Shipping and logistics crucial areas for India

By Shardul Thacker, Mulla & Mulla & Craigie Blunt & Caroe
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The Indian peninsula is strategically located between cargo movements, to and from the European Middle East in the West and the Pacific Asia rim in the East. India has 7,517 kilometres of coastline studded with 12 major and 185 minor or intermediate ports, making the country a significant maritime nation. The development of its shipping industry has been pivotal to the growth of its trade and economy.

With the largest merchant shipping fleet among developing countries, India has an efficient movement of goods and commodities vital to the strengthening of its exports.

Port activity

Ports have grown in stature from being mere points for the loading and unloading of cargo, to becoming indispensable links in the overall infrastructure development of India. In order to address the various problems of the port sector, large-scale privatization or participation on a joint venture (JV) basis has been recommended.

Shardul Thacker Partner Mulla & Mulla & Craigie Blunt & Caroe
Shardul Thacker
Partner
Mulla & Mulla &
Craigie Blunt & Caroe

Since up to 100% foreign direct investment (FDI) in port projects is now permitted, major ports are allowed to enter into JVs with foreign ports and companies for their expansion, and for dedicated berths, with a view to upgrading facilities for containerization and faster movements of cargo. Also, the Major Ports Trusts Act, 1963, has been amended to enable major ports to enter into JVs with minor ports to enhance the latter’s traffic handling capacity, by diverting traffic to minor ports, which are cheaper and relieve major ports from congestion.

Coastal shipping offers distinct advantages as it relieves pressure on the already over-stretched, land-based rail and road transport systems. Additionally, it offers an environmentally friendly, energy efficient and cheaper mode of transport.

Foreign entities are permitted to invest upto 100% in the coastal shipping business by way of structuring an Indian subsidiary, or by investing in an Indian ship-owning and ship-operating company. These Indian entities would own ships flying Indian flags, thereby increasing India’s tonnage and offering additional jobs to Indian crew.

Inland transport

Inland waterways play an import role in multimodal transport in India, with several river systems interlinking ports and the hinterland. India has about 14,500 kilometres of navigable waterways. Inland water transport (IWT) enables movement of about 45 million tonnes of cargo annually. The concept of national waterways (NW) has been introduced to boost the development of IWT.

The Government of India (GOI) has added three new waterways to the existing three NW to boost infrastructure development from a logistics and supply chain perspective. A 30% subsidy is provided for the acquisition of inland vessels and 100% FDI under the automatic route is allowed for most infrastructure sectors.

Since, the IWT sector has been accorded the status of infrastructure under Section 80 I A of the Income Tax Act, investors are eligible for 100% tax exemption for 10 years.

India’s transportation of general cargo has undergone important structural changes.

Containerization arrived in India in the early 1980s, transforming the transportation scene. With its arrival, goods no longer needed to be brought to ports in break-bulk form to be loaded onto conventional ships. Inland container depots also sprang up with the development of the expressway roads.

Containers are increasingly being used for the transportation of goods from one country to another, using more than one mode of transport and more than one carrier.

Various measures have been taken to facilitate containerized trade, with the development of container handling facilities in major Indian ports, container railway flat wagons, inland container depots and container freight stations.

Warehousing is the storing of products (raw materials, semi-finished and finished products) at different times during all phases of the logistics process. Warehousing is needed to achieve economies of scale, obtain quantity purchase discounts and to maintain a source of supply.

The GOI has announced a new scheme to establish free trade and warehousing zones (FTWZ) under Foreign Trade Policy 2004–2009.

This will create trade-related infrastructural facilities for the import and export of goods/services in free currency. The benefits of having a FTWZ is that it provides regularized logistics and distribution centres and amalgamates various other aspect of logistical operation.

India has been increasing its trade and exports to satisfy the demands of global competitiveness. It has achieved a better balance of payments with more efficiency in the logistics industry, which enables cheaper, faster and safer movements of trade.

Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.

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