Such a step could as well pose a threat to its economy and progress. But, that is how the UPA government wishes to respond to some scathing remarks made by the Comptroller and Auditor General of India (CAG) in its last report on Indian shipping. About 90 per cent of the country’s US$ 16.3 billion seaborne freight bill had gone to foreign flag carriers. CAG slammed the government for failing to raise Indian shipping tonnage despite growing global competition.

CAG’s report didn’t club the freight bill with the insurance fees linked with the sea-borne export-import cargo paid to overseas insurance companies. The sum total would embarrass any country aspiring to become a global economic power. In foreign trade, even smaller economies seek to import on f.o.b. terms and export c.i.f. The term ‘f.o.b.’ stands for ‘free-on-board,’ meaning an importer pays only for the cargo. It makes its own shipping and insurance arrangements, mostly using national carriers and national general insurance companies for cargo insurance. This means a national saving or income of foreign exchange that the importer would have otherwise paid to overseas carriers and insurers in addition to the cost of cargo.

Likewise, exporting c.i.f. (cost-insurance-freight) provides an added income to an exporting nation by way of nominating it own shipping services (seaborne or airborne) and giving the cargo insurance job to its own insurance companies. In other words, the exporting nation benefits on all the three accounts – the value of export plus the freight charges plus the premium collected for cargo insurance. Thus, in foreign trade, the country gains the most which sells c.i.f. and buys f.o.b. making full use of its shipping and insurance services. Unfortunately, the poor state of India’s shipping and its neglected public sector general insurance companies are causing massive foreign exchange losses to the nation on account of freight and insurance costs to its foreign trade. India’s losses are its foreign trading partners’ gains.

It may not have been under CAG’s domain to also link the poor condition of Indian ports and docks in its report on shipping. They are causing further foreign exchange outgo as the country is becoming increasingly dependent on ports such as Singapore, Sri Lanka and the United Arab Emirates for transshipment of cargo and dry docking and repairing of vessels. It is another matter that at the current state of its ports and docks, India can never become a sustainable global economic power. It seems those leading the FDI brigade from Delhi’s Raisina Hill are more on an illusory space walk with little knowledge of the ground economic realities which they are afraid to face.

Around the time, India started its Fund-Bank patterned economic reform process, China began building its massing port and dock infrastructure, shipbuilding yards, modern railroads and container manufacturing facilities in order to realize its dream to become a formidable global economic power within two decades. So much so that China today boasts seven of the world’s top 10 port-and-docks systems. Nearly 90 per cent of world containers are manufactured in China. The world’s largest non-oil exporting country, China also boasts three of the world’s top 10 bank and insurance companies.

China’s highly focused and integrated approach to planning put the maximum emphasis on building a strong economic foundation around shipping, shipbuilding and port infrastructure. Only 20 years ago, the then British-administered Hong Kong served as China’s biggest seaport. Today, Hong Kong no longer occupies that position. It is now China’s seventh largest port. Its world ranking is the 9th. The three non-Chinese port-and-docks systems, which figure among the world’s top 10, are: Singapore (3rd ranked), The Netherlands’ Rotterdam (4th) and South Korea’s Busan (10th). Shanghai has become the world’s biggest port-and-docks system, followed by Ningbo-Zhoushan (2nd), river port Tianjin (5th), Guangzhou (6th), Qingdao (7th) and Qinhuangdao (8th).

Isn’t it absolutely mindboggling that China, which has only double the length of India’s total coast line and much smaller coast line than Australia’s, USA’s, Canada’s and Russia’s, could build seven of the world’s top 10 port-and-docks systems? Officially, China’s shipping tonnage is almost seven times larger than India’s. And, so is its fleet size. Its giant dockyards are constantly building new ocean going merchant vessels as well as those for its coastal shipping. On the other hand, India’s depressed, disoriented and defocused public sector shipyards at Vizag, Kochi, Mumbai and Garden Reach (Kolkata), the last two being much older than Chinese yards, have been languishing for want of government support. India’s only major river port-and-docks system, Calcutta-Haldia, has long been a victim of dirty Centre-State politics.

The CAG report had rightly pointed out that the shipping industry's fortunes are driven by the growth of seaborne trade but failure to increase tonnage and provide level-playing field in the matter of taxation impacted the competitiveness of the domestic industry. 'The need to strengthen the Indian shipping industry assumes great significance in view of various recommendations ...Overall Indian freight bill was USD 16.3 billion (Rs 73,300 crore) and out of this, over 14.2 billion (Rs 63,900) was paid to foreign flags as the mercantile fleet under the Indian flag was only 1.17 per cent,' the report said.

India’s sickly shipping companies are exposed to a variety of direct and indirect taxes, much higher than their international counterparts. It is like trying to milk a cow, which does not even produce enough to quench the thirst of its small calf, to feed its owners’ children. The country’s great planners don’t think shipping deserves an infrastructure industry status and access to cheaper funds. Around 65 per cent of the total Indian fleet having a little over 10 million gross tonnage, is owned by five companies, including 33 per cent by state-owned Shipping Corporation of India and 17 per cent by Great Eastern Shipping. The shipping industry contributes about 3 per cent of the GDP.

About 95 per cent of India's international trade by volume and 70 per cent by value are seaborne. However, the share of Indian ships in the country's overseas trade has declined to 8 per cent from 14 per cent during 2005-09, though the country's trade had increased by 34 per cent.

It may not be still too late for India to build a strong integrated shipping industry on the Chinese lines supported by large ports, shipyards, infrastructure banks and insurance companies. FDI in shipping will not take long to erase India’s name from highly competitive and almost eternally-stressed global shipping where the clever ones add tonnage during recession and the short-sighted sit idle or go for scrapping vessels. (IPA Service)