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Industry facing manpower crunch, tax disparities
October, 25th 2006

The Indian shipping industry is facing a shortage of around 650-750 senior officials, but the paradox is the number of Indians working on foreign ships is double that of those working on ships owned by Indian companies. Its compounding the human resources problem in the industry, which is already facing an acute shortage of trained personnel.

The current problem is due to the tax disparities with peers working in foreign ships. The taxation disparity has made us subsidise the training cost of our foreign competitors, Shipping Corporation of India (SCI) CMD S Hajara says. Indian nationals working on Indian ships come under a 30% income-tax bracket, regardless of the location of the work, which could be any country as ships move all over the world. However, Indians working on foreign ships are exempt from this tax.

As a result, the Indian shipping industry expects the government to rationalise the income tax structure to curb the migration of Indian talent to foreign vessels. Also, there is a need for foreign crew (officers) to be allowed to work under Indian flagships in order to meet the experience matrix as stipulated by oil majors.

This manpower shortage is inspite of having adequate training facilities within the country. Maritime training was privatised ten years ago. At present, there are four government-owned and thirteen private institutes.

Fiscal issues include the imposition of customs duty on import of certain categories of ships (between 30 to 40%) and service tax among others. INSA president Yudhisthir Khatau says the industry is plagued with a variety of taxes totaling upto twelve, in the form of service tax and FBT along with the earlier existing taxes which threaten to take away the much sought level playing field against global competition.

The cumulative effect of these taxes lead to an inherent cost disadvantage of 4-5% for Indian owners. Therefore, the industry is asking for a complete exemption from service tax on services availed by shipping companies, in line with the practice followed by most of the maritime nations in the world.

Globally, input services for shipping industry are not subject to service tax whether services are availed domestically or internationally. On the other hand, to maintain their global competitiveness, the shipping industry needs at least another 200 vessels replacing 99 old vessels. Assuming a price of $10 million per ship, the total cost of maintaining market share over the next six-seven years to the Indian shipping industry will be $3.75 billion.

The need of the hour is also to increase port efficiency. At present, JNPT port does 18 moves per hour while Chennai Port does 12 moves per hour.

In comparison, Shanghai does about 40 moves per hour and Colombo, 22 moves. Moreover, not a single port in India is able to handle 6000 TEU vessels due to low draft port.

Hajara adds, Lack of major shipyards and deep draft port to handle larger vessels are major problems for the shipping industry.

The share of Indian ships in the countrys overseas sea-borne trade has slipped to 13.7% from a high of around 40% in the late 1980s, while the share of foreign companies has been rising steadily. Indian ships share in the countrys overseas trade is continuously decreasing and as a result, the country has to depend on foreign ships to a considerable extent, resulting in higher freight payments.

These issues notwithstanding, the Indian fleet registered a growth of 5.6% during the year 2005-06 with its strength showing an increase from 686 ships of 8.01 mill gt to 739 ships of 8.58 mill gt, an increase of 24% since the introduction of tonnage tax. Around Rs 1,300 crore have been set aside in TT reserve by the shipping companies for acquisition of ships in two years.

Together with the additional funds that can be leveraged against this by way of bank borrowings, the total commitment for acquisition of ships amounts to approximately Rs 5,200 crore.

As per Lloyds-Fairplay World Fleet Statistics for 2005 Indias ranking in terms of gross tonnage was twentieth amongst major maritime countries.

With the fleet acquisition plans currently being undertaken by the shipping companies, it is hoped that India will cross 10 million gross tonnes shortly to rank among the top ten maritime nations.

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