipping line occupies 20-25% of the domestic market, the country will save a lot of foreign exchange, claims the body of the exporter.

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