The Sagarmala Programme drives India’s maritime growth with a ₹5.8 lakh crore investment by 2035, but shipping stagnates due to slow fleet expansion, high costs and tax hurdles. The ₹25,000 crore Maritime Development Fund (MDF) and shipbuilding incentives in Budget 2025 aim to boost competitiveness, yet funding gaps persist. Reforms in financing, taxation and shipyard modernization are crucial for India to emerge as a global maritime power.

Background: Sagarmala Programme: Port-Led Development for India's Maritime Growth and Shipping Industry The Sagarmala Programme is the flagship initiative of the Ministry of Ports, Shipping and Waterways, launched to boost port-led development in India. Recognizing the maritime sector as the backbone of India's trade, this ambitious programme aims to harness the country’s 7,517 km-long coastline, 14,500 km of navigable waterways and strategic maritime location to reduce logistics costs and improve trade efficiency. The Union Cabinet approved the concept of Sagarmala on 25 March 2015. Objectives and Vision The primary objective of Sagarmala is to reduce logistics costs for both domestic and EXIM cargo, thereby increasing the competitiveness of exports and overall economic efficiency. The programme is aligned with various Government of India schemes like Make in India, Bharatmala, UDAN-RCS and Dedicated Freight Corridors. Key Components The Sagarmala Programme is structured around five key pillars: Port Modernization & New Port Development Port Connectivity Enhancement Port-Led Industrialization Coastal Community Development Coastal Shipping & Inland Water Transport Sagarmala is pivotal in transforming India into a global maritime powerhouse.

A MUST-READ ARTICLE ON INDIA’S SHIPPING INDUSTRY FOR FURTHER BACKGROUND: https://www.iasgyan.in/daily-current-affairs/indias-ports-and-shipping

Introduction

The Indian government has made significant strides in revitalizing the maritime. This commitment is evident in the ambitious Sagarmala Programme, which aims to modernize ports, enhance connectivity and promote coastal industrialization. However, despite these investments, the Indian shipping industry faces persistent challenges, necessitating further policy interventions and structural reforms.

Sagarmala Programme: Investment and Progress

The Sagarmala Programme, launched to boost port-led development, outlines 839 projects requiring an investment of ₹5.8 lakh crore by 2035. As of September 2024:

• 241 projects, worth ₹1.22 lakh crore, have been completed.
• 234 projects, valued at ₹1.8 lakh crore, are under implementation.
• 364 projects, with an estimated investment of ₹2.78 lakh crore, are in various stages of development.

Sector-Wise Investment Distribution

• Port Modernisation: ₹2.91 lakh crore (50%)
• Port Connectivity: ₹2.06 lakh crore (35%)
• Port-led Industrialisation: ₹55.8 thousand crore (10%)
• Coastal Community Development & Infrastructure for Inland Water Transport: 5%

Economic Growth and EXIM Trade Expansion

India’s economy has witnessed robust growth, with GDP rising from ₹153 trillion in 2016-17 to ₹272 trillion in 2022-23, growing at a CAGR of 7% despite COVID-19 setbacks. Projections indicate that the economy will reach $3.7 trillion in 2024, $5 trillion by 2027 and $7 trillion by 2030.

The EXIM trade has expanded significantly:

• $66 billion in 2016-17 to $116 billion in 2022 (an annual growth rate of 12.83%).
• The government targets $2 trillion in exports by 2030 to strengthen India’s global trade position.

Must read: https://www.iasgyan.in/daily-current-affairs/indian-exports-and-imports

Must Read Article on India’s Foreign Trade Policy: https://www.iasgyan.in/daily-current-affairs/foreign-trade-policy-2023

Challenges Facing the Indian Shipping Industry

Despite high economic growth and investments in the maritime sector, the Indian shipping industry has remained stagnant. Key issues include:

• Minimal Cargo Growth: Cargo handled at major ports grew only 14.26% from 2016-17 to 2020-21, with an annual increase of just 2.85%.
• Declining Vessel Traffic: The number of vessels handled decreased by 5.93%, from 21,655 in 2016-17 to 20,371 in 2020-21.
• Slow Fleet Expansion: Indian-registered ships increased from 1,313 in 2016-17 to 1,526 in 2024, an annual growth of 2.4%.
• Aging Fleet: The average vessel age was 26 years in 2022-23, though recent acquisitions have reduced this to 21 years.
• Global Decline: India’s ranking in ship ownership fell from 17 to 19, necessitating urgent policy interventions.

Structural Issues Hindering Competitiveness

• Limited access to capital: High borrowing costs, short loan tenures and rigid collateral requirements.
• Unfavorable taxation laws: Indian-flagged ships pay 5% IGST on ship purchases, whereas foreign-flagged vessels enjoy tax exemptions.
• Regulatory bottlenecks: Stringent compliance requirements and delays in fund repatriation for ship acquisitions.
• Port Charges & Training Costs: Higher port charges and mandatory training costs for Indian seafarers reduce profitability.
• Competition from Foreign Ships: Ships registered in tax havens benefit from low regulatory oversight, minimal taxation and easy financing.

Shipbuilding and Infrastructure Deficiencies

The Indian shipbuilding industry struggles due to:

• Lack of large-scale shipbuilding infrastructure.
• High input costs, especially steel.
• Weak ancillary industries, leading to dependence on imports.
• Custom duties on imported machinery and spare parts, raising costs.
• Workforce skill gaps, impacting productivity.
• Long delays in new vessel deliveries, discouraging domestic ship purchases.

Policy Interventions: Union Budget 2025 Measures

Recognizing these challenges, the government introduced key reforms in the Union Budget 2025, including:

• Maritime Development Fund (MDF) of ₹25,000 crore: Government contribution is 49%, with the rest from major ports.
• Infrastructure status for large vessels to facilitate financing.
• Shipbuilding clusters to boost the domestic shipbuilding industry.
• Extension of the basic customs duty exemption for shipbuilding spares and equipment.
• Revamped financial assistance policy for shipbuilding.
• Credit incentives for shipbreaking in Indian yards.
• Extension of the tonnage tax scheme to inland vessels.

Challenges in Policy Implementation

• Funding Uncertainty: It remains unclear whether the MDF will be mobilized in a single year or spread over multiple years.
• Capital Shortages: Given the high capital intensity of the shipping sector, ₹25,000 crore may still be insufficient.
• Tax Disparities Remain: The Budget did not address the 5% IGST on Indian ships or the TDS deduction on Indian seafarers’ salaries.

The Way Forward

Enhancing Shipping and Port Competitiveness

• Lower borrowing costs and extend repayment tenures for shipowners (7-10 years).
• Expand and modernize shipyards to build large vessels.
• Improve regulatory efficiency by streamlining compliance procedures.
• Encourage External Commercial Borrowings (ECBs) through the MDF.
• Reduce taxation disparities by exempting Indian vessels from IGST and TDS.

Integrating Green Shipping and Sustainable Development

• Adopt green shipping technologies to reduce carbon emissions.
• Invest in energy-efficient ship designs and alternative fuels.
• Leverage Sagarmala funds for climate-friendly port infrastructure.

Conclusion

While the Sagarmala Programme and Union Budget 2025 have provided a significant impetus to India’s maritime sector, deeper structural reforms are needed to ensure sustained growth. Addressing capital constraints, taxation disparities, regulatory inefficiencies and shipbuilding infrastructure gaps will be crucial for India to emerge as a global maritime power. The Maritime Development Fund, port modernization efforts and policy interventions must be strategically leveraged to achieve long-term success in India’s shipping and shipbuilding industries. 

PRACTICE QUESTION Q.Evaluate the role of the Sagarmala Programme in boosting India's maritime sector. Highlight the key challenges faced by the shipping industry and suggest necessary policy reforms. (150 words)

All about Sagarmala Programme

The Sagarmala Programme is a flagship initiative of the Ministry of Ports, Shipping, and Waterways aimed at promoting port-led development to enhance India's maritime infrastructure, reduce logistics costs, and improve trade efficiency.

When was the Sagarmala Programme launched?

The Union Cabinet approved the concept of Sagarmala on March 25, 2015, and the National Perspective Plan (NPP) was released in April 2016 by the Prime Minister during the Maritime India Summit.

What are the major objectives of the Sagarmala Programme?

The programme aims to reduce logistics costs, improve port infrastructure and connectivity, promote port-led industrialization, enhance coastal shipping and inland water transport, and foster coastal community development.

What are the key components of Sagarmala?

The programme is built on five key pillars: Port Modernization & New Port Development, Port Connectivity Enhancement, Port-Led Industrialization, Coastal Community Development, and Coastal Shipping & Inland Water Transport.

How is the Sagarmala Programme governed?

The National Sagarmala Apex Committee (NSAC), chaired by the Minister of Shipping, oversees implementation. The Sagarmala Development Company Limited (SDCL) was established to support project execution, while the Indian Port Rail & Ropeway Corporation Limited (IPRCL) focuses on port-rail connectivity.

How many projects have been completed under Sagarmala as of September 2024?

As of September 2024, 241 projects worth ₹1.22 lakh crore have been completed.

What are the key sectors of investment in the Sagarmala Programme?

The key sectors include Port Modernization (50%), Port Connectivity (35%), Port-led Industrialization (10%), and Coastal Community Development & Inland Water Transport (5%).

How has India's economy grown recently?

India’s GDP rose from ₹153 trillion in 2016-17 to ₹272 trillion in 2022-23, growing at a CAGR of 7%. Projections estimate $3.7 trillion in 2024, $5 trillion by 2027, and $7 trillion by 2030.

What are the major challenges faced by India’s shipping industry?

The industry faces minimal cargo growth, declining vessel traffic, slow fleet expansion, and an aging fleet, among other structural issues such as limited capital access and unfavorable taxation.

What reforms have been introduced in the Union Budget 2025 for the shipping industry?

The Union Budget 2025 introduces a ₹25,000 crore Maritime Development Fund, shipbuilding clusters, tax exemptions, and financial incentives aimed at boosting the domestic shipping and shipbuilding sectors.

What are the key policy challenges in implementing reforms for the shipping industry?

The challenges include funding uncertainty, capital shortages, and tax disparities such as the 5% IGST on Indian ships, which continue to hinder the sector’s growth.

How can India improve its maritime competitiveness on the global stage?

India can enhance maritime competitiveness by lowering borrowing costs for shipowners, modernizing shipyards to build large vessels, streamlining regulatory procedures, and reducing taxation disparities like IGST on Indian ships.

What steps are being taken to promote green shipping and sustainability in India?

India is focusing on adopting green shipping technologies, investing in energy-efficient ship designs, and utilizing Sagarmala funds for climate-friendly port infrastructure to promote sustainable development.