NEW DELHI : In the biggest reform yet in the shipping sector, the Narendra Modi led government plans to totally remove a so-called cabotage rule for ships carrying all types of cargo on local routes, a move that will allow foreign registered/flagged ships to do business along the country’s coast without securing a licence from the Directorate General of Shipping.

The move, aimed at promoting coastal shipping and fulfil a Budget announcement by Finance Minister Smt Nirmala Sitharaman, will roil local fleet owners, who have always opposed easing cabotage restrictions.

Only Indian registered ships are allowed to ply on local routes for carrying cargo, according to India’s cabotage law. Foreign ships can operate along the coast only when Indian ships are not available after taking a license from the DG Shipping, according to the decades-old law designed to protect domestic ship owners.

In 2018, following strong lobbying mainly from foreign container lines, the Ministry of Ports, Shipping, and waterways allowed foreign flagged ships to transport export-import laden containers meant for transhipment, empty containers meant for re-positioning, agriculture, horticulture, fisheries, fertiliser and animal husbandry commodities on domestic routes without a license from the DG Shipping.

Prior to that in September 2015, cabotage was relaxed to allow some types of foreign flag ships such as Ro-Ro, Ro-Pax, Hybrid Ro-Ro, pure car carriers, pure car and truck carriers, LNG vessels, and over dimensional or project cargo to operate in India’s coastal trade without a license from the DG Shipping.

“Coastal Shipping will be promoted as the energy efficient and lower cost mode of transport both for passengers and freight, through PPP (Public-private-Partnership) mode with viability gap funding,” Finance Minister Nirmala Sitharaman said in her Budget speech to Parliament on 1 February.

Currently, coastal shipping only has a 7 percent share in India’s transportation modal mix, compared to 62 percent share in road and 31 percent in rail.

Making out a strong case for lifting cabotage restrictions completely to help foreign flag ships carry cargo on coastal routes without obtaining a license from the DG Shipping, the Ministry of Ports, Shipping, and Waterways said that the move will also fulfil the announcement made in the Budget speech.

To promote a higher percentage of coastal shipping in the transportation modal mix, the Ministry said that the focus should be on potential cargo, enhancing ports/jetties, improving port connectivity, determining suitable vessel types and capacities considering lead distances and cost per ton/kilometre, mitigating financial burdens of multimodal transportation, and exploring integration with national waterways wherever possible.

The licensing condition, according to the Ministry, was earlier relaxed for certain types of specialised foreign flag ships due to non-availability of adequate number of such Indian flag vessels. Similar relaxation for specific cargo/commodities has been made to make available additional vessels for carriage of cargo along the coast at “competitive freight rates”, it noted.

“This would encourage modal shift from road and rail transport to coastal shipping and eventually benefit the end users. Both the coastal trade and the transhipment of containers from Indian ports, have shown an increase subsequent to the easing of licensing conditions for plying of foreign ships for specified types of cargo,” the Ministry document claimed.

Development of infrastructure on coastal routes, including evaluation of alternative routes, enhancement of existing ports/jetties, and creation of new jetties, are essential for successful coastal shipping and transportation of commodities like coal and fertilisers. This approach, integrated with national waterways where possible, should be supported by government policies and financial incentives to attract cargo users and achieve efficient supply chains, it said.

Similar criteria may be applied to other bulk cargo like iron ore, steel and food grains to promote coastal shipping, it added.