IFSC panel roots for competitive ship leasing facility in India

The Committee for Development of Avenues for Ship Acquisition, Financing and Leasing, constituted by GIFT IFSC, has recommended cost-effective and competitive delivery of shipping services on ships owned and leased from India-offshore IFSC, which is on par with overseas competitors.

The committee, headed by Vandana Aggarwal, with representatives from Government of India, Gujarat Maritime Board, industry and finance experts, and academicians, submitted its report titled SAFAL (Ship Acquisition, Financing and Leasing) to IFSCA on 28 October 2021.
The committee observed that India, despite having a large coastline, growing domestic market and international seaborne trade, deep-rooted maritime traditions, and skilled seafarers, it continues to have a smaller share in international shipping sector, thus becoming a net importer of shipping services, especially ship finance.
The committee carried out a 360-degree examination of the existing legal and regulatory regime in IFSC in India for ship acquisition, financing, and leasing, comparing it with those of global top-ranking marine hubs. It developed financial models to gauge the gap in costs, including capital and operating costs and tax costs, of doing this business in IFSC and these hubs. 
It has identified bottlenecks to the realisation of India’s shipping sector’s growth story. It held extensive stakeholder consultations towards working out the changes required for seeding a robust Ship Acquisition, Financing And Leasing (SAFAL) regime at India-IFSC. To this end, it also holistically considered the supportive links of ship building, flagging, operating, and repairs and recycling in the shipping value chain. Focus remained on enabling cost-effective and competitive delivery of shipping services on ships owned and leased from India-offshore IFSC, which is on par with overseas competitors.
It has presented the critical and necessary changes required to bring this greenfield venture to India IFSC. These cover legal and regulatory domains, direct and indirect taxes, ship finance, and ease of doing business drawing upon global best practices. The report provides useful recommendations for realising the true transformational potential of India’s shipping industry. It finds that the time is opportune for imparting a brand value to Indian-flagged vessels. This can be done by carving out a share in global cross trades, securing gainful transactions for India’s marketplace, promoting decarbonisation and greening of the blue oceans, and leveraging India-IFSC Maritime for achieving the Maritime India Vision 2030 and beyond.
Essentially, the committee has found that the concept of IFSC, conceived for financial services, should be naturally extended to SAFAL products and services, including ancillaries. This may entail notifying vessel leasing or operating lease of any equipment as a ‘financial product’ to enable ship leasing entities to set up a unit in IFSC. It has proposed the introduction of a new category of ‘Indian IFSC-controlled tonnage’ with global benchmarking of regulation, tonnage tax and other tax and seafarer regimes, besides overcoming pricing and other limitations of the existing ROFR regime for import of bulk cargoes. Direct and indirect tax changes have been proposed based on the competitive gaps identified through the financial models developed for India-IFSC. 
The committee submitted its report to the IFSCA on 28 October 2021. It has made numerous recommendations regarding reform measures required to make GIFT IFSC a global hub for Ship Acquisition, Financing and Leasing. Recommendations include notifying vessel leasing as a ‘financial product’, enabling operating framework for ship leasing, creating special dispensation for registration of vessels, flagging, licensing, changes in direct and indirect tax law, including stamp duty, etc.
Meanwhile, union minister for ports, shipping and waterways Sarbananda Sonowal informed the Lok Sabha on Thursday that India has a merchant fleet of 1,491 seagoing ships with total capacity of 13 million GT. India is ranked 18th with respect to leading flag of registration by dead weight tonnage and 19th by carrying capacity in dead weight tonnage. However, the country accounts for just about 1.3 per cent of the total global dead weight tonnage.
The government says it is committed to increase the share of Indian shipping in international trade and has taken various measures towards this. 
The following are the major measures taken by the government for the same:
Revision of the criteria for Right of First Refusal (ROFR): The criteria for granting the Right of First Refusal in chartering of vessels through tender process has been revised, for promoting tonnage under Indian flag and ship-building in India, so as to make India an Atma-nirbhar/self-reliant Bharat, in terms of tonnage and ship-building in India. The following is the revised hierarchy of RoFR;
·       Indian built, Indian flagged (Indian owned);
·       Foreign built, Indian flagged (Indian owned);
·       Indian built, foreign flagged (foreign owned).
This will promote demand of Indian built vessels as the Indian built vessels will have the priority in chartering and will also provide additional market access and business support to ships built in India.
Subsidy support to Indian shipping companies: The union cabinet has approved a scheme for the promotion of flagging of merchant ships in India by providing Rs1,624 crore over a period of five years as subsidy support to Indian shipping companies in global tenders floated by ministries and CPSEs. The rate of subsidy support will be based on age of the vessel.
Ship Building Financial Assistance Policy (2016-2026): Government of India has approved the Financial Assistance Policy for Indian Shipyards on 9 December 2015, for grant of financial assistance to 'Indian Shipyards’. Only those vessels shall be eligible for grant of financial assistance, for which the construction commences subsequent to the signing of valid contracts. Vessels which are constructed and delivered within a period of three years from the date of contract are eligible for availing financial assistance under the policy. For specialised vessels, the delivery period can be extended till six years. Financial assistance shall be provided at the rate of 20 per cent of the contract price, actual receipts, fair price (whichever is least) to Indian shipyards. Under the policy, the financial assistance extended would be reduced by 3 per cent every three years.