Companies & Sectors
How coastal and inland shipping has been allowed to die and what needs to change quickly

The wars of the present and the future are going to be fought using economic tools more than military might. Building this economic power requires the revival of seafaring strength that was allowed to deteriorate on account of a short-sighted and corrupt approach

Before you take down a fence, you might want to know why the previous owner put it up.
- GK Chesterton

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A few disclosures in the context of this article and the previous one (headlined 'Cochin Port Trust bats for DP World, LBW cabotage').

1) I have received phone calls and messages-some angry-from friends and others in the industry, reacting as though this is some ill-informed lobbying against DP World and/or Cochin Port/Vallarpadam Terminal. Nothing could be further from the truth. These articles are based on facts and observations.
Among other things, this writer travelled to Kerala in June 2011, undertook a walkabout of the Cochin Port area, met with a variety of people in the industry, and researched the subject through available as well as sourced material. Let me also clarify that I have some very good friends who work in very senior positions at DP World and their associated companies globally, but I value my common sense and position as an Indian first.

2) The success of one or more unitised cargo hubs in India, bringing origin/destination and trans-shipment cargo not just for India but also other nearby countries through these hubs, is something that many of us seafarers and have seen evolve in other parts of the world from the 1960s and '70s, and we consider it to be our birthright and overdue for India. In this context, Cochin and therefore Vallarpadam, are about the best located to make this happen-with the possible addition of Tuticorin and New Mangalore.
Because there is scope-India can easily justify three or even more trans-shipment hubs for mainline ships. My own involvement with intermodal container movement in the country, operating for APL with the help of the Indian Railways (the first dedicated container train operated from Delhi to Mumbai and Madras way back in 1989), bear testimony to this, because even then, the aim was to try and bring the then mainline APL container ships into Madras Harbour.
 
3) The stated policy of the Indian government for years now, has been to "migrate" trans-shipment sea cargo from other "regional" hubs (Colombo, Dubai/UAE, Singapore), as well as to give a boost to coastal and other domestic shipping, including inland. But the government's chosen arms, viz DG Shipping, Mercantile Marine Department, the port trusts and others, have failed miserably in achieving this. That in the bargain, coastal as well as inland shipping in India has been almost destroyed is also a bitter truth and the reasons are plain to see. To the oft asked question is 'does cabotage work?' The answer is, yes. It works in other countries where it is implemented in letter and spirit. And it worked in the Indian Ocean economies prior to the arrival of the Europeans-described so well in "Asia before Europe: Economy and Civilisation of the Indian Ocean from the Rise of Islam to 1750", by KN Chaudhuri.
 
I would like to take forward the discussion on why cabotage has been made to fail in India, and simultaneously, how domestic shipping, both coastal and inland, has failed over the past few decades. From here in Delhi, where bombs have gone off near the High Court for a second time in four months, enough is enough. It's time to press the restart button and fix things.

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Bimal Roy's 1963 classic "Bandhini" was just one among many movies of that era that portrayed how river transport, especially paddle wheel steamers (some of them were capable of transporting whole trains across rivers), was an intrinsic part of life in the lower reaches of the Ganges. Bhupen Hazarika's songs can still be heard-ballads about commerce and trade, as well as human emotions, from river to sea. The Bombay-to-Goa steamers were an important link along the Konkan Coast, and in the 1970s, we could set our clocks by their arrival and departure at Ferry Wharf. Before independence, of course, coastal shipping on routes like Karachi-Saurashtra/Cambay ports-Bombay and further south, all the way to the Malabar coast were well developed. They just don't exist today.
 
It is easy to blame the way the British drew lines on maps, across centuries-old trade routes, and destroyed these, especially water-borne trade. But even with the post-1947 coastline and rivers providing ample opportunity for sea and river cargo by ship, the powers-that-be simply let things die. Road transport, since it does provide better opportunities to earn, prevailed at the cost of what was good for society. The death knell was well and truly sounded when all training and certification moved into English, condemning generations of natural seafarers, as the regulatory and statutory authorities literally killed this form of transport.

Compulsions of corruption


Where's coastal and inland shipping today? Barring the aggressive growth of barges in and around Goa, and the recent re-introduction of some amount of self-propelled barges as well as oil industry support vessels, it does appear as though we have pretty much lost the plot as far as the domestic shipping industry aimed at coastal and inland waters is concerned; this despite the alleged protection of cabotage, and assorted mouth movements on policies and proposals. Sadly, most of them remain lip service. The big reason is simple: Once out on the water, it is very difficult to collect hafta, toll, octroi, zakat, or any of the myriad other levies, legit or otherwise. In addition, the whole exercise is totally stacked against the Indian flag coastal operator-taxes on everything, huge amounts of paperwork and worst of all, outright non-cooperation by a variety of entities.

Certainly there are some heavily-subsidised services to and within the Andamans and Lakshwadeep, but the less said about them the better. You have to ask the locals what they really get. In addition, the liquid and gas tanker fleet manages to keep up with the coastal needs on petroleum products, but that is also because we permit old ships which would not be allowed anywhere else. But it is with dry cargo-both bulk as well as unitised, and passenger-that there is the largest scope, biggest gap, and lowest support.
 
The reasons are not too far to see. Bringing a ship, new or secondhand, into the Indian flag has its own perils. Cost as well as corrution up and down the line. Anecdotal evidence exists in ship-loads of people who have tried and come foul of the closed club that the Indian National Shipowners Association (INSA) runs, as well as the attitudinal issues of dealing with the DG Shipping and its various arms.

Clean-up act

Government offices elsewhere in the country have cleaned up their act and many of them are now in an equal participant mode with the industries they regulate, that is except for the multi-window babus in the shipping sector.

To look at things one way, we've reached a point where the situation is ripe to do away with cabotage. Frankly, it has been made so very difficult for new entrants, as well as older players, to move into coastal and inland shipping, that the gates have by default been left wide open for the unregulated flag of convenience-type foreign flag fleets. Who in these days of global recession, would just love to grab this opportunity.

From that single, short-sighted, self-destructive selling-out of India's interests, the stand against cabotage makes a lot of sense; though it is born more out of frustration, and is also totally unsustainable. Most of all, it is also anti-national, because in one fell swoop we are giving away our resources, and some day whoever proposed doing away with cabotage will pay just as the 2G, mining and CWG scamsters are paying.

So, the reality is that on one side we don't want to relax cabotage. But on the other side, we are unable or unwilling to provide a better alternative, and so we are back to square one. Because, the fact remains that without a solution there will be an even bigger loss to the nation.

Things to change

The solutions, actually, are very simple. They would need a Konkan Railway/Delhi Metro type of leadership, clear vision and a multi-pronged path. Some elements are discussed here.

# The biggest reason that entities like Vallarpadam/DP World would like to place foreign flag ships on trans-shipment has to do with saving taxes and costs, as well as being able to control and stitch together movements between all the terminals they control and more. Fair enough, that's commercial sense for them, but the Indian flag ships should be given the same terms and conditions. Here is where a level playing field for Indian flag ships is essential.

In other words, tax and regulate the foreign flag ships exempted from cabotage according to Indian levels, or exempt Indian flag ships, and this can be done under Competition Commission laws or at a stretch, anti-dumping laws. After all, why should the foreign flag ships operating in Indian waters be exempt from all laws and taxes, leaving Indian ships to compete on totally unequal terms?
 
# There is a need for a total change in attitude by the Directorate General of Shipping towards coastal shipping, especially towards newcomers in the field. Putting it bluntly, the various offices of the DG Shipping and Mercantile Marine Department operate like colonial fiefdoms, divided further among deck, engine, radio/electronics and others, with a total lack of best practices, suited for the day. Take a look at their dysfunctional website. It hides more than it tells and gives you an idea of where it is still in space and time and computerisation.

As a matter of fact, if the coastal shipping part of things could be hived off from the present Mumbai monument, it would be the best service to the nation, and if it could be re-located somewhere else, then so much the better. But it has to be taken out of that moldy old building in Mumbai, for sure.
 
# Changes to aspects of the Customs Act, Immigration Rules and also other rules governing the movement of ships in and out of Indian ports, will need to be coordinated with other ministries. This is not impossible. Briefly, Indian ships on coastal voyages are also treated like vessels arriving from abroad and subjected to the same procedures every time they leave or reach an Indian port.

In addition, duties and taxes on the ships themselves, stores, fuel and other items, need to be reviewed. Why should foreign ships visiting Indian ports get bunkers (fuel) and stores at cheaper rates than Indian ships, for example? If a relaxation on these heads is given to foreign ships, then it should be allowed to Indian ships, too.

# It has to be understood that there is a recession on globally, and shipping is no exemption, so foreign ships will not be difficult to come by. Taken forward in the same coin, there will be no difficulty in ensuring that these foreign flag ships come under the Indian flag for the duration of time they are on coastal duties, adhering to all Indian laws. However, recessions are cyclical, and once this one is over, a mature trans-shipment trade will be at the mercy of international speculators. With proper implementation of cabotage, sufficient capacity would have been built up under the Indian flag, and surplus if any would be globally competitive too.
 
# Cabotage is not a stranger to the Indian Ocean. Historically, sea trade in the Indian Ocean was of two sorts-international bilateral between the countries doing business with each other, and domestic. It is very important to bear in mind that domestic trade was always specifically controlled by the prevailing powers. "Asia before Europe: Economy and Civilisation of the Indian Ocean from the Rise of Islam to 1750", by KN Chaudhuri, which takes a very non-Euro centric view of things in Asia, is just one book which spells this out. Of course, the advent of the East India Company tried to change that by using European ships for trade between India and China, for example. And also by, eventually, placing their ships and flags on coastal as well as river trade routes too, using arguments and superior force of the same sort as sought to be used by modern-day East India companies.
 
# Cabotage is also very important to revive India's ship-building and repair industry. Till about 250 years ago, it was an acknowledged fact that the best and fastest ships of the time were built in India, with orders for even warships in Europe being placed out of India. This leadership was destroyed when India's trade was not just brought under foreign flag, but it was insisted upon that the ships be built in Europe, for trading between Europe and Asia. Re-introduction of a stronger cabotage law in India along the lines of the Jones Act in the US and the various laws on the subject in the EU, will revive this dormant industry again.

Battle ready


To round off, let us not forget that resource shortages, emergent powers, international conflict, food shortages, population and climate change are going to be centred in and around the Indian Ocean in the very near future. This is a known and accepted view, and if India at that time, is found short, because it has no shipping fleet of its own for its own coast and rivers, then we can look forward to a few more centuries of slavery again. This is said in all seriousness.
 
The wars of the present and future are going to be fought using economic tools more than military might. And for economic strength, our seafaring strengths have to be back in position, from the point of no return that they seem to be reaching right now due to the short-sighted and corrupt approaches being taken by certain elements in and out of governance.

User

COMMENTS

malq

5 years ago

Cross posted here, on Amitav Ghosh's blog:-

http://amitavghosh.com/blog/?p=996

""many of the vessels in the opium fleet were of great size, fully the equal of ocean-going sailships. As it made its way downriver, the opium fleet would stop every night at a river-port. Each of these ports was equipped with the infrastructure to deal with a substantial volume of shipping. Some of these ports, like Chhapra, attracted immigrants from far away""

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Udit C

5 years ago

Very incisive!

Given the fact that water transport requires as little as 1/6 HP to haul a Tonne of cargo, this has been criminally neglected in the face of our perennial fuel shortages and energy crises.

Quite possibly, one main reason could be jurisdictional wrangles and another could be the loss of certain types of controls desired by some in authority, as described in the article.

REPLY

nagesh kini

In Reply to Udit C 5 years ago

Our neta-babus simply lack the political will to push through water transport even when its efficacy is proven. There is no 'malai'. Only Annagiri!Would you care to join in promoting it vigorously?

malq

In Reply to nagesh kini 5 years ago

Thank you for writing in, Udit C ji and Nagesh Kini ji.

One additional reason for the decline in coastal and inland shipping could also be that post Independence we have had leaders as well as Ministers who are not aware of the importance of the shipping trade, and do not hail from coastal areas either.

In addition, there is a theory - strong in shipping is strong as a country, and that''s not really good news for some.

rgds/VM

Udit C

In Reply to malq 5 years ago

Perhaps that explains why such a huge coastline that we have is about totally neglected.

Had there been a thriving legitimate industry around our coasts - like the opportunity India had in being Asia's chief repairs & engg hub - beside other opportunities in sea-food harvesting, would there even be a flickin' chance of an incursion in our waters?

Krishnaraj Rao

5 years ago

Dear Moneylife,

I agree with the point you are making -- that coastal transport and inland transport has been killed or sabotaged. And that there is a crying need for its revival.

However, this article is a rambling piece with many shortcomings:

1) The article does not even come to the point for a dozen paragraphs.

2) Having for the first time stated the point under the subhead, 'Compulsions of corruption', the article again reverts to all sorts of generalizations.

3) This article assumes too much knowledge of this subject on the part of a reader. Jargons such as Cabotage and Transshipment are scattered throughout the article.

4) This article pre-judged the issue. It made a number of sweeping statements without stopping to substantiate any.

In short, I am disappointed with the quality of journalism here. And for this I blame the author/correspondent less, and the sub-editor and editor more. It's their job to ensure that an author does not get carried away with his zeal.

No hard feelings.
Krish

REPLY

nagesh kini

In Reply to Krishnaraj Rao 5 years ago

Dear Krish,
It must be appreciated that this is no space for a dissertation but a forum to for others to express their take on issues of common concern. There is enough scope to agree to disagree.

malq

In Reply to Krishnaraj Rao 5 years ago

Dear Krishnaraj Rao ji, thank you for writing in, and your views.

1) This is the second part of a series and you may find some of your answers in the first part, linked above in the article.

2) Please provide me with specific points on the unsubstantiated statements you point out were made, and I shall be glad to substantiate them. Too much data does make a long article unreadable.

3) On "compulsions of corruption", I agree i could have provided chapter and verse on the types of corruption available on other forms of surface transport, non water. Shall do so in another article, and link to this - but then that would be one on road transport, right?

Thank you for your criticism, but it is very difficult not to get carried away by the "zeal" to try and apply some sort of brakes, when one can see a rapid downhill approaching into which pretty much everything is being thrown.

Humbly submitted/VM

Java

5 years ago

Veereshji, thank you for highlighting another instance of government negligence and incompetence. It is futile to think that anyone in government will do anything sensible with a positive long-term impact. They do not have the capability, leadership or desire to do anything other than let things be, pass the buck as a matter of habit and never miss a bribe when an opportunity presents. The generation of capable and demoralised officers has sailed into the sunset, their potential wasted in our socialist-bureaucratic milieu. We can now only hope that the foreign ships will soon start providing an efficient and regular coastal shipping service.

REPLY

malq

In Reply to Java 5 years ago

Dear Java ji, thank you for writing in . . . and all is not lost, we can hope for good action from the Government, if not, they will have to answer on losses after 4-5 years on this subject.

Best rgards/VM

Nagesh KiniFCA

5 years ago

Veeresh's fervent plea for the urgent revival of shipping coastal and inland makes for an extremely sound economic sense as an employment generating less polluting mode of transport that can decongest the highways and reduce the pressure on railways.
On a personal note, now living in the Port City of Mumbai, in Mogul Lane named after Mogul Lines that once had offices here and hailing from Malpe, near New Mangalore Port, I have visited Goa and Cochin. Veeresh's references to Bimal Roy and Bupen Hazarika, more particularly for their river based melodies is very apt.
It makes for sound economic sense to explore to their full potential the transportation by rivers like the Ganga, Jamuna, Brahmaputra, Krishna and Godavari to name a few.As also all the coastal jettys.
In cities like Mumbai linking the north from Madh to Versova, Juhu, Dadar,Worli, Chowpati to Nariman Point;, Delhi and Calcutta all along their Rivers and the Canal in Chennai can not only create jobs but decongest the roads and highways and make for cheaper transportation of goods and labour.

REPLY

malq

In Reply to Nagesh KiniFCA 5 years ago

Thank you for writing in Nagesh Kini ji, and your comments much appreciated.

Coastal and inland shipping are THE most environmentally friendly and economical ways of moving people and commerce around. Within the Indian context, that is exactly what goes against it - since there is not THAT much side "on"money. No land acquisition at sea, no hafta at sea, and most of all - very little pilferage.

Please help by spreading this article around?

Thank you/VM

mary

5 years ago

sir,

your article should also serve as a grim reminder that many other services/facilities developed by the british died after they left. in fact, after them, there has been little or no development. rampant corruption, inefficient officials, poor leadership have made our lives miserable on all counts. can we not learn from history??

REPLY

malq

In Reply to mary 5 years ago

Mary ji, thank you for writing in, and that is the fear - that using this excuse of bad governance, our old colonial masters will creep back in through the back door to do us in once more.

Please help awareness by spreading this article - thanks.

rgds/VM

Narendra Doshi

5 years ago

I myself had gone one way by sea for my honeymoon from Mumbai to Goa and still have fond memories of the same. I wanted my son also to go by sea for the same trip, five years ago, but alas it was non -operational.
Besides the above personal note, I totally agree with Shri Veeresh that this is THE TOP PRIORITY to develop & start using waterways MORE rapidly. Why under develope or abandon developing one more MODE of transport while concentrating on the other mode of transport - air, land, rail, underground etc. Water Ministry is required to cover ALL aspects like drinking water, conversion of sea water to drinking water, transport, rivers, dams, convert / divert excessive rain water to use-able water to needy or dry places, farming etc
It is NOW OR NEVER.

REPLY

malq

In Reply to Narendra Doshi 5 years ago

Thank you for writing in, Doshi ji, and you cn do your bit to help by spreading this article far and wide. In due course, also maybe some people can file RTIs asking what happened, information on evolution of coastal and inland shipping?

This is the cheapest form of transport, and of immense social good, for passengers and goods.

We MUST do something about this.

Equity mutual funds witness net inflows in August despite volatile markets, but AUMs drop

In a volatile equity market in August, mutual funds attract net inflows of Rs1,986 crore, performing as well as in February 2011, when the markets were relatively stable

Equity mutual funds have done well in August 2011, attracting net inflows of Rs1,986 crore, as compared with an outflow of Rs869 crore in the previous month. This compares with the February 2011 figure of a net inflow of Rs 2,800 crore in equity mutual funds, according to a report by Crisil.

Jiju Vidyadharan, head-funds and fixed income, Crisil Research, says, "Equity funds witnessed net inflows of about Rs2,000 crore in August despite the volatile market conditions. These were the second highest monthly inflows in 2011 following the Rs2,800 crore net inflows seen in February 2011, when the markets were relatively stable."

However, assets under management (AUM) of equity funds fell by 7% month-on-month to Rs1,78,000 crore in August 2011, the lowest since July 2009. This followed the sharp decline in equity markets. The benchmark S&P CNX Nifty fell by 9% during the month, on fears of a slowdown in the global and domestic economies coupled with the impact of sovereign debt issues in the US and Europe. (The benchmark has slipped by over 16% since the beginning of 2011.)

The overall mutual fund industry's AUM fell by over 4% or Rs31,400 crore to Rs6,97,000 crore in August 2011 due to net outflows of Rs14,600 crore from income funds (including ultra short-term debt funds) and liquid funds, as well as mark-to-market losses in equity funds.

The benchmark Sensex of the Bombay Stock Exchange has fallen 9.27% in August, from 18,352 points 16,585.

The huge positive inflow in equity mutual funds belies the mood prevailing among investors and in the marketplace. In spite of the market outlook being bearish, the equity mutual funds have attracted inflows, as everybody has been looking for bargain buys and the long-term market expectation has been positive.

The breakup for various funds for August 2011, available from the Association of Mutual Funds of India, indicates that there was an outflow of Rs6,925 crore from income funds, balanced funds saw a net inflow of Rs210 crore, liquid/ money market funds had an outflow of Rs10,066 crore, gilt funds also had an outflow of Rs86 crore, gold ETF funds received a net inflow of Rs494 crore, whereas other ETFs saw an outflow of Rs147 crore, and fund of funds investing overseas had an outflow of Rs 63 crore. The aggregate for August 2011 for all categories of mutual funds has been a net outflow of Rs14,597 crore. The aggregate for equity funds for 2011-12 has been an inflow of Rs1,170 crore till now.

In spite of the favourable outlook observed from these figures, one would have to keep a watch on the buying behaviour of FIIs (Foreign Institutional Investors) in equities. If the global pressures signal a tendency to withdraw from emerging markets like India on a percentage basis, the positive figures of August 2011 could decline in the coming months of 2011-12.

User

We can regulate unlisted companies if they raise public funds: SEBI

"If OFCD is a security under the Securities Act, then it comes under the SEBI Act. And if it comes under the SEBI Act, then SEBI has jurisdiction," SEBI counsel Arvind P Datar claimed before SAT

Mumbai: Market watchdog Securities and Exchange Board of India (SEBI) on Thursday claimed before the Securities Appellate tribunal (SAT) that the Companies Act gives it enough powers to regulate unlisted companies if such entities have raised funds from the public, reports PTI.

"Does SEBI have powers under Section 55A (of the Companies Act? My answer is yes. If OFCD (optional fully convertible debenture) is a security under the Securities Act, then it comes under the SEBI Act. And if it comes under the SEBI Act, then SEBI has jurisdiction. SEBI can (therefore) pass a special order to regulate unlisted companies," SEBI counsel Arvind P Datar claimed before SAT.

Mr Datar was contesting Sahara Group's claim that its OFCD were not a public issue and therefore cannot be regulated by SEBI.

Sahara had been ordered by SEBI to refund the money its two group companies had raised from the public through an OFCD issue The company has challenged the SEBI order at the SAT.

Mr Datar further argued that Sahara companies' OFCDs were issued to the public and that it was actually "a public offer dressed up as a private placement".

Pointing out that even the legal provisions which Sahara took recourse to were meant for a public issue, Mr Datar said, Sahara has taken recourse to Section 60B of the Companies Act, a provision meant for a public issue. Once it is a public issue then listing becomes mandatory under Section 73 (1) of the Companies Act.

Mr Datar further said if an OFCD can indeed be defined as a security, then under the SEBI Act, the market regulator has jurisdiction.

"They can only come under Section 55 A, Clause B. If one goes by a literal interpretation of this provision, then that would be very absurd, and the appellant may argue that this does not cover them," Mr Datar said.

"We must understand why this provision was introduced in the first place. It was introduced, because Parliament wanted to give SEBI all powers," Mr Datar said.

"Intention does not matter because under this provision, listing becomes mandatory. Merely because the appellant gives it the tag of a private issue does not make it one. After all, Section 73 (1) of the Companies Act makes it mandatory for the appellant (Sahara) to seek the approval of the stock exchange," he said.

"A literal interpretation of Section 55 A would defeat the intention of Parliament.... Intention of a company is not a decision itself, but the three-fold test of conduct, circumstances of the case as well as terms of the contract, is. If the company knew it would cross the limit of 50 investors, then it ought to have listed," the SEBI counsel said.

SAT's presiding officer NK Sodhi observed, "If it is a public issue, they should have gone to the stock exchange, and so Section 73 (2) of the Companies Act follows. The necessary consequence is a refund of the money under Section 73 (2). But who will give such a direction to refund? Should it be SEBI?"
The SEBI counsel replied that Section 55 A of the Companies Act will have the answer as to who can issue such a direction.

Mr Sodhi then observed that consequence could be that Sahara's public issue will go out of listing and 66 lakh investors will not be able to trade their securities.

Arguing that Section 73 (1) of the Companies Act ought to be read in consonance with Section 55 A Clause B, which deals with intention of the company, Mr Datar said under Section 245 AA of the Companies Act, securities include 'hybrid' financial instruments. According to Section 55 A, the word 'securities' also includes future financial instruments which are yet to evolve, Mr Datar added.

To this, Mr Sodhi asked Mr Datar what is the consequence of calling OFCD a security. He pointed out that Sahara had submitted to the Allahabad High Court that SEBI could not regulate it because the instrument was a 'hybrid' and that under the Securities Contract Regulation Act, an OFCD is not a security.

SAT will resume hearing next Monday. Incidentally, the Supreme Court's deadline for the case is 5th October.

SAT has directed Sahara to file an affidavit by Monday, specifying from which date it began mobilising funds from investors. Further, it also asked the appellant to specify the total amount of funds mobilised till date, the number of investors involved, as well as the mode of fund mobilisation.

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