Govt may give interest subsidy to keep shipping cos afloat

NEW DELHI: The government may bail out the shipping sector from rising cost of borrowings by providing 2-3% interest subsidy. The sector, which needs about Rs 100,000 crore by 2012 to expand capacity and replace ageing fleets, pays about 11% interest for dollar loans and approximately 14% for rupee loans.

���The department of shipping is reviewing the situation and will soon come out with an interest subsidy package,��� an official in the shipping ministry, who did not wish to be named, said. He said the finance ministry will decide whether subsidy scheme would be applicable for both the dollar as well as the rupee loans.

The domestic shipping industry prefers borrowing from European banks. ���These banks have larger appetite for lending and a much longer repayment tenure than Indian banks. In addition, the interest rate charged is relatively low. But due to the global meltdown, foreign banks have almost frozen their lending activities,��� said an executive of a Mumbai-based shipping company who did not wish to be identified.

The industry has been lobbying in the government to ease its cash-flow situation. Top executives of state-owned Shipping Corporation of India have also met officials in the shipping ministry over this issue.

The interest subsidy scheme is part of a proposal to boost the shipping industry. The proposed package will have other fiscal and monetary measures, the ministry official said, without giving details of the package.

���It is being worked out by the ministry,��� he said. It is likely that the government would increase public spending in the sector and grant it infrastructure status. With the status, shipping industry will be eligible for tax holidays.

Shipping firms, however, say mere interest subsidy will not help the industry. ���There is a need to boost the demand for various commodities to check freight rates from falling. The government should also facilitate Indian shipping lines by allowing them exclusive rights to ship a certain percentage of cargo. This would guarantee employment to vessels and result in increase in tonnage under Indian flag,��� the corporate executive said.