A thorough investigation into the conduct of India’s foreign trade may reveal yet another round of big-ticket scam involving the government policy – or, maybe, the lack of it – with regard to increasing shipment of both outbound and homeward cargoes on foreign bottoms, costing the country billions of dollars in freight and insurance.

The annual loss to the nation due to the government’s careless attitude towards shipment of India’s foreign trade could swell up to US$ 20 billion (over Rs. 1,12,000 crore). The loss of freight earning by Indian shipping companies is increasing by at least 10 per cent per annum irrespective of freight rate adjustments. India’s annual freight spend on its import-export trade is now close $ 50 billion. Of this, nearly 90 per cent goes to foreign carriers. That is $ 40 billion. Foreign shipping companies are having a ball while Indian carriers are left with large idle capacities leading to heavy losses. This is entirely due to policy deficit and sheer indifference. And, there is no reason to be satisfied that the government’s inexplicably indifferent attitude towards Indian shipping is not something deliberate to help foreign ship-owners, shippers and insurance companies. After all, who cares for shipping It is another matter that the country is also giving away bi-lateral air-traffic sharing rights to foreign carriers.

Under the 40:40:20 cargo sharing norms long listed by the international maritime conference (IMCO), a United Nations (UN) agency, domestic lines should have at least 40 per cent share of the national cargo. Foreign lines are entitled to have a similar share of 40 per cent. The rest are open cargo for everyone to share. However, the government apathy has made the IMCO cargo sharing norm meaningless to Indian shipping. Take, for instance, petro-products such as petrol, oil and lubricants (POL), which combine as India’s largest import cargo, the share of Indian shipping has slipped to barely 13 per cent compared to 17 per cent only a couple of years ago. It a pity that the share of Indian ships in the national cargo has been declining despite an increase in the domestic tonnage in terms of both volume and value.

Going by the latest World Trade Organisation (WTO) report, India is the 10th largest importing nation. The top five importing nations are China, the United States, Germany, Japan and France, in that order. However, when it comes to exports, India is way behind. Together import and export, India’s global ranking as a trading nation is only 19th. The country’s combined foreign trade last year was estimated at $ 791 billion — $ 491 billion in import and $ 300 billion export. In terms of gross registered tonnage (GRT), India’s global ranking is the 18th among the maritime nations. It has over 50 shipping companies. As of January 31, 2013, these shipping companies had a total of 1,158 ships, combining 10 million GRT. Unfortunately, much of this capacity is lying idle and there is little enthusiasm to add new capacity by the Indian shipping industry in keeping with the growth of its foreign trade.

The lacunae in India’s economic policy is not only making the country lose a large amount of revenue on account of cargo shipment, it is also losing about $6 – 7 billion in annual insurance income to foreign insurance companies. Most of the shippers enjoyed the liberty of buying goods from India on f.o.b. (free on board) terms and selling goods to India again on f.o.b., nominating their own vessels for export and import and selecting their own insurance companies. In the process, both Indian shipping and insurance companies have been receiving a raw treatment in the absence of any strong policy support from the government. In all major maritime countries, the shipping industry is among the most pampered by the government as it is often treated as the second line of defence. But, not in India though the government of India had, in the early 1970s, followed a very progressive policy and offered concessional credit schemes for ship acquisition by Indian companies. Economic liberalization changed the official attitude. The industry has long been seeking an infrastructure status, but the government does not seem to be impressed.

For reasons best known to bureaucrats and politicians in the union surface transport ministry, planning commission and the finance ministry, both the shipping and general insurance, which was nationalized over four decades ago, did not get the policy attention and priority they deserved for a full fledged growth of India’s trade and commerce and left the field open for multinational shipping and insurance companies to exploit. While Indian flag carriers are subject to various taxes, foreign lines are free to come and pick up domestic cargo. India allows 100 per cent FDI in shipping, but foreign lines are not keen to set up shop as they are better off without local incorporation which will be subject them to local levies.

As a result, even so many years after the nationalization of general insurance business and the creation of the General Insurance Corporation of India as holding company with four subsidiaries, the government-propped GIC continued to be minnows in the business of both the cargo and marine insurance and became increasingly dependent on global majors such as AIG, Nomura, Allianz, Generali, Munich Re Group, Tokio Marine and Ageon despite India’s ascendency as the world’s 10th largest economy in terms of nominal GDP. India’s foreign dependence on cargo and marine insurance is so strong that lately its import of crude oil from Iran faced uncertainty over the refusal of foreign companies to reinsure India’s import cargo and tankers on GIC’s behalf. (IPA Service)