Subsidy for Shipping Firms – UPSC GS3

Context: Cabinet has approved a scheme for the promotion of merchant ships in India by providing subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs.
Challenges with the Indian Shipping industry at present:
  • Despite having a policy of 100% FDI in shipping since 1997, the Indian shipping industry and India’s national fleet are proportionately small when compared with their global counterparts.
  • Currently, the Indian fleet comprises a meager 1.2% of the world 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. This has led to an increase in foreign exchange outgo on account of freight bill payments to foreign shipping companies.
So, a policy to promote the growth of the Indian shipping industry is also necessary because having a bigger national fleet would provide economic, commercial, and strategic advantages to India.
About the scheme:
The scheme will provide Rs.1624 crore over five years as a subsidy to Indian Shipping companies in global tenders floated by Ministries and CPSEs for the import of government cargo. 
Key features of the scheme:
  • The subsidy support varies from 5% to 15% of the lowest bid by a foreign shipping company. This depends on whether the ship was flagged after or before February 1, 2021, and the age of the ship at the time of flagging in India.
  • Ships older than 20 years would not eligible for any subsidy under the Scheme
  • The budgetary support would be provided directly to the Ministry/Department concerned.
  • The Scheme has laid out a monitoring framework which is detailed at also provides for effective monitoring and review of the Scheme.
The expected outcome of the scheme:
  • The scheme has immense potential to generate employment.
  • An increase in the Indian fleet will provide direct employment to Indian seafarers, since Indian ships are required to employ only Indian seafarers.
  • It also increases indirect employment in the development of ancillary industries such as shipbuilding, ship repair, recruitment, banking, etc. and contributes to the Indian GDP.
  • A strong and diverse indigenous shipping fleet will not only lead to foreign exchange savings, but would also reduce excessive dependence on foreign ships for transporting India’s critical cargoes.
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