Can Indian flag ships take India’s share of global maritime trade to 30%?
India spends nearly as much on foreign shipping as it does on defence every year, a staggering $75 billion. Prime Minister Narendra Modi’s ambitious maritime package could change that—but the question is how well the four key elements of it come together to provide tailwinds.
At the ‘Samudra ke Samriddhi’ programme in Ahmedabad on 20 September, Prime Minister Narendra Modi highlighted the staggering financial loss India incurs due to reliance on foreign shipping. India pays foreign shipping companies $75 billion annually, nearly equivalent to its annual defence budget. This is mainly because foreign ships carry almost 95% of India’s export-import trade. “Be it chips or ships, they must be Made in India," Modi said.
Four significant steps to revitalize India’s shipbuilding and maritime ecosystem have been initiated as part of a package approved by the Union cabinet:
One, the Shipbuilding Financial Assistance Scheme has been extended till 31 March 2036. This, coupled with infrastructure status for shipyards, will facilitate credit for setting up shipyards.
Two, a Maritime Development Fund (MDF) has been approved with a corpus of ₹25,000 crore to provide long-term financing for ship acquisition.
Three, the cabinet has approved the allocation of ₹4,001 crore for an innovative scheme, the Shipbreaking Credit Note, which was announced in the budget. This scheme incentivizes ship scrapping by issuing a credit note of 40% of the scrap value that can be reimbursed to buy new ‘Made in India’ ships.
Four, the Shipbuilding Development Scheme (SbDS), with a budgetary outlay of ₹19,989 crore, aims to expand domestic shipbuilding capacity to 4.5 million gross tonnage (GT) annually, support mega shipbuilding clusters and infrastructure expansion, establish an India Ship Technology Centre under the Indian Maritime University and provide risk coverage, including insurance support for shipbuilding projects.
In a related development, the finance ministry has included in the Harmonized Master List (HML) of infrastructure two categories of shipping vessels: (a) Indian-owned and Indian flag ships of 10,000GT capacity or more (b) commercial vessels of 1,500GT or more, which are built in India and under Indian ownership and bear the flag.
The RBI (Project Finance) Directions, 2025, that will come into effect from 1 October, clarify that sectors in HML can avail: (a) flexible lending terms, (b) enhanced limits for loans from banks and financial institutions (c) flexibility in refinancing and restructuring of existing loans and (d) flexibility on provisioning of non-performing assets.
For these benefits to materialize, the next steps should include reaching out to Indian infrastructure finance companies such as NaBFiD, PFC, REC and the Sagarmala Development Finance Corp to open access to their infrastructure funds for Indian shipping companies looking to augment Indian flag tonnage through the acquisition of ships and by building them in Indian yards.
These steps address the supply side. Of equal importance is demand and the government can facilitate this as well. For tugboats and specialized vessel segments, a series of measures, including standard tug designs for use by major ports and mandates for procurement of Indian-made tugs under the Green Tug Transition Programme (GTTP), have created long-term visibility on the use of Indian built tugs.
In the context of cargo vessels, the assurance and availability of long-term charters will spur the purchase of ships under the Indian flag as well as ship-building in India.
The greening of ship manufacturing is another area in need of policy support. To be future ready, shipbuilding must adhere to international sustainability and environmental norms. The International Maritime Organization has proposed a net-zero framework for shipping to reach net-zero greenhouse gas emissions by around 2050. The EU has already started mandating that ships entering its waters must comply with emission reduction norms.
Given the old age profile of Indian flag ships, the cost of compliance for any net-zero framework will be very high and could hurt our competitiveness. Financial support will be needed to ensure that they are able to comply and stay resilient in the face of a fast-changing regulatory scenario globally.
Similarly, building ships to meet high environmental standards calls for higher investments. A portion of the MDF could hence be dedicated to the financing of clean ship manufacturing as well as the transition of existing fleets.
The Harit Nauka-Green Transition Guidelines for Inland Vessels provided a structured plan for a shift of vessels used for inland passenger transport towards cleaner fuels, while the GTTP incentivized a transition to battery-operated tugs at all Indian ports. Similar programmes exist for investment in cargo vessels.
It will be exciting to see how various Indian policy initiatives unleash a wave of competition and growth in this sector so that not just large, but small and mid-size shipping companies can also thrive in India.
The benefits of the sector being granted infrastructure status include access to debt and equity financing at low cost, with terms matching the lives of vessels.
These are welcome steps. If implemented well, along with other complementary policy moves, it would help India achieve the objective of increasing its share in global maritime trade to at least 30% by 2047, as envisioned by the Prime Minister.
These are the author’s personal views.
The authors are, respectively, CEO, Indian National Shipowners’ Association and Partner, Clarus Law Associates
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