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India Mulls withdrawing the right of first refusal to local shipping firms

While speaking on the sidelines of an event in Delhi when asked whether the government is withdrawing the right of first refusal given to local fleet owners, Nitin Gadkari, Minister of Road Transport  and Shipping, said, “It’s in process. I can’t divulge more details.”


Under Indian cabotage law, the right of first refusal ensures local shipping companies carry bulk dry/liquid cargo of Indian public and private sector companies by matching the lowest rate quoted by foreign shipping lines. While it doesn’t increase the costs of the importer or exporter, it provides an assured business to the national fleet. Foreign shipping lines can carry cargo when local fleet owners face capacity constraints. 


“The government is mulling over this proposal because there’s sufficient capacity in the domestic industry,” Hemant Bhatt, chief executive officer of HMSA Consultancy Services, has told BloombergQuint over phone as the media reports.  “The right of first refusal is acting as an impediment to the movement of cargo.”


Once implemented, the proposal, Bhatt said, will enable international shipping lines to deploy their fleet to tow cargo from one port to another consistently. “This will lead to increased competition in the shipping industry.”


Domestic shipping companies, however, oppose the move, saying it will hurt their business. Mumbai-based Great Eastern Shipping Corporation said in a statement: “Such a step would also be a huge setback to the continuation of India as a nation with a national flag maritime fleet.”

“The right of first refusal gives Indian companies the opportunity to conduct business at the lowest rate offered by a foreign line, at no extra cost to the consumer,” the statement read. “It’s a measure of protection that provides a benefit to Indian shipping at no cost to the economy (unlike, say, an anti-dumping duty).”


The statement referred to a government circular issued in June last year that said all government and public-sector undertaking entities were to give right of first refusal and price preference to local companies as part of the Make in India scheme. “This covered the procurement of both goods and services.” The proposed removal of right of first refusal goes completely against the spirit of this, the statement said.


The Economic Survey of 2017 had noted how local fleets are losing prominence in Indian trade. “Indian ships saw a sharp decline in their share in carriage of country’s overseas trade while about half of the domestic shipping fleet is aged,” the survey had said. “There’s been a sharp decline in the share of Indian ships in the carriage of India’s overseas trade from about 40 percent in the late 1980s to 7 percent in 2015-16.”


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