21 January 2011 7:03 pm in news by admin
The Ministry of Shipping in India announced on 13 January 2011 a series of sweeping measures in its new 10-years agenda (the “Agenda”) to reform and build on the existing successes in the Indian maritime sector.
Given our first piece on the maritime reforms that India must deliver on, published here on our website on 15 December 2010 (see link) and a quick look at the proposed reform (in broad terms) one is almost tempted to assume that they are listening. A closer examination of the proposed reform, however, suggests otherwise.
For those who are interested in the full scope of the proposed reform they can access that official Ministry statement here.
Broadly, the reform has focussed on areas where we have had a history of State control (various PPP projects in the port and infrastructure sectors) while building on the existing strengths of the Indian maritime sector (reputation as a supplier of qualified seafarers) and, as with every political announcement (anywhere), contains references to large numbers which unfortunately lack details (investment of Rs 165,000 Crores in the entire sector by 2020).
Firstly the welcome aspects of the reform:
- first ever attempt to have a joined-up policy at a national level to connect coastal shipping, river based transportation, road transportation and making these reforms an intrinsic part of the growth in the port and infrastructure sectors;
- a genuine effort to lay the ground works for the reforms in the insurance sector (creation of an Indian P&I club) and the legal sector by introduction of Indian Admiralty Act and the concepts of ombudsman/tribunals for shipping matters;
- creating and nurturing domestic talent and hopefully in time carving a niche position through IMU as a centre for innovation in the maritime sector;
- a genuine attempt to regulate the vast industry through regulators, marine accidents investigation cell and through Shipping Trade Practices Act;
- ambitious plans to increase tonnage from 10 million tonnes to 40 million tonnes; and
- creation of a freight exchange.
Before we highlight the flaws and gaps in the proposed reforms, it is imperative that we explain why we have elected to emphasise those aspects of reform which have been tucked away in the tail-end of the reform paper with no details.
Large parts of the proposed “reform” on closer examination are extensions of existing policies and existing strengths of India. There is nothing wrong with that however but building on the existing platforms is not “reform”. It’s called tinkering.
It is clear from the scope of the Agenda that India is at least being bold and proactive in leading that change in the domestic market rather than being just reactive as has been the case for a long time now. The policy-makers and the Ministry should now have the faith in the private enterprise of the Indian Maritime Inc. (a loose collective phrase for the private sector in the maritime industry) and not just rely on the State led reform and investments, which, although is peppered with good intentions, also stifles delivery of creative private enterprise and a much required pace in rate of growth in the domestic tonnage.
If the Government aspires to move the Indian Maritime Inc. to the next stage it must deliver on the underlying reforms which will create a self-sustaining growth and innovation in the industry without the crutches of State support. To the doubters who believe that Indian Maritime Inc. cannot deliver through private enterprise without the State subsidies and investments, India has delivered exactly that in the financial sector by creating a robust regulator and at the same time taken small steps to facilitate the domestic growth in the sector. In order to achieve that, India must deliver on those key sub-sectors of law, finance, insurance, regulatory and creating and nurturing innovation and innovators.
Taking each of those sub-sectors in turn:
- Law – the reform paper proposes a mish-mash of names which lack clarity as to how all these will gel together. Ombudsman, tribunals, Admiralty courts are words which serve different purposes in a judicial system. In addition, these new layers will have to work with the existing judicial structure (High Courts and the Supreme Court) and also the fast growing alternatives of arbitration and mediation in India. It is imperative that the details must address all aspects of dispute resolution with the ultimate aim of facilitating a more expedient judicial system, which taps into the existing expertise of senior judges, lawyers and senior mariners in India and is not a drain on the existing infrastructure;
- Finance – a reform in the shipping finance sector forms the bedrock to support the aspiration of increasing the tonnage (and with it the clout) of the Indian Maritime Inc. The current indicators (less than successful tonnage tax reform) paint a worrying picture and when the Government speaks of “policy intervention” in this area one hopes it is not more government led initiatives for expansion of or investment in SCI, which is already a robust entity, but a genuine reform which gives confidence to private domestic investors and foreign investors about investing in the sector and which in turn will result in greater private enterprise, necessary to create a self-sustaining model. The proposed reform fails to highlight the details, which, as with everything else, are vital in measuring the practicality of these measures. However, if they are serious, these reforms should include reforms necessary for increasing participation of the private equity and specialist funds in the sector, tax reforms and creation of an incentive-led structure (tying up with other sub-sectors through shipbuilding subsidies and insurance rebates) which invites new participants into India;
- Regulatory – India today has an opportunity to create a regulatory structure which starts with a clean slate. The proposed reform however alludes to creation of port regulators only while leaving the current structure, led by D G Shipping, untouched. Whilst D G Shipping has its share of critics, by and large, it has served the Indian Maritime Inc. well over the decades. Irrespective, to create a credible presence in the global maritime industry, the policy-makers in the Ministry must not shy away from creating a robust, independent and a leading template in the form of an Indian Regulator whose powers should encompass all aspects of the shipping industry. It should build on the existing talent of senior academics, lawyers, industry experts, financiers and civil servants to deliver a model which relies on its own independent set of ccreditation, compliance and vetting system for those who wish to operate in India and which must be robust, independent and at the same time a facilitator for the industry;
- Insurance – the proposed reform simply states creation of an Indian P&I club. It is unclear how the Indian P&I club will fit in (if at all) with the existing institutions, in particular the International Club, what model it will adopt (mutual or otherwise), how will the reinsurance market work and whether it will operate independent of the other insurance sectors in India. Whilst we support the thought behind this proposal wholeheartedly, a lot needs to be clarified before one can be enthusiastic about it; and
- Innovations and innovators – without a doubt these aspirations will just remain aspirations unless we are able to nurture and provide credible platforms for innovators, who in turn will propel the growth towards the 10-years goals. However, India needs to be wary about adopting the policy of “replacing the old with the new”. It has never worked and never will. Innovation is the only solution. IMU is ideally placed to take lead and must not shy away from introducing model courses which taps into the expertise of those who have graduated through the Indian institutions historically and in the process becoming a leading innovation centre in the country. A hipping career must include not just time served at sea but also an integrated model with the shore-based opportunities whereby two should work seamlessly.
We welcome the proposed reforms but we remain wary due to lack of details. India had its first maritime training institution commissioned in 1927 (T.S. Dufferin) to train seafarers. One can’t help but note that the only achievement India has had in those 80 plus years is a favourable reputation in the manning sector. We have lost a lot of time and opportunities in the past. Now at least we have started to dream, a credible and deliverable dream. Let’s deliver on it!