India allows local shipping firms to operate ships with foreign flags

By Deepshikha Sikarwar

NEW DELHI: India has allowed domestic shipping lines to operate foreign flag vessels, shedding a key restriction that would help the sector attract more investment and tap more foreign business.

So far, Indian operators weren’t allowed to own foreign flag vessels — at most, they could charter these for specified periods. Also, they could not employ foreigners on Indian flag-bearing ships.Most companies, therefore, floated a foreign subsidiary that had a big downside as the entire benefit of the activity would go to the foreign country.

"The restriction has been removed. It would be a big boost to the industry," a senior shipping ministry official told ET. The flag signifies that a particular state has exclusive jurisdiction and control over the vessel.


However, the ownership can be in a third country. The Indian National Shipowners Association had lobbied the government for easing the rule,highlighting how it was strangulating the sector’s growth.

A foreign arm essentially means additional cost for Indian operators as they have to comply with regulations in the other country. A number of shipping lines have set up their arms in Singapore to ply vessels with foreign flags.

Usually, ships are registered in jurisdictions such as Panama, Singapore, the Marshall Islands and St Kitts, popularly called the 'flags of convenience'. A ship has to follow the rules of the jurisdiction it has registered with.

Since some jurisdictions have lax regulations, they are preferred by ship owners. India is known to have stringent regulations for ships registered here. "This will give shipping lines lot of flexibility," the official said.

Essentially, removing the restriction would mean Indian companies will be able to register ships in these jurisdictions and yet operate them out of India. This will bring them on par with competition that extensively uses dual flags.

For instance, more than 50 million gross tonnes of ships fly the Bahamas Flag. The Bahamas does not impose any kind of tax — income or capital gains — on ship flying its flag.

The change in rules means also that Indian ship owners will not have to set up foreign subsidiaries and the revenue from these operations will come to India. The tonnage carried would be counted towards the Indian company’s tonnage, helping them raise foreign funds more easily.

The government will earn taxes. The flexibility to own a foreign vessel is crucial for ship lines as just like India, many countries insist on employment for their nationals to operate in their waters.