While growth in global trade has helped the Indian shipping industry in improving its financial performance in the past one year, sustainability is still an issue.

Combined with that, strict regulations of the shipping regulatory authority, the IMO, is likely to have a major effect on the shipping industry's growth prospects.

Budget Measures Concessional regime under Section 33AC to be withdrawn and companies to be granted option to pay tonnage tax or normal corporate tax on profits. Setting up of an International Container Trans-shipment project at Kochi. Service tax has been raised from 8% to 10%. Further, a surcharge of 2% on account of education cess will be imposed on this tax.  Budget Impact Tonnage tax would lessen the tax burden on shipping companies and enable them to apportion a larger portion of cash flows towards fleet expansion. This is a big benefit for Indian shipping companies. The raising of service tax and a cess thereon is not likely to have a major effect on shipping companies' profitability.  Sector Outlook Unlike other sectors, shipping is a global industry i.e. freight rates, demand for tonnage and profitability are closely linked to the progress in global trade. However, as far as taxation policy is concerned, while the global industry followed a tonnage tax policy, Indian shipping companies were made to follow the corporate tax policy. Now, with the implementation of tonnage tax, Indian shipping companies' profitability is likely to improve. These companies will now have greater resources (read cash) in their books in order to finance their fleet expansion programs. Over, we are positive about the prospects of the Indian shipping industry due to expectations of growth in global trade going forward.  Industry Wish List Indian National Shipowners' Association (INSA) Wish List Address the issue of tonnage tax Customs duty exemption for ships Exemption from domestic taxation regime like Service Tax Spares for coastal ships, which currently attract duty of about 50 to 55%, should be available duty free by treating coastal ships as 'ship repair units'. Indian seafarers working on Indian ships should get equal income-tax treatment as those Indian seafarers working on foreign flag ships.  Budget over the years Budget 2001-02 Budget 2002-03 Budget 2003-04 Increase in depreciation to 25% Overseas investment limit for software companies increased to US$ 100 m or 10 times their export earnings whichever is higher. Increase in amount transferred to special reserves for capacity expansion. Shipping companies out of MAT purview. Corporatisation of major ports. The government has allocated Rs 110 bn towards renovation/modernisation of airports and ports. Dividend tax removed at the hand of the shareholders.
Key Positives Rising global trade - Strong global economic growth led by China and the US is expected to result in above average growth in global oil consumption during FY05 as well. This will have direct benefits for the Indian shipping industry. It is estimated that the 2.1% increase in oil demand forecast by the IEA for 2005 should typically lead to a 3.5% to 4.0% increase in tanker demand. Shipping regulations - As per IMO regulations, approximately 32 million deadweight tonnes (mdwt), or 10 percent, of the existing world tanker fleet is expected to be banned from worldwide trading when the regulations come into force on April 5, 2005. A further 87 mdwt, or 27 percent, of the world tanker fleet is expected to be excluded from the majority of oil tanker trades by 2010. This is a positive for the Indian shipping sector, as over the long term, regulations like these will enable shipping companies to maintain strict quality and safety controls. Government's thrust on oil exploration - Government's radical change in its approach to E&P (exploration and production) activities in the country is a big positive for the India shipping industry. This is vindicated by the fact that, as part of its NELP III and IV (New Exploration Licensing Policy), the government has awarded oil companies 15 and 13 offshore blocks respectively. Also, companies like ONGC has committed to spend over Rs 75 bn in the redevelopment of Bombay High North and South Fields. Tonnage-tax regime - In its mini-budget, the previous government had announced a tonnage tax regime for Indian shipping companies under which tax dues would be based on the gross registered tonnage (grt). This is in contrast to the earlier regime of taxes on profits. When implemented, this tonnage tax would lessen the tax burden on Indian shipping companies and enable them to apportion a larger portion of cash flows towards fleet expansion. Privatisation of ports - Another key focus area of the government is the privatization of ports. Though this is a long-term process, the move is a step in the right direction.		Key Negatives Uncertainty regarding sustainability of global economic growth - While growth in global trade has helped Indian shipping companies to improve their financial performance, sustainability is still an issue. Especially with the Japanese and Southeast Asian economies still vulnerable to a downturn, and that the Chinese economy is on its way for a slowdown, demand for tonnage could fall. This in turn would hurt freight rates and earnings for shipping companies. Small size - Indian shipping fleet is minuscule when compared with world tonnage. This has resulted in consistent fall in market share over the years. Oversupply of tonnage - As per estimates by EA Gibson of UK, 472 ships are to be delivered in 2004 and 2005 which tantamount to a total capacity of 47 m dwt. To put things in perspective, this works to 17% of existing capacity on the tanker market side. With such a large influx of supply into the market and a slower demand growth estimate, freight rates could suffer.

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