Analyze the impact of Cabotage on the development of Indian shipping and shipping in general around the Indian coast in the past 5 years.

The impact of cabotage on the development of Indian shipping and shipping in general around the Indian coast in the past 5 years has been a subject of significant debate and policy changes. Cabotage laws, which restrict foreign-flagged vessels from operating on domestic coastal routes, have historically aimed to protect and promote the Indian shipping industry. However, in recent years, there has been a gradual relaxation of these rules to boost coastal shipping, reduce logistics costs, and enhance trade.1 Here’s an analysis of the impact:

Positive Impacts of Cabotage Relaxation:

1. Increased Competition and Reduced Costs: Allowing foreign-flagged vessels to operate on Indian coastal routes has increased competition, potentially driving down freight rates and reducing overall transportation costs for cargo owners.2 This is particularly beneficial for commodities like agriculture, horticulture, fisheries, and fertilizers, for which cabotage restrictions have been eased.3
2. Enhanced Coastal Shipping Volumes: The relaxation has led to an increase in the movement of certain types of cargo via coastal shipping, as foreign vessels can now participate without specific licenses.4 This aligns with the government’s aim to promote coastal shipping as a more cost-effective and environmentally friendly alternative to road and rail.
3. Improved Transhipment and Hub Development: Easing cabotage for EXIM containers and empty containers has the potential to develop Indian ports into major transhipment hubs, reducing the reliance on ports like Colombo.5 This can lead to increased port traffic and revenue.
4. Attraction of Foreign Investment and Technology: The entry of foreign shipping companies can bring in newer vessels, advanced technologies, and best practices, potentially modernizing the Indian shipping sector.
5. Boost to Specific Sectors: Relaxations for specific cargo types like agricultural products and fertilizers aim to benefit farmers by providing more efficient and cost-effective transportation options.6 The movement of empty containers has also become more streamlined.
6. Increased Cruise Tourism: Relaxation of cabotage for cruise ships has encouraged more frequent visits and movement of passenger vessels between Indian ports, boosting the tourism sector in coastal regions.

Negative Impacts and Concerns:

1. Challenges for Domestic Fleet Owners: The primary concern of Indian shipowners is that increased competition from foreign vessels, which often have lower operating costs due to factors like taxation and crewing regulations, could make Indian-flagged vessels economically uncompetitive. This could lead to reduced business for domestic shipping companies and hinder the growth of the Indian fleet.
2. Security Implications: Some stakeholders have raised concerns about the security implications of allowing foreign-flagged vessels greater access to India’s coast.
3. Uneven Playing Field: Domestic players argue that they face higher operating costs due to factors like higher funding costs, fuel expenses, training requirements, and taxes, creating an uneven playing field when competing with foreign companies.
4. Limited Impact on Overall Modal Shift: While coastal shipping volumes have increased for specific cargo, a significant shift from road and rail to coastal shipping across all sectors may not have materialized to the desired extent due to other factors like infrastructure bottlenecks, last-mile connectivity, and the availability of suitable vessels.
5. Potential Impact on Government-Owned Ports: Some fear that the benefits of cabotage relaxation might disproportionately favor privately operated minor ports with more flexible tariffs and better infrastructure compared to government-owned major ports.

Policy Evolution in the Last 5 Years:

The past 5 years have seen a progressive relaxation of cabotage regulations in India:

• 2018: A significant step was taken in May 2018 to allow foreign-flagged vessels to carry coastal cargo, specifically laden export-import containers for transhipment and empty containers for repositioning, without specific permission.7 This was later extended to agricultural, horticultural, fisheries, and animal husbandry products, as well as fertilizers.8
• Subsequent Years: The government has continued to emphasize the promotion of coastal shipping and has tasked bodies like the Asian Development Bank (ADB) to identify more cargo that can be shifted to this mode of transport.9 There have also been efforts to integrate inland waterways with coastal shipping.
• Future Outlook: The government has indicated plans for a complete removal of cabotage rules for all types of cargo to further boost coastal shipping and trade. However, this move is likely to face continued resistance from domestic shipowners.

Conclusion:

The relaxation of cabotage in India over the past 5 years has had a mixed impact. While it has shown potential in increasing competition, reducing costs for certain cargo, boosting transhipment, and attracting foreign players, it has also raised concerns about the competitiveness of the domestic shipping industry and potential security implications. The long-term impact will depend on how the government addresses the concerns of domestic stakeholders, develops the necessary coastal infrastructure, and creates a truly level playing field to ensure the sustainable growth of Indian shipping alongside increased foreign participation. The complete removal of cabotage, if implemented, could be a game-changer, but its effects will need careful monitoring and management to ensure the overall benefit to the Indian economy and its maritime sector.