Shipping is a global industry and its prospects are closely tied to the level of economic activity in the world. A higher level of economic growth would generally lead to higher demand for industrial raw materials, which in turn will boost imports and exports. The shipping market is cyclical in nature and freight rates generally tend to be highly volatile.

Industry Wish List

Indian National Ship Owners Association (INSA)

• Book profit on sale of vessels to be treated as arising from 'core activities' of a tonnage tax company
• Interest income from compulsory reserves to be treated as arising from 'core activities' of a tonnage tax company
• Service tax on input services should be zero rated
• Certain administrative changes in the manner of assessment of seafarers' taxation to be implemented

Budget over the years

Budget 2005-2006

• Approved the revised proposal for time-bound implementation of International Transshipment Terminal (ITT) at Kochi port

Budget 2006-2007

• Under NELP VI, 55 blocks and area of 355,000 sq kms offered.
• Investment of Rs 220 billion expected in the refinery sector in the next few years.
• National Maritime Development Programme (NMDP) approved. Work is in progress in 101 projects covering inland waterways, shipping and ports including deepening of channels in Kandla, JNPT and Paradip.
• Plan allocation for Department of Shipping increased by 37% to Rs 7.4 bn.
• Ship management services brought under the service tax net.

Budget 2007-08

• Custom duty on dredgers (dredging vessels) brought down to Nil
• Dredgers also to be exempt form additional custom duty of 4%
• Hike in dividend distribution tax from 12.5% to 15% on dividends distributed by the companies
• Additional cess of 1% on all taxes to fund secondary education and higher education

Key positives

Government's thrust on oil exploration: Energy security remains one of the top agenda for a country like India, which imports nearly 70% of its crude oil requirements. In a bid to encourage oil exploration activities in India, the government laid down the New Exploration and Licensing Policy (NELP) in 1997-98.

This has led to a substantial increase in exploration activities by private players. As the investment in the oil explorations activities pick up pace, we expect the demand for offshore services in terms of rigs and offshore support vessels to remain strong.

India to become a refinery hub: The current refinery capacity of India is close to 132 MMTPA. The domestic refining companies have planned capacity additions to the tune of 90 to 100 MMTPA in the next 4 to 5 years.

With the large-scale commissioning of refining capacities, India is likely to emerge as a refining hub. This is likely to result in a significant demand for crude and product tankers.

Focus on port infrastructure: In 2005, Ministry of Shipping, Road Transport and Highways announced the Rs 610 billion National Maritime Development Programme (NMDP) to boost infrastructure at major ports in the next 10 years. The programme is expected to increase the port capacity from 390 MT to 920 MT by 2014.

Key negatives

High order book to put further pressure on tanker freight: The crude tanker freight rates have eased from the peaks of 2005 and 2006. At the end of December 2007, the world order book for the tanker segment stood at 158 mdwt, representing 40% of the existing tonnage of 395 mdwt. Such a significant tonnage addition will put further pressure on the tanker rates.

Production cuts from OPEC in order to influence oil prices is another negative, as it will create excess capacity. The only saving grace we think would be scrapping of single-hull ships, which could neutralise the supply overhang.

Taxes: The Indian Shipping industry is currently subjected to 12 different kinds of taxes, which do not provide a level playing field for them vis-�-vis foreign players.

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