The Transport Finance Law Review: India

Introduction

The transportation industry – aviation, shipping and rail – has been predominantly owned by government entities since India's independence in 1947. Historically, Air India and Indian Airlines (now merged into Air India Limited), both government-owned entities, ruled the skies. The Shipping Corporation of India Limited (SCI), established in 1961 and owned by the government, owned and operated around one-third of the Indian tonnage. All railway property has always exclusively been government-owned.

However, this trend has been changing. The government has taken up disinvestment through minority stake sale (i.e., retaining ownership of at least 51 per cent of the shareholding and management control) or even strategic sale of a substantial portion (50 per cent or more) of the government shareholding along with transfer of management control of certain identified central public sector enterprises. The privatisation process of Air India Limited has started, and the government will embark on 100 per cent privatisation. The government is also aggressively considering strategic disinvestment in the Shipping Corporation of India and Pawan Hans.

i The transport finance industry

Shipping and aviation are global industries, with cyclical ups and downs. Indian entrepreneurs, in the context of other industries, have not considered these sectors as safe havens for their investments. Both are also dollar-based industries, and global banks tend to focus on large fleet owners of aircraft and ships, which are rare in India. The financing costs of the Indian banks are not competitive in terms of global financing, as interest rates are quite high.

Owing to the vast difference in the costs of domestic borrowing and external commercial borrowing (ECB), Indian companies have for a long time obtained finance for the acquisition of ships and aircraft from foreign banks and financial institutions such as DNB Bank ASA, ING Bank NV, BNS Asia Limited, Bank of America NA located predominantly in Singapore, Hong Kong and Dubai. Indian banks such as SBI, ICICI and Axis Bank also provide finance through their offshore branches. The regulations governing ECB are framed by the Ministry of Finance and the Reserve Bank of India (RBI), and ECB borrowed by Indian companies to finance the cost of acquisition of ships must be in accordance with the Foreign Exchange Management Act, 1999 and the rules, regulations, guidelines, notifications and circulars issued thereunder.

Currently, the transport industry continues to grapple with the covid-19 pandemic and is facing an unprecedented challenge. Entire aviation and maritime operations from passenger traffic, air cargo demand, airport workforce and incoming revenues, shipyards to carriers of bulk commodities have been affected. There is no segment of the industry so far that is immune to covid-19. Restrictions by countries at their ports and airports, such as the suspension of flights and bans on crew changes, are disrupting global supply chains. Operations of aviation and shipping companies and related industries, including terminals and ports, have been affected due to personnel being advised to refrain from travelling or reporting to work. Lower demand for commodities and raw material, and thus the need for shipments, has pushed freight rates lower. Coronavirus has had a major impact on the usually lowest-priced intra-Asia trade lanes, which typically meet much of the equipment repositioning for the region.

However, with the easing of restrictions and normality slowly resuming, Indian shipping industry leaders anticipate a strong turnaround. The ports have resumed working in a restricted manner with limited workforces. With the commencement of an anti-coronavirus vaccination programme, the Indian aviation and shipping sector are hoping for a much better 2021 as compared to 2020.

ii Recent changes

To improve the ease of doing business in India, the RBI has further liberalised the ECB framework. In its attempt to simplify the old ECB framework and influence the inflow of foreign debt, the RBI has further expanded the list of eligible borrowers, widened the list of recognised lenders, reduced the minimum average maturity period to three years and set a uniform individual limit of US$750 million in a financial year for eligible borrowers, applicable across both types of ECB. The end use of the ECB has also been liberalised, and the ECB proceeds may be utilised for any purpose save and except for a prescribed negative list. The RBI has also reduced the mandatory hedging requirement from 100 to 70 per cent under the foreign currency-denominated ECB option for those entities covered under the term infrastructure space companies.

Legislative framework

i Domestic and international law and regulation

Shipping

Flag or mortgage registration

The registration of Indian ships and mortgages is governed by:

  1. the Merchant Shipping Act 1958 (MSA);
  2. the Merchant Shipping (Registration of Indian Ships) Rules 1960, as amended from time to time; and
  3. notifications issued by the Ministry of Shipping and the Directorate General of Shipping (DGS) under the MSA from time to time.

The Merchant Shipping Bill 2016 was introduced in the House of the People on 16 December 2016 to replace the MSA. Some of the proposed changes (to the existing law) under the Bill are as follows:

  1. for a vessel to be an Indian vessel or an Indian controlled tonnage, it should be substantially (i.e., more than 50 per cent of the shares of the vessel) owned by an Indian citizen or a body established under any central act or state act of India;
  2. an Indian vessel can also be registered in a country other than India, subject to certain conditions as may be prescribed;
  3. it seeks to repeal the Coasting Vessels Act, 1838 (under which non-mechanically propelled vessels are currently registered). Consequently, the new Merchant Shipping Act (if enacted) will deal with registration of all seagoing vessels, including rigs. It further permits the creation of mortgages over rigs, for which such mortgage over rigs would be subject to the same rights and obligations as any self-propelled ship or vessel; and
  4. it will allow registration of a vessel chartered on a bareboat cum demise (BBCD) basis by an Indian charterer with the Indian registry. Such registration of vessels chartered on a BBCD basis will remain in force until the end of the charter period, provided any provisions of the Act (i.e., Merchant Shipping Bill once enacted) are not violated. The vessel chartered on a BBCD basis, once registered under Chapter II of the new Merchant Shipping Act (i.e., the Merchant Shipping Bill once enacted), shall become an Indian vessel and will be entitled to fly the Indian flag. However, such registration would not be mandatory.

Indian shipping companies can own foreign-flagged ships subject to compliance with the DGS guidelines. The Indian-controlled tonnage scheme allows shipowners based in India to acquire ships abroad and flag them in the country of their convenience – typically tax-friendly jurisdictions to help access competitive sources of funds – while achieving fiscal and cargo benefits available in India.

Under India's stringent cabotage policy, no foreign ship could engage in coastal trade between two Indian ports except under a licence issued by the DGS. However, the cabotage policy was also relaxed to allow foreign-flagged vessels carrying passengers to call at more than one Indian port for a period of 10 years (i.e., from 6 February 2009 to 5 February 2019) without obtaining a licence from the DGS. This relaxation period was further extended for a period of five years (i.e., up to 5 February 2024). In 2018, the cabotage policy was further relaxed in relation to foreign-flagged ships engaged in the following coastal activities:

  1. transportation of EXIM export–import laden containers for transshipment and transportation of empty containers;
  2. carriage by sea of prescribed agricultural, fisheries, animal husbandry and horticultural commodities; and
  3. carriage by sea of fertilisers.

Such relaxation of the cabotage rules has attracted more containerised cargo and resulted in the growth of the shipping industry, allowing India to compete internationally with other countries in terms of international shipments. Foreign shipping companies shall be able to take cargo directly from one port to another, which will allow them to accommodate more containers. Relaxation has encouraged farmers to access a larger market, widen the range of goods and products and provide a greater distance for conducting domestic trade. Cabotage relaxation shall also help in acquiring a 5 to 7 per cent cost saving for the cotton and textile industry, as it will help it export goods from domestic ports itself.

Admiralty proceedings

The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act 2017 (Admiralty Act), which came into force on 1 April 2018, consolidates the existing laws relating to admiralty jurisdiction of courts, admiralty proceedings on maritime claims and arrest of vessels, and stipulates the order of priorities for maritime claims and liens inter se as well as other claims and related issues.

The Admiralty Act has a retrospective application, and therefore all admiralty proceedings pending before commencement of the statute in the concerned High Courts, as well as all actions initiated, and even the by-laws, rules framed and notices issued under the repealed enactments, will now be adjudicated by the provisions of the Admiralty Act, so long as they are not inconsistent with the provisions of the same.

The Admiralty Act confers admiralty jurisdiction on High Courts of coastal states. This jurisdiction extends up to Indian territorial waters. The central government is empowered to further extend, by notification, up to the exclusive economic zone or any other maritime zone of India or islands constituting part of the territory of India. The Admiralty Act covers every vessel irrespective of the place of residence or domicile of owner.

India has adhered to the 1952 Arrest Convention and 1999 Arrest Convention and accordingly, under the Admiralty Act, arrest can be sought for all claims that have been included in the definition of the term maritime claims under the 1999 Arrest Convention. Additionally, under the Admiralty Act, the following maritime liens are also treated as maritime claims for which an arrest can be sought:

  1. claims for wages and other sums due to the master, officers and other members of the vessel's complement in respect of their employment on the vessel, including costs of repatriation and social insurance contributions payable on their behalf;
  2. claims in respect of loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the vessel;
  3. claims for reward for salvage services, including special compensation relating thereto;
  4. claims for port, canal and other waterway dues and pilotage dues and any other statutory dues related to the vessel; and
  5. claims based on tort arising out of loss or damage caused by the operation of the vessel other than loss or damage to cargo and containers carried on the vessel.

While determining maritime claims under the specified conditions, the courts may settle any outstanding accounts between parties with regard to the vessel. They may also direct that the vessel or a share of it be sold. With regard to a sale, courts may determine the title to the proceeds of such sale. Maritime liens are given the highest priority among all claims, followed by mortgages and all other claims. In the case of maritime claims, a claim for wages is given the highest priority, followed by claims with regard to loss of life or personal injury, reward for services, port, canal and other statutory dues, and finally by claims based on a tort arising out of loss or damage caused by the operation of the vessel. Such claims shall continue to exist even with a change in the ownership, registration or flag of the vessel.

Courts may exercise admiralty jurisdiction against a person with regard to maritime claims. However, the courts will not entertain complaints against a person in respect of a damage or loss of life or personal injury arising out of any of the following: collision between vessels, the carrying out of or omission to carry out a manoeuvre in the case of one or more vessels, or non-compliance on the part of one or more vessels, with the collision regulations made in pursuance of the MSA, unless the cause of action, wholly or in part, arises in India; or the defendant, at the time of commencement of the action by the High Court, actually and voluntarily resided, or carried on business or personally worked for gain, in India.

Further, courts will not entertain actions against a person until any case against them with regard to the same incident in any court outside India has ended.

The courts may order the arrest of any vessel within their jurisdiction for providing security against a maritime claim that is the subject of a proceeding. They may do so under various reasons, such as:

  1. the owner of the vessel is liable for the claim;
  2. the demise charterer of the vessel is liable for the claim;
  3. the claim is based on the mortgage or a charge of a similar nature on the vessel;
  4. the claim relates to ownership or possession of the vessel; or
  5. the claim is against the owner, demise charterer, manager or operator of the vessel and is secured by a maritime lien.

With regard to appeals, any judgments made by a single judge of the High Court can be appealed against a division bench of the High Court. Further, the Supreme Court may, on application by any party, transfer an admiralty proceeding at any stage from one High Court to any other High Court. The latter High Court will proceed with the matter from the stage where it stood at the time of the transfer.

The Parliament passed the Major Ports Authorities Bill on 10 February 2021, which is now awaiting the President's assent to fully come into force. The Bill seeks to provide greater autonomy and flexibility to major ports and decentralises decision-making to ensure transparency in operations. The Bill defines public–private partnership projects as projects taken up through a concession contract by the board on a revenue or royalty-sharing basis. It also envisages the creation of an adjudicatory board for adjudication of disputes and to look into complaints received from port users.

Aviation

The civil aviation sector is regulated by:

  1. the Aircraft Act 1934 and the Aircraft Rules 1937;
  2. the Airports Authority of India Act 1994;
  3. the Airports Economic Regulatory Authority of India Act 2008;
  4. the Civil Aviation Requirements, issued from time to time;
  5. the Convention on International Interests in Mobile Equipment 2001 and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment 2001 (Cape Town Convention);
  6. the Carriage by Air Act 1972;
  7. the Aircraft (Carriage of Dangerous Goods) Rules 2003;
  8. the Foreign Aircraft Exemption from Taxes and Duties on Fuel and Lubricants Act 2002;
  9. the Tokyo Convention Act 1975; and
  10. the Suppression of Unlawful Acts against Safety of Civil Aviation Act 1982.

The Cape Town Convention was ratified by India in 2008 to protect the interests of lenders and lessors involved in the financing of aircraft. It provides for the repossession of aircraft or collateral in the event of financial default by the lessee of the aircraft or borrower. It is pertinent to note that although the Cape Town Convention has been ratified, the government, except for certain amendments to the Aircraft Rules 1937 implementing relevant provisions of the Cape Town Convention relating to deregistration and export of aircraft, has not enacted any legislation as of the time of writing for implementing the Convention.

ii Specific practices

Real-time registration of mortgages over vessels cannot be done in India. Even if all documents required for registration of mortgage over a vessel are submitted to the Registry, registration of mortgages takes around seven to 10 working days. Thus, lenders do not have a registered mortgage in their favour for this interim period. The mortgage shall be recorded in the order of time in which it was submitted for registration to the Registry.

Additionally, while the MSA permits enforcement of a mortgage by a sole mortgagee without intervention of the court, to gain a clean title to the vessel, free and clear of all claims, liens and encumbrances, and to avoid the mortgagee's exposure to claims from other parties as also to ensure cooperation of the master and crew, lenders are usually left with no choice but to enforce the mortgage through the admiralty courts.

In addition, pursuant to the General Insurance Business Act 1972, Indian entities are not allowed to insure any of their property in India, including any ship or aircraft registered in India, with insurers whose principal places of business are outside India, except with prior permission of the government. This restriction is not applicable in respect of types of insurance that are not offered by Indian insurance companies – for example, protection and indemnity insurance cover.

The Indian flag, although considered expensive, is still bankable with several international lenders, having lent funds to Indian shipowners such as SCI, the Great Eastern Shipping Company Limited, and Greatship (India) Limited.

Financial regulation

i Regulatory capital and liquidity

In accordance with the RBI guidelines, full implementation of the Basel III regulations in India has been extended to April 2021, instead of 30 September 2020, on account of the continuing stress brought about by the covid-19 pandemic. The RBI has fixed the minimum Tier 1 capital ratio at 7 per cent of risk-weighted assets, of which 5.5 per cent must be common equity with Additional Tier 1 instruments (i.e., perpetual non-convertible preference shares and perpetual debt instruments rising to 6.125 per cent of risk-weighted assets from 1 April 12021.

The net stable funding ratio (NSFR) and liquidity coverage ratio are significant components of the Basel III reforms. The RBI, vide a notification dated 29 September 2020, has stated that due to the constraints imposed by the covid-19 pandemic, the NSFR guidelines will come into effect from April 2021.

ii Supervisory regime

Under the ECB regulations, whether under the automatic route or the approval route, Indian borrowers have to apply for and obtain loan registration numbers from the RBI. Monthly reporting of withdrawals, utilisation, repayment and other payments is required, including any revisions or modifications in the ECB, such as an increase or reduction in the loan amount or revisions to the schedule of disbursements, repayments or interest payments. Thus, the RBI governs and regulates the borrowing of funds and security, and also monitors the ECB until it is repaid, including enforcement of security.

Such stringent regulations have reassured foreign banks that borrowers' crucial activities are being overseen.

Security and enforcement

The ECB guidelines permit Indian borrowers to grant security of their choice to foreign lenders. Primarily, ships and aircraft for the acquisition of which the ECB is borrowed are secured in favour of the lenders. No approval is required from the RBI or authorised dealer for creation of a mortgage or charge over the ships and aircraft, or for the assignment of insurance or charter hire income of such ships and aircraft. Security over aircraft may also be created by way of hypothecation, fixed or floating charge, lien, pledge, retention of title, conditional sale and assignment.

Pursuant to the MSA, multiple mortgages can be created over a vessel, but the sole mortgagee of a vessel can enforce its rights over the vessel without the intervention of the court whereas, in the case of multiple mortgages registered over a vessel, a mortgage can only be enforced by applying to the competent court.

i Financing of contracts

Under Indian law, a mortgage can only be created over a vessel that has been provisionally or permanently registered with the Registrar of Ships and cannot be created over a hull under construction. Hence, financing of newly built ships is secured by the assignment of the shipbuilding contract executed between the shipbuilder and the borrower (i.e., purchaser) and the refund guarantees issued by the banks of the shipbuilders in favour of the lenders until such time as the ship is constructed and delivered to the borrower and registered with the Registrar of Ships.

ii Enforcement

Shipping

A mortgage registered over an Indian vessel may be enforced in India or outside India. In India, a vessel can be arrested and sold through the admiralty courts in India by public auction, thereby vesting in the purchaser a clean title to the vessel, free and clear of all claims, liens and encumbrances. Port dues, admiralty marshal's costs and maritime liens ranking in priority, however, must be paid.

Under the MSA, the sole mortgagee may also enforce a mortgage by taking possession of the vessel and selling it to a third party without the involvement of the courts. Although in law a sole mortgagee has the right to proceed against and sell a vessel without the intervention of the courts, in reality, the cooperation of the master and crew is necessary. In addition, a private sale does not clear the title of the vessel of all claims and encumbrances, and the buyer of the vessel has to acquire the vessel subject to such claims and encumbrances.

A mortgage registered over an Indian vessel can also be enforced outside India, provided the loan documentation permits such enforcement. If the mortgage is enforced outside India, the foreign lender who has obtained a decree from a court in a foreign country can approach an Indian court for enforcement of the decree under the Civil Procedure Code 1908.

If a judgment has been obtained in any reciprocating territory, the same will be recognised and enforced by the courts in India without re-examination of the issues, provided the judgment is pronounced by a competent court and is on the merits and based on principles of international law, and not opposed to natural justice or founded on fraud or a breach of any Indian law.

Aviation

The Cape Town Convention confers remedial rights on a lender when the facility has been charged and registered as per the Convention. The chargee can take possession of the aircraft from the lessee in the event of default. Because India is a signatory to the Cape Town Convention, the Directorate General of Civil Aviation (DGCA) will cancel the registration of the aircraft, thereby permitting the chargee to take possession of it.

In the event of financial default, the lessor may unilaterally terminate the agreement and repossess the aircraft or obtain an order from the district court having jurisdiction over the place at which the aircraft is located, for its repossession. The lessors are also required to have the aircraft deregistered from the DGCA prior to repossessing the aircraft. Unless there is an explicit provision in the Cape Town Convention requiring the chargee to seek leave of the court, India has declared that a chargee will not require leave of the court. This can be construed to imply that, even in the case of a bankruptcy of an Indian lessee, such chargee will not be required to obtain leave of the court to repossess the aircraft.

The DGCA requires the consent of the lessee to deregister the aircraft. It may also receive objections to such cancellation from government departments if they are owed money by the defaulting airlines. Moreover, even after deregistration of the lessor's aircraft by the DGCA, the Airports Authority of India may impose a lien on the aircraft for unpaid dues by way of, inter alia, ground rent and landing charges, and has the right to detain the aircraft. The aircraft are also sometimes impounded by the custom authorities for non-payment of custom duties, which can be a problem in the repossession of an aircraft by lessors.

In a matter brought by the service tax authorities relating to the attachment of engines belonging to Natixis, the High Court rejected the lien exercised by the service tax authorities. In another similar matter, the International Lease Finance Corporation challenged the attachment order passed under Section 87(c) of the Finance Act by the service tax authorities: the engines have now been redelivered. In the Natixis decision, the Court held that property owned by a third party cannot be attached for the dues payable by Kingfisher Airlines.

iii Arrest and judicial sale

Section 3 of the Admiralty Act states that the jurisdiction of all maritime claims under the Act shall vest in the respective High Courts and can be exercised up to and within their respective territorial jurisdiction.

Courts may, under the Admiralty Act, order the arrest of any vessel within their jurisdiction for providing security against a maritime claim that is the subject of a proceeding. The Act sets out a list of maritime claims that is similar to Article 1 of the Arrest Convention, 1999. The Admiralty Court also incorporates the following additional claims as maritime claims in relation to which a vessel can be proceeded against and arrested:

  1. port or harbour dues, canal, dock or light tolls, waterway charges and such like;
  2. particular average claims;
  3. claims by the master or crew or their heirs or dependents for wages, cost of repatriation or social insurance contributions;
  4. insurance premiums, mutual insurance calls;
  5. commission or brokerage agency fees payable by the vessel owner or demise charterer;
  6. environment damage claims or threats thereof; and
  7. wreck removal claims.

The prerequisite for an admiralty action for enforcing in rem rights is that the claimant must demonstrate that the res – the ship – is in Indian waters; hence, no action can be filed in anticipation of a ship that is yet to arrive. A substantive admiralty suit must be filed, unlike in other jurisdictions where only a writ need be entered. Further arrest of bunkers is not permissible in India. As per Indian law, bunkers are not considered to be maritime property. Bombay High Court in Mansel Limited v. The bunkers on board the Ship m v Giovanna Luliano & Ors did not accept the contentions of the arrestor that even in England, an admiralty court in exercise of its admiralty jurisdiction can order the arrest of bunkers on board a vessel.

The suit must be filed in the admiralty division of the High Court by submitting a complaint with full documentation. The High Court will schedule a hearing to consider the merits of the claim for arrest. The arrest warrant is issued by the sheriff's office, and is served on the vessel or the master, ports agent or customs authorities. A court sale is achieved by public auction conducted by the sheriff, inviting offers through advertisements in leading shipping papers such as Lloyd's List or Tradewinds. If the borrower contests the mortgage claim or other creditors apply to intervene in the proceedings, additional hearings are scheduled and the priorities of claim are determined. The order of maritime claims determining the inter se priority in an admiralty proceeding is determined under Section 10 of the Admiralty Act.

To protect owners or demise charterers of the arrested vessel from possible vexatious and frivolous claims, the High Court may, as a condition of arrest of the vessel, require the arrestor (the claimant) to provide an unconditional undertaking to pay damages or provide security for an amount to be determined by the Court for any loss or damage that the owner or demise charter may suffer as a result of the arrest, should the arrest subsequently be found to be wrongful or if the claimant demanded excessive security.

Current developments

i Recent cases

Shipping

The Bombay High Court, presided over by Justice Sriram, passed a landmark judgment on 19 May 2020 in DVB Group Merchant Bank Asia Ltd v. GOL Offshore Ltd, ruling that the Admiralty Act, being a special act, prevails over the Companies Act when determining priorities of claim. It also held that no prior permission is required under the Company Law to commence proceedings under the admiralty jurisdiction against the assets of a company in liquidation, including the sale of a ship. The Court held that where there is a conflict between the Admiralty Act and the Companies Act regarding a priority of claims, the priorities under the Admiralty Act will prevail where there is such a conflict.

The Supreme Court in The Chairman, Board of Trustees, Cochin Port Trust v. M/s Arebee Star Maritime Agencies Pvt Ltd. & Ors held, inter alia, that port authorities cannot claim from a steamer agent for demurrage and ground rent, as was previously the practice. This judgment bears immense importance, as it changes the situation dramatically for steamer agents who have been adversely affected for years.

ii Developments in policy and legislation

Shipping

The shipping industry has seen rapid development over the course of the past few years, and it is continuously changing and adapting to meet the needs of the commercial marketplace so that it can become more competitive and cost-effective. The shipping market is continually affected by global trends and by advances in technology, materials and fuels. There have been numerous significant initiatives in this industry including, among others, the development of cargo handling capacity at major ports and a reduction of the average turnaround time of ships. Below we mention a few of the recent trends and developments that illustrate the dynamic changes that are happening in the shipping industry, and the new opportunities that these create for marine businesses:

  1. As per the Union Budget 2020–21, the total allocation for the Ministry of Shipping is 17,0235 billion rupees. Some of the key initiatives under the government's highly ambitious Sagarmala project include the following:
    • a port community system (PCS): the PCS is a centralised single window platform that serves as a message exchange gateway for port community stakeholders. All of India's 12 major ports have been integrated with the PCS;
    • replacing manual forms with web-based e-forms;
    • the installation of scanners and radio frequency identification for gate automation;
    • the introduction of direct port delivery at select ports as a pilot project, which reduces the dwell time of containers and improves cost-efficiency; and
    • the automatic issue of delivery orders and the launch of a single window interface to facilitate trade.
  2. As per the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI, Regulation 14, the sulphur content of any fuel oil used on board ships shall not exceed 0.5 per cent mass by mass on or after 1 January 2020, and carriage of fuel with a sulphur content of more than 0.5 per cent on ships on or after 1 March 2020 is prohibited. The DGS has, vide Engineering Circular No. 05 of 2018, provided guidance and requirements for Indian shipping companies regarding compliance with the provisions of MARPOL Annex VI, Regulation 14. The Hindustan Petroleum Corporation Limited has launched an International Maritime Organisation-compliant very low sulphur fuel oil for the shipping industry.
  3. The goods and service tax on bunker fuels used in Indian-flagged vessels has been reduced from 18 to 5 per cent. Parity has been brought to the tax regime of Indian seafarers employed on Indian-flagged ships in relation to those on foreign-flagged ships.
  4. The Shipping Ministry has issued a draft Aids to Navigation Bill, 2020 to incorporate global best practices, technological developments and India's international obligations in the field of marine navigation, and to regulate state-of-the-art technologies for marine navigation.
  5. The Recycling of Ships Act, 2019 came into force on 13 December 2019. It regulates the recycling of ships by setting certain international standards and laying down the statutory mechanism for enforcement of such standards.
  6. To combat the covid-19 pandemic, the Ministry of Shipping has played a very proactive and pro-industry role, and has been announcing various reliefs and guidelines. Shipping lines were advised not to impose, levy or charge any container detention charge on import and export shipments, demurrage, ground rent beyond the allowed free period, storage charges, additional anchorage charges or berth hire charges during the lockdown period. The Ministry has also allowed for the deferment of annual lease rentals of ports for the months of April, May and June, in addition to the already waived-off penalties and other charges. It has also allowed for free storage time until the lockdown period ends, with a provision to use the vacant land near port areas for additional storage, on a temporary basis. The ports declared force majeure to ensure that unforeseen delays in the delivery of cargo and other port-related services do not affect their commercial contracts with port users. Relevant extensions, without any levy of cost, have been granted to seafarer companies for mandatory statutory extensions for a period of three months under force majeure.
Inland waterways

India has a vast riverine system that is underdeveloped and underutilised for the transportation of cargo. The government has realised the potential of India's inland waterways, and has directed the Inland Waterways Authority of India (IWAI) to make riverine transportation in India a reality. There is an enormous focus on the development of inland waterways, and the IWAI is going full throttle on reviving inland waterways to reduce logistics costs to less than 10 per cent of GDP – on par with developed countries such as Germany – from the current 13 per cent.

The development of these waterways opens up new opportunities for business, such as:

  1. supplying dredgers;
  2. barges and cargo-handling equipment;
  3. the construction and management of terminals; and
  4. hydrographic services.

In 2018, the inland waterways Jal Marg Vikas Project, which was approved by the Cabinet Committee on Economic Affairs, was implemented with the investment into and assistance of the World Bank to create the first waterway stretch, the National Water 1. On completion, the project will enable commercial navigation of 1,500 to 2,000 tonne vessels. The major activities envisaged under the project are the construction of multi-modal terminals and jetties, a river information system, channel marking, navigation locks, river training and conservancy works.

The National Institution for Transforming India has made recommendations to streamline the regulatory structure in relation to inland waterways. The recommendations relate to maintaining and developing deeper stretches of rivers for year-round navigation, as well as to relaxing restrictions for vessels in relation to river–sea movement. In addition, the recommendations also include better facilitation with regard to the movement of goods to neighbouring countries.

In July 2020, the shipping ministry waived waterway usage charges in a bid to promote inland waterways as a cheaper mode of transport. Water usage charges are applicable on the use of all national waterways by vessels, and the waiver, applicable immediately, will remain in effect for a period of three years. This will attract industries to use India's national waterways for their logistical needs. The decision, it is estimated, will increase inland waterway traffic movement.

Port-led developments

During the 2020 financial year, cargo traffic at the major ports in the country was reported at 704.82 million metric tonnes.

India has also moved towards using technology and other digital platforms to simplify processes.

Tata Consultancy Services has deployed its terminal operating system at Adani Ports and in the Mundra special economic zone T4 terminal during the lockdown. It is a one-stop solution for order-to-invoice processes, and it supports multimodal (vessel, rail, truck and barge) and multipurpose (container, break bulk, liquid bulk, dry bulk, and roll on/roll off) requirements by leveraging digital platforms.

The Jawaharlal Nehru Port Trust and the Port of Antwerp have signed a memorandum of understanding to set up the JNPT-Antwerp Port Training and Consultancy Foundation as the Port and Logistics Training Centre of Excellence. The first course, on the handling of dangerous goods, was conducted at the Centre in February 2020.

Cochin Shipyard Limited has signed an agreement with the Andaman and Nicobar administration in relation to setting up a ship repair ecosystem on the Andaman and Nicobar Islands, helping in the augmentation and modernisation of the facility, and making efforts towards skill development on the Islands.

The Tuticorin port, which is one of India's major ports, is being transformed into a transhipment hub for an overlay cost of 70 billion rupees.

As part of a freight rationalisation exercise, the shipping ministry has slashed port tariff rates by 60 to 70 per cent for cruise ships for a period of one year, a move that is aimed at boosting cruise tourism in India. Ports will not charge any other rates such as berth hire, port dues, pilotage and passenger fees.

Considering the current circumstances under covid-19, the Indian Ports Association has taken steps towards digitalising trade-related processes and, in October 2020, the Ministry of Shipping launched an indigenous software solution for vessel traffic services and vessel traffic monitoring systems.

Increasing investments and cargo traffic point towards a healthy outlook for the Indian ports sector. Providers of services such as operation and maintenance, pilotage and harbouring, and marine assets such as barges and dredgers, are benefiting from these investments.

Aviation

FDI regulations have been relaxed to permit foreign airlines to invest up to 49 per cent in the paid-up capital of Air India. Such investment should, however, be subject to, among other things, the condition that the investment should be made under the government approval route, and that the 49 per cent limit will subsume the FDI and the foreign institutional investor's or foreign portfolio investor's investment.

iii Trends and outlook for the future

Shipping

Shipping markets have gone through periods of good and bad fortune in the past decade. The speed of the virus' spread makes it difficult to assess the full consequences. The downturn in economic activity triggered by the covid-19 pandemic has amplified domestic disruptions around the world and has led to a contraction in global trade. There continues to be a widespread negative impact from the coronavirus pandemic. The global shipping industry's outlook for the next 12 to 16 months remains negative, as the earnings forecasts of companies fall.

While global leaders must take measures to secure health and safety at this time, it is equally important that they prepare for an eventual return to normality.

The outlook for the dry bulk and container shipping segments remains negative, with supply likely to exceed demand significantly. However, the geopolitical tensions that made the Organization of the Petroleum Exporting Countries alliance break down has subsequently made the crude oil tanker spot freight market erupt.

Despite the short-term risks related to lower activity, the medium-term outlook is still encouraging. The companies that will emerge with a competitive advantage in the 'next normal' will be those that develop granular scenarios regarding how demand will evolve, the appropriate playbooks to use in each case, and the mechanisms that recognise which scenario becomes reality.

The 'Make in India' initiative offers tremendous opportunities in the maritime sector, particularly in the shipbuilding and ship repair industry. The Shipping Ministry has invited ship owners worldwide to flag their ships in India and take advantage of the Make in India policy.

More facets of intelligent shipping will be introduced within the next few years using transformative technologies including blockchain and artificial intelligence (AI), and to do so will require a digitally savvy workforce or an upskilling of the existing workforce. AI is helping to make much more accurate predictions on estimated times of arrival for container ships, as well as spotting trends and risks in shipping lanes and ports. AI is also helping in the optimisation of container terminal operations and planning, be it minimising and automating exceptional case handling, predictive maintenance, and supply chain optimisation in terminals, ships, road transportation and warehousing.

While there are factors conducive to the development of a robust and sustainable maritime sector, transforming the sector will finally depend on how the different stakeholders utilise the opportunities presented to them to transform the sector into an engine of growth for India.

Aviation

The Indian aviation industry's capacity and passenger growth have been significantly impacted since the covid-19 pandemic. As a result of travel restrictions and the impact on passenger traffic due to the coronavirus pandemic, it is expected that the Indian aviation industry will report a significant net loss of 210 billion rupees in FY2021. The industry expects financial aid and a reduction in levies and taxes in the immediate near term to revitalise operations and boost passenger traffic. The industry requires aid in terms of lowered taxes on aviation turbine fuels, and a reduction in other levies such as airport charges, parking, landing and navigation charges. To bring some relief to the financially distressed aviation industry, the Ministry of Civil Aviation on 12 February 2021 increased the minimum and maximum cap on fares across all bands.

The government is expected to reiterate its focus on improving regional connectivity through its regional connectivity scheme, UDAN, and making flying affordable to the masses by providing a favourable ecosystem. The government is also expected to increase its focus on tourism development in India and undertaking measures to boost tourism. There is also an expectation of the expansion of the e-visa scheme to additional countries.

Footnotes

1 Shardul J Thacker is a partner at Mulla & Mulla & Craigie Blunt & Caroe.

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