‘CABOTAGE’

The Indian Cabotage rules are contained in Sections 406 and407 under Part XIV of the Merchant Shipping Act 1958 (The Act). In summary, pursuant to these Sections only Indian flagged vessels or vessels chartered by an Indian citizen or company, operating under a license granted by the Director General of Shipping (Director General), can carry cargo from one Indian port to another Indian port. Foreign flagged vessels are permitted to carry cargo only if Indian flagged vessels are not available after attaining due permission from DG Shipping. 

Marine transport in India has evolved considerably over the past few years to become an integral component of India's economic development. Fuelled by the strong growth of its domestic industry, India is rapidly cementing a position as a key player in the maritime sector globally. 

The country's focus on strengthening the domestic maritime industry, and its role in supporting broader economic goals, is highlighted in the National Maritime Agenda (the Agenda) developed by the Indian Ministry of Shipping and Transport. Among other things, a key objective of the Agenda is for India's total foreign trade to account for 5% of global market share by the year 2020. This target is in line with the present Government's wider policy of economic reforms, including the recently released Foreign Trade Policy that, along with a range of reforms of export policy and procedure, includes a commitment to nearly exports by 2020 to $900 billion. 

Traditionally the movement of goods by sea in India has reflected relatively higher total annual imports compared to total exports. India's Total Import from April-2014 to March-2015 was approximately 450 Billion USD 

Industry bodies such as the Indian National Shipowner’s Association (INSA) have suggested that the absence of a regime that supports absolute Cabotage in India is a major reason for low investment in coastal shipping. Consequently INSA has opposed any relaxation of current Cabotage law by arguing that this move would potentially undermine the position of the domestic shipping industry in coastal trading. 

However, recent economic reforms have triggered a high rate of economic growth in India in which has, in turn, significantly increased demand for the transportation of goods. As demand is mostly serviced by rail and/or road transport systems, shipping transport services merely 8 - 9% of total current demand. 

In coastal shipping, the passage of goods in both directions is not equal. This leads to imbalance; the cargo movement pattern is dependent on the production and availability of goods, demand and the distance separating production centres from the points of destination of those good. 

In its opposition to any proposed relaxation of Cabotage in India, it is noted that there is no level playing field between the foreign lines and Indian shipping lines which are subject to tax, duty on bunker charges, domestic customs issues, etc.

It appears that the solution to this quandary is likely to come from seeking a balanced solution; the Indian government reportedly plans to seek a relaxation of the Cabotage rules whilst avoiding undue hardship to the Indian shipping sector, possibly by providing tax, duty and cargo incentives to them. In the context of India's wide-spread economic reforms, such a move could form the next step in sustainably expanding India's role in coastal shipping considering the government’s thrust in enhancing this sector.

It is apparent that coastal shipping will be integral to the growth of the Indian economy generally and also specifically towards the achievement of the nation's ambitious trade targets.