As exporters grapple with a global container shortage and sky-high freight costs, the government is considering a proposal to expand taxes and other incentives to get big players to set up shipping lines in India, sources said. official to FE.

The incentives could be announced in the next budget for 2022-2023, subject to the agreement of the Ministry of Finance. The ministries of commerce and navigation have learned to deliberate on various options; some officials are studying the attractive Irish model of taxation for shipping companies. Once a proposal is ready, approval from the Ministry of Finance will be sought.

Shipping costs from Indian exporters to most destinations have more than doubled in the past a year and a half in the wake of the Covid outbreak, reflecting a global trend.

Since the state-run Shipping Corporation of India (SCI) covers less than 5% of the domestic market of around $ 100 billion, it is unable to ensure an orderly evolution of the cost curve. shipping. As such, the government has now put the SCI up for sale.

Another source said the government may extend the validity of the Transportation and Marketing Assistance Program (TMA), which is aimed primarily at agricultural exporters, beyond March 2022. Under this program, which has been reintroduces this tax system with wider coverage and more support, the Center reimburses exporters. a certain part of the shipping cost. Aid rates have been raised by 50% for exports by sea and 100% for those by air.

Besides the emerging risks of the new Covid strain, high shipping costs and the unavailability of adequate containers remain the biggest challenge facing Indian exporters as they seek to take advantage of a pickup in demand. industry in advanced economies in recent months.

Many global shipping companies are registered in Ireland as it adopts a liberal tax regime for them. For example, shipping companies based outside of Ireland pay a tax based on the tonnage of the fleet as opposed to the tax on the profits recorded by the company. This, combined with the low general corporate tax rate of around 12.5%, generally keeps their tax liability lower than in many other countries. Likewise, no capital gains tax is levied on the transfer of a vessel.

“Encouraging the creation of shipping lines in India and even the manufacture of containers would be a key step towards self-sufficiency in this area. China has invested heavily in manufacturing containers and is now reaping the benefits, although it also faces high costs, ”a senior government official told FE.

Ensuring reasonable shipping costs remains crucial to meeting India’s ambitious goal of exporting goods from India of $ 1 trillion by FY28. Exorbitant shipping costs have penalized mainly small and exporting means. The country shipped $ 291 billion worth of goods in FY21 after the pandemic hit supply chains. In the current fiscal year, it is on track to meet the ambitious $ 400 billion target as demand for commodities in key markets remains strong.

Certainly the shipping cost has exploded all over the world and India is not an outlier. In fact, costs in China have increased at a much faster rate than in India, analysts said. Chinese suppliers are attracting large ships with higher freight costs, sources say. However, given the massive and covert subsidies from Beijing, the competitiveness of its exporters remains intact. Thus, the Indian government must also find ways to cushion the blow they are dealing with, according to domestic exporters.

In its submission to Finance Minister Nirmala Sitharaman in December, the Federation of Indian Export Organizations (FIEO) said exporters had turned over around $ 65 billion for transport in 2020, which will likely exceed $ 100 billion in 2021. , given the sharp increase. As the SCI is being divested, the government must encourage large entities to build a world-famous Indian shipping company, said FIEO.

Given the government’s goal of increasing merchandise exports to $ 1 trillion by FY28, that exporters’ shipping bill will only increase. So even if such a shipping company captures 20-25% of the domestic market, the country will save a lot of foreign currency, argued the exporters organization.