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India’s Cabotage Law
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India’s Cabotage Law

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In an Atmanirbhar Bharat (self-reliant India) push, the Shipping Ministry could reverse the relaxation in cabotage restrictions granted in 2018.


What is Cabotage and Cabotage Law?

  • ‘Cabotage’refers to the transport of goods or passengers between two ports/places within the same country by a foreign shipping/transport operator.
  • Cabotage laws are formulated by countries to protect their own national ships and promote local development.


India’s cabotage law

  • The Ministry of Shipping instituted the cabotage law to protect the domestic shipping industry in coastal transport.
  • India’s cabotage policy is covered under the Merchant Shipping Act, 1958. According to India’s cabotage law -
    • Only Indian registered ships are allowed to ply on local routes/along Indian coasts for carrying cargo.
    • Foreign ships can operate along the coast only when Indian ships are not available after taking a license from the DG Shipping.
  • In 2018, the Shipping Ministry relaxed the cabotage restrictions. It allowed foreign flagged ships to transport export-import (EXIM) laden containers meant for transhipment on domestic routes without a license from the DG Shipping.


Purpose of relaxations in the Cabotage Law

  • The law was seen to be protectionist and aimed at shielding Indian shipping from foreign competition. This proved to be counterproductive for India as some countries began to relax the cabotage laws to promote free trade and became major transhipment hubs giving tough competition to India. E.g., Colombo port in Sri Lanka and Singapore port
  • The purpose of these relaxations is to arrest the increasing share of Indian container cargo transhipped at foreign ports.
  • It also aimed to enable farmers to access a larger market profitably and promote trade and ease of doing business in India.
  • It was also liberalized as the government put its focus on the Sagarmala project and sought greater maritime connectivity.


Current issues due to which reversal of relaxation is being considered

  • Cabotage laws were relaxed to allow free movement of foreign vessels but that has not taken off as desired and we continue to rely on transshipment hubs like the Colombo or Singapore Port.
  • It is argued that private operated minor ports have gained more of the benefits than publicly run major ports. Minor ports have the benefit of unregulated tariffs and superior infrastructure, whereas government-owned major ports have been handicapped by tariff regulations and reasonably lower efficiency and competence. 
  • Strategic and security challenges: Allowing foreign ships, with foreign crews on them, to move close to the Indian coast is a security challenge for the agencies manning the coastline. India remains a major target of international terrorists.
  • Moreover, lower pick-up in trade, rising call for coast vessels and disruption in supply chains due to Covid haven’t brought the desired results despite an easing in the law.


Way Forward

  • Tax benefits to make Indian shippers competitive: As per estimates, the operating costs for Indian shippers are about 20% higher than for foreign lines because of the higher cost of funding, fuel, training costs, wages tax, GST, etc.
  • Modal shift from road/rail to marine highways: This will lead to development of momentous potential for fresh cargo as India faces a major concern for availability of cargo.
  • The logistics cost should be cut down substantially in India to make the trade competitive and for the purpose, there is a need for greater investment in coastal shipping and strengthening infrastructure for inland transport of cargo.,according%20to%20the%20cabotage%20law.

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