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Privatizing a strategic asset like SCI makes little sense

The latest delay in the privatization of India’s sole state-owned merchant shipping company, the Shipping Corporation of India (SCI), offers a chance for the Centre to rethink the privatization of this strategically critical national asset.

While there is a good case for the exit of government from business in general and the privatization of most state-owned enterprises in particular, SCI has to be viewed through a different lens – that of national security. 

Nothing underscores this more than the travails faced by Russia in attempting to circumvent Western sanctions and keeping its international trade going.

The fact that Russia has a strong local merchant fleet has helped.

One, Russia has a fairly strong merchant fleet of its own; and two, China, the world’s fastest-growing merchant shipping power over the past decade, has stepped into the breach to bail Russia out.

India ranks 19th in merchant fleet strength in the world rankings

 In the case of a conflict – either involving India directly or in the Indian Ocean region – will leave India with few such options. While 98% of India’s trade by volume and 68% of trade by value is carried by sea, most of this is money paid to foreign operators – India ranks 19th in merchant fleet strength in the world rankings, with about 1% of global capacity in tonnage but these numbers hide more than they reveal. More than a third of the total (and a much higher percentage in critical cargo areas like crude, LPG and natural gas carriage) is under foreign flags. The existing Indian fleet is also aging, with the average age increasing from 15 years in 1999 to 19.71 years as of October 1, 2019, according to the Economic Survey for 2019-20, with more than half the fleet over 16 years old. 

Critical merit of SCI

This is where SCI becomes critical to India’s maritime security interests, as well as central to its ‘blue economy’ policy. With 59 vessels totalling 531,1211 DWT, it is by far India’s largest merchant cargo carrier. It also owns critical infrastructure like very large crude carriers, petroleum product and gas carriers. What’s more, SCI mans and operates offshore supply vessels for ONGC, maritime survey vessels, deep-sea exploration vessels and even dredgers that keep our ports operations. A privatized SCI may pull out of these niche markets. 

It is not as if privatizing SCI will allow unfettered growth of the shipping sector in India. The fact that the two largest private Indian shippers – Essar and Great Eastern – do not have a combined fleet strength that matches SCI. Despite policy changes that give preference to Indian-owned ships for Indian freight, the fact remains that constrained shipbuilding capacity – China, South Korea and Japan together account for 85% of the world’s shipbuilding market – and lack of financing options have meant that even Indian shipping companies have increasingly opted for foreign flag operations. 

Privatizing a strategic asset like SCI makes little sense

Until such time as India can sort out its long-term structural issues related to shipping – building shipyard capacity and developing domestic financing and insurance capacity – privatizing a strategic asset like SCI makes little sense.
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