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
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
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.
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.