Shipping firms have reason to rejoice

Removal of custom duty to benefit Indian dredging companies, as import of dredging vessels (including dredgers meant for re-export purpose) would not attract any custom duty. This is likely to provide Indian dredging companies an edge over foreign players.

Rationalisation of taxes, which continues to be the most important issue for the shipping companies, remained unaddressed in the budget. The Indian shipping industry is subjected to 12 different kinds of taxes which do not provide them a level-playing field vis-à-vis foreign companies. Overall, we are positive on companies with focus on offshore and dry-bulk segments.

Removal of custom duty on dredgers to benefit Dredging Corporation of India and L&T.

Indian National Ship Owners Association (INSA)

Exempt all services provided to the shipping industry from the purview of service tax whether availed domestically or internationally.

MAT on profit on sale of ships needs to be removed.

Interest earned on tonnage tax reserve needs to be treated as income from core activities.

Instead of the current system of tax on accrued income basis, a fixed/flat rate of tax be collected from all Indian seafarers irrespective of their residential status and/or the company or flag of ship they work for.

Indian shipping companies should be exempted from withholding taxes on charter hire payments to foreign ship-owners.

Concessional regime under Section 33AC

Setting up of an International Container Trans-shipment project at Kochi.

Service tax has been raised from 8% to 10%. Further, a surcharge of 2% on account of education cess will be imposed on this tax.

Approved the revised proposal for time-bound implementation of International Transshipment Terminal (ITT) at Kochi port

Under NELP VI, 55 blocks and area of 355,000 sq kms offered.

Investment of Rs 220 bn expected in the refinery sector in the next few years.

National Maritime Development Programme (NMDP) approved. Work is in progress in 101 projects covering inland waterways, shipping and ports including deepening of channels in Kandla, JNPT and Paradip.

Plan allocation for Department of Shipping increased by 37% to Rs 7.4 bn.

Ship management services brought under the service tax net.

Approved the revised proposal for time-bound implementation of International Transshipment Terminal (ITT) at Kochi port

Strong economic growth:  IMF estimates 4.9% global GDP growth for 2007 on the back of a rapid growth in China and India and a moderate growth in the US. This is slightly lower than the 5.1% estimated growth for 2006. A strong global GDP growth should lead to a strong demand for key industrial raw materials like crude, iron ore and coal. This is expected to aid the shipping industry's growth.

Government's thrust on oil exploration:  Energy security remains one of the top agenda for a country like India, which imports nearly 70% of its crude oil requirements. In a bid to encourage oil exploration activities in India, the government laid down the New Exploration and Licensing Policy (NELP) in 1997-98. This has led to a substantial increase in exploration activities by private players. In the recently concluded NELP - VI, the government has allotted 27 deepwater and 6 shallow water oil blocks. As the investment in the oil explorations activities pick up pace, we expect the demand for offshore services in terms of rigs and offshore support vessels to remain strong.

India to become a refinery hub:  The current refinery capacity of India is close to 132 MMTPA. The domestic refining companies have planned capacity additions to the tune of 90 to 100 MMTPA in the next 4 to 5 years. With the large-scale commissioning of refining capacities, India is likely to emerge as a refining hub. This is likely to result in a significant demand for crude and product tankers.

Focus on port infrastructure:  In 2005, Ministry of Shipping, Road Transport and Highways announced the Rs 610 bn National Maritime Development Programme (NMDP) to boost infrastructure at major ports in the next 10 years. The programme is expected to increase the port capacity from 389.5 MT to 917.5 MT by 2014.

High order book to put further pressure on tanker freight:  The crude tanker freight rates have eased considerably from the peaks of early 2005. At the end of November 2006, the world order book for the tanker segment stood at 131.9 mdwt, representing 35.4% of the existing tonnage. Such a significant tonnage addition will put further pressure on the tanker rates. Production cuts from OPEC in order to influence oil prices is another negative, as it will create excess capacity. The only saving grace we think would be scrapping of single-hull ships, which could neutralise the supply overhang.

Taxes:  The Indian Shipping industry is currently subjected to 12 different kinds of taxes, which do not provide a level playing field for them vis-à-vis foreign players.