Why in news
- The government announced plans to add 100 new merchant ships to address India's high foreign freight reliance and cut maritime costs.
Current State of Indian Maritime Freight
- India pays approximately $75 billion annually in foreign freight charges due to a low proportion of national flag tonnage.
- Indian-flagged vessels carry less than 10% of the country's total EXIM (export-import) trade by value.
Structural Challenges and Strategic Mandate
- Cost Disadvantage: Operating under an Indian flag incurs a 16-20% cost premium over foreign flags due to local taxation, fuel levies, and compliance costs.
- Expansion Strategy: Acquisition of 100 ships aims to build sovereign capacity in critical liquid bulk, dry bulk, and container transport.
Why it Matters
- Reduces current account deficit vulnerability from foreign freight payouts.
- Enhances supply chain security during geopolitical maritime disruptions.
Key terms
Flag of Convenience
Registering a merchant ship in a foreign state with lenient tax or operational regulations rather than the owner's home country.
Tonnage Tax Scheme
A taxation method applied to shipping companies based on the net tonnage of the fleet rather than corporate profits.
Prelims facts
- Indian-flagged ships are subject to domestic taxation and stringent flag-state inspection rules unlike flags of convenience.
Mains discussion
- Analyze the strategic and economic necessity of building a sovereign merchant shipping fleet for India's international trade resilience.
Source: LiveMint