Lok Sabha Question No. 659 (UNSTARRED), answered on 2022-02-04
Subject: Capacity of Indian Shipping Industry
Ministry: PORTS, SHIPPING AND WATERWAYS
Asked by: Hasmukhbhai Somabhai Patel

## GOVERNMENT OF INDIA MINISTRY  OF PORTS, SHIPPING AND WATERWAYS

## LOK SABHA UNSTARRED QUESTION  NO. 659

ANSWERED ON 04.02-2022

## CAPACITY OF INDIAN SHIPPING  INDUSTRY

## 659. SHRI PATEL HASMUKHBHAI SOMABHAI,

## Will the Minister of PORTS,  SHIPPING  AND WATERWAYS be pleased to state: ffi-q,  qtdqlrd-fl{  ofl-tqoqr,f  {fi

- (a) whether the Government  proposes  to increase the tonnage capacity of lndian shipping  industry  in next three years;
- (b) if so, the details  thereof; and
- (c) the tonnage  capacity  of the said industry  in the country  during the last three years, year-wise?

## ANSWER

## MINISTER  OF PORTS, SHIPPING AND WATERWAYS (SHRI SARBANANDA  SONOWAL)

- (a & b)  The Government  is committed  to increase the tonnage under lndian flag. The major steps taken by the Government in this regard are as below:

## (i) Revision of the criteria for Riqht of First refusal  (ROFR):

The criteria  for  granting  the Right of First Refusal  in chartering of vessels through tender  process has been revised through  Directorate  General of Shipping, Mumbai,  DGS Circulai  No. 02 of 2021  ,  for promoting  tonnage under  lndian flag and ship-building  in lndia, so as to make lndia an Atma-nirbhar/selfreliant  Bharat, in terms of tonnage and shipbuilding  in lndia. DGS Circular No. 02 of 2021 is at Annexure. The following is the revised hierarchy of RoFR with highest  priority  to lndia built, lndian flag (lndian owned) vessels;

- ('1) lndian built, lndian flagged (lndian owned);
- (2) Foreign  built, lndian flagged (lndian owned);
- (3) lndian  built, foreign  flagged (foreign  owned).

This will promote demand  of lndian built and lndian flag vessels  as the lndian  built and lndian flag vessels will have the priority in chartering  and will also  provide additional market access and business  support  to ships built in lndia.

## (ii) Ship Buildinq Financial  Assistance  Policv  (2016-2026):

Government  of lndia has approved  the Financial Assistance Policy for lndian Shipyards on 9th December  2015, for grant of financial  assistance to lndian Shipyards. Only those vessels shall be eligible for grant  of financial assistance, for which the construction commences subsequent to the signing of valid contracts. Vessels which are constructed and delivered within a period of three years from the date of contract are eligible for availing financial  assistance under the policy. For specialized vessels,  the delivery period can be extended till six years. Financial assistance shall be  @  2OYo of the contract price,actual receipts, fair price (whichever is least) to lndian shipyards. Under the policy, the financial  assistance  extended  would be reduced. by 3% every three years.

## (iii) Subsidv support to lndian shippinq companies:

A scheme for the promotion of flagging of merchant ships in lndia by providing Rs.1624 crore over a period of five years  as subsidy  support  to lndian shipping  companiein global  tenders footed by Ministries  and Central Public Sector Enterprises (CPSEs)  has been approved by the Cabinet. The rate of subsidy support will be based on age of the vessel.

## (iv) Protection  to lndian Flaq vessets durinq engagement of foreiqn ships:

lndian and Foreign entities intending to engage foreign flag vessels  for coastal trade of lndia need to have a license under section 406 of Merchant Shipping Act, 1g5B from DG Shipping,  Gol. The DGS issues license to such foreign flag vessel only after ensuring that no lndian vessel is available  for such trade/function  to be performed by foreign flag vJssel. Accordingly,  lndian ships are given priority above foreign ships for such irrnspo.tation. Because of this facility, these entities  and even shipping  companies make an effort to own or register vessels under lndian flag. This helps in increasing the lndian shipping  tonnage.

(c) The details of tonnage capacity  of the country in the last three years  are as below:

## INDIAN SHIPPING  CAPACITY

| YEAR       | COASTAL            | COASTAL            | OVERSEAS            | OVERSEAS           | TOTAL               | TOTAL              |
|------------|--------------------|--------------------|---------------------|--------------------|---------------------|--------------------|
|            | SHIPS (in numbers) | Gross Tonnage (GT) | SHIPS (in number s) | Gross Tonnage (GT) | SHIPS (in numb ers) | Gross Tonnage (GT} |
| 31.12.2018 | 945                | l+,lg,giii         | 456                 | 1,12,04,598        | 1401                | 1,26,93,941        |
| 31.12.2019 | 972                | 14,79,6(12         | 457                 | 1,12,66.341        | 1,429               | 1,27,46,033        |
| 31.12.2020 | 998                | 16,72,591          | 46i                 | 1,13,37,911        | 1463                | 1,30,10,392        |
| 31.12.2021 | 1027               | 15,60,021          | 464                 | T,ti,ii,ael        | 1,491               | 1,29,94,984        |

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## DGS Circular No.02 of 2021

(Shipping Development)

## Sub.: Guidelines  for exercise  of Right of First Refusal-erant  of license to foreign  flag vessels.

## Background,  Legal Provisions and Policv:

Whereas Section 406 of Part XIV of the lvlerchant  Shipping Act, 1958  fControl of lndian ships  and ships engaged  rn Coasting  Tradel, rnarrdates  that lndian ships and other ships chartered by lndian citizen  or a company  or a society, needs to be licensed  by the Director General of Shipping.  Such license cart be granted subject to such conditions as may be specified by the Director  General  of Shipping.

2. Whereas section 4A7 of the same Part of the Act mandates  that ships other than lndian ships or ships chartered  by lndian entities, intending to engage in coastaltrade  of lndia, need to be licensed  by the Director Generalof Shipping.  Such license  can be granted subject to such conditions  as may be specified by the Director General of Shipping.
3. Whereas, in exercise of powers  under the above sections of the Act, the Director General  of Shipping has by way of Shipping  Development  Circular No.-2/2002  dated 08.11.2002  [F.No.  SD-9/CHRT  {87}197-lll,  issued guidelines  to provide  the right of first refusal to the lndian flag vessels  before  grant  of license  to foreign flag vessels.
4. Whereas, as of now, the Right of First Refusal  (RoFR) is available to lndian  flag vessels, as stipulated under Shipping Development Circular  02 of 2002 dated 08.i1.2002, issued by the Director  General of Shipping,  Gol.
5. Whereas, in additiorr to the existing  policy to encourage  flagging  of ships in lndia, it is also the express policy  of the Government of lndia to encourage  and promote manufacture and production  of goods in lndia under'Make in lndia', with a view to enhance  income and employment. To give effect to this policy, tlre Department of tndustrial Policy and Promotion (DIPP) has rssued Public Procurentent and'Make  in lndia'orders dated 15.6.2017  and 28.05.2018, and 04.06.2020.
6. Whereas,  Government of lndia has taken several steps to pr lndia especially by providing  long term subsidy for ship building u finarrcial assistance policy (2016-2026). omot nder e shipbuilding  in the shipbuilding

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## DIRECTORATE GENERAL OF SHIPPING, MUMBAI

F. No. SD-9/CHART(82)/97-Vl

Dated:  14.01.2021

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- l. Whereas, Government of lndia intends to further  incentivise  shipbuildrng  by providing additronal  market access and business  support  to ships  built in lndia.
2. 8 Whereas,  it is felt that demand  for the ships built in lndia can be promoted  if some preference  is given  to Ships  built in lndia, in chartering of vessels  and for engaging in coastal trade.
3. 9 whereas, a need has also been felt to review the licensing conditions keeping rn view, (ilthc Government  of lndia's policy  of promoting  the Make in tndia initiative,  (ii)the  Ministry,s existing  policy  to promote flagging  of ships in lndia (iii)  the  public procurement  and Make in lndia orders dated 15.6.201,1,28.05.2018  and 04.06.2020 issued  by Dtpp, (iv)the need  to give a long term strategic boost to the domestic shipping  and shipbuilding  industry,  (v)  the need to encourage  the domestic shipping industry to support the domestic shipbuilding industry, and (vi)  the need to develop self- reliance  and a strong synergy  among  these  vital industries f or the overall  long term development  and economic growth  of the country.
10. whereas, the Notification  No.2 of ,Make  in lndia,dated  13.02.19  [F.No. sy730771412017-sBRl, was issued by the Ministry of Shipping, Govt. of tndia, requiring rhe review of the guidelines  on RoFR issued  by the Director General of shipping.
5. ll whereas, the Shipping  Development  Circular 02 of 2002 was superseded  by Shipping Uevelopment  Circular No. 02 of 2019 dated 22.03.19.
6. 12' whereas,  members of INSA were having certain objections  on the provision  covered in the circular on RoFR and the said circular No 02 of 2019 was challenged  in the Hon,ble  Delhi High Court.
7. 13' Whereas.  the Notification  No. 2 of 'Make  in tndia'dated  1.3.02.1g  IF.No.  sy-130i7/4  12017sBRl has been withdrawn by the then Ministry of Shipping, Gol (now Ministry  of  ports, Shipping  and Waterways)  on 20.07.2020.
8. 14' whereas,  the shipping Development circular  No. 02 of 2019  dated 22.o3.lg,has  also been withdrawn  by the DG Shipping,  Got on 07.08,2020.
15. whereas, the Ministry  of shipping (now Ministry rrf  ports,  shipping  and waterways),  Gor, has issued  a Notification  No. SY-13afl/412017-SBR  dated  23,d  octobe  r,zo2|on promotion of Make in lndia initiative-  RoFR  for lndian  built and Indian flagged ships through  amendments to cuidelines  for chartcring  t,f vessels  done through  terrder prucess  for all types of req uirenrents.
10. 16' whereas,  the said Notificatron  of the Ministry datecl 23,d octobe  r,2020 provides  the manner for exercise  of Right of First Refusal.
17.  Whereas, the sairl Notification  of the Ministry clated vessels flying  the flag  of tndia (i.e.  registered  in tndia)  up 23'd Octobe r, 2020 provides  that all to the date of issue  of new circular

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by the Director General of Shipping  shall be deemed to be lndian built vessels  and willfall in category  (i) of the RoFR  hierarchy given under ParaT of the said Notification.

18. Whereas,  in view of the above background a need has been felt to review  the guidelines on Right of First Refusal under Shipping  Development  Circular 02 of 2002 and Shipping Development Circular  No 02 of 2019 (now withdrawn),  to balance  the interests  of the shipping  and ship building industries keeping in view of the policy of the Government  to make lndia, Self-Reliance lndia  [Atnra  Nirbhar Bharat) in maritime  sector.
19. Now therefore  in exercise  of powers conferred  under Section 406 and 407 of the Merchant Shipping Act, 1958, the Director General of Shipprng, in supercession  of  previous guidelines  relating to chartering and licensing of the vessels, is pleased to issue the following guidelines,  for Right  of First refusal  in chartering  or engagement  of foreign flag vessels.

## 20. Chartering or engagement of foreign flag vessels  done throuqh tendering  process.  for all tvpes of requirements:  -

- 20.1. The chartering/engagement  of vessels  through  "tender  process" as mentioned above shall only be applicable  for open/globaltenders and chartering/engagement  by other means shall  be considered  as "chartering/engagement  through non-tender  processes"'  The "tender process" shatl be considered  valid within the following definition:
- 20.1.1. Tenders  shall be open or global tender, for which a tender advertisement  has been duly published  in a national or international  newspaper or commercial websites  or website of the agency/organization/company  floating the tender;
- 20 L.2. Tender  contains  technical specifications  and comnrercial  terms  and conditions of the vessel provided in the tender  advertisement.  lf there is a dispute  relating to technical specifications  of the vessel  given in the tender advertisement,  the matter may be referred to DGS for decision as to whether the lndian vessel with a slight difference in specifications should be chartered/engaged,  and not the foreign flag vessel.  As far as practicable, thrs decision will be taken after discussion with the concerned  parties.
- Zt. Rieht of First Refusal:  "Right of first refusal"  is a right which  accrues to a bidder in a tendering  process,  who offers a vessel fronr the categorY listed at Para 21.3.4, subject to his matching of the lowest rate offered by a bidder who offers a vessel not listed under Para 21.3.4. The order of preference  for right of first ref usal will be as indicated at para 21.3.4. This right is conferred  based upon the practices  of the industry, and the deliberate  intentron of the Central Government towards  encouragement  and development of the lndian shipbuilding  industry arrd the lndian shipping  industrV.
- 21.1.  Unless the vessel offered  is successful in the evaluation  of technical  bid, the bidder concerned will not be eligible  to exercise the Right of First Refusal  under  this circular.
- 21.2. Whenever charter/engagement of vessel is undertaken through a tender process specified in Para 20, the provisions  of these guidelines are required to be incorporated.

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whether  the guidelines  have been incorporated  in any tender or not, the said guidelines would be deemed  to have been incorporated as a part of the tender documents.

- 21'.3. The instances  under  which  the RoFR  may be exercised  are;
- 213 l  rhe L1 bidder is a Foreigner or an entity  registered  outsicte  lndia,  offering  a vessel not listed at Para 2 t .3.4
- ?1'3 2 The L1 bidder is a Citizen  of lndia oR company registered  in tndia oR Society  registered in lndia with a vessel  rrot listed  at  para  21.3.4.
- 21'3 3 From antotrSst  the brcJders  eligrble to exercise RoFR, the priority  to exercise this Right would lie in sequence  mentioned  in Para  21,3,4 below and in case more than one bidder is available  in a particular  category,  then from the lowest  to the highest'bidder  within the nrargin of purchase pt elerertce.  The  exerclse  of RoFR  would cease  as soon as an eligible bidder rn order  of priority  matches  11. The first priority  would  be given  to any bidder who offers an lndian built, lndian flagged and lndian owned  vessel. ln the absence  or unavailability  of lndian built, lndian flagged anci lnclian  owned vessel,  the RoFR will move to Foreign built, lndian flagged,  lndian  owned vessel  and tlren to lndian  built, foreign  flagged  and foreign owned vessel.
- 21.3.4. For further clarity the order of grant of RoFR would be as follows:-
- a) lndian  built,  tndian  flaggeci  and tndran  owned,
- b) Foreign  built, Indian flagged  and lndian  owned,
- c) lndian built, foreign flagged  and foreign owned.

## Provided  that:

- 1' Allvessels flying the flag of India (i.e.  registered  in lndia) up-to the rnid night of 15.01.2021 shall be deemed  to be rndian buirt vesser  and wiil fail in category  Ia]  above.
- 2 The Foreign flagged vessels pernritted  by the DG shipping,  under section  406 of the MS Act, 1958' for chartering by an lndian  citizen/company/society,  who is building a ship in an tndian shipyard  for registration  under  lndian flag, as a temporary substitute for the lndian  ship under construction,  tneeting the followingtwo  condition,  shallbe deemed  to fall under  category  [a] above:
- a)The 25%of  the contract  *oney has been paicrto rncrian  shipyard.
- b) lhe 50'i6 ot tlrr, lrull fabrication  has been  conrpletcd,  as riiay tre  certified by a Recogrrized Organization.

Tlte  rirrratirrn  of licerrces  tu 5utir chartered  vesscl  shall  ie lrmrted  to periocJ  of builtJing  of the Ship,  as mentioned  in the shipbuilding  contract.

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- 21.3.5. Further.  RoFR  shall  be applicable to allinquiries  for in-charter of foreign flagged vessels with in a 2A%margin of purchase preference (price band) i.e. the maximum extent to which the price quoted by an lndian Company  nray be above the L1 for the purpose of purchase preference.
- 21.3.6. ln case rrone of the bidders eligible to exercise  RoFR  matches  the L1 quote, then the charter  shall be au;arded  to the L1 bidder.
- 21.4 The bidder who exercises RoFR should meet the commercial requirement  by matching the lowest Composite Effective Price. lt is further clarified that there shall be no price preference in favour of any vessel.  The Composite  Effective Price is the derived figure  from the various price inputs submitted  by a bidder/participant  in a tender process,  wherein all the costs/inputs are summarized. While working out such Composite  Effective  Price, inputs such as daily hire/daily  rate, mobilization/demobilization charges, call out rates and conversion charges etc. are taken into account.
- 22 Any grievance arising out of implementation  of these guidelines  shall be referred  to the DG Shipping, Gol.
- 23 This Circular  will come into force w.e.f. 16.01.2021  and shall supersede  all the prevrous DGS circulars on Right of First Refusal.

Director General of Shipping & Additional  Secretary  to the Gol. (Arrritabh  Kumar)  I I'i I'  l)-

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To,

- 1 All stakeholders/All  Charterers/Shippers/All lndian Shipping Companies, through the official  website of the DGS,  Gol.
2. INSA/ICSSA/FOSMA/MASSA/Shipyards Association  of lndia/CSL/ISBA/NUSI/MUl/lMF
3. lndian Private Ports and Terminals Association.
4. Shipyard Association  of lndia.

## Copv also forwarded  for kind\_llformation  to the:

1. PS to Hon'ble Minister of State  (lndependent Charge) for Ports, Shipping,  and Waterways. Gol.
2. Secretary to the Govt. of lndia, Ministry of Ports, Shipping, and Waterways,  Transport Bhawan,  1, Sansad  Marg. New Delhi-110001
3. CEO,  NlTl Aayog, New Delhi.
4. Secretary,  Department  of Defence, South Block, Ministry of Defence, New Delhi.
5. Secretary, Department  of Defence Production, Ministry of Defence, South Block, New Delhi-  110011.
6. Secretary,  Department  of lndustrial  Policy & Promotion,  Udyog Bhawan,  New Delhi11,0011.

1. secretary,  Mirristry  of  petroleum  and Natural Gas, A-wing, Rajendra Prasad  Road,  New Delhi- 110011. Shastri Bhawan,  Dr.
2. Secretary, Ministry  of Chemicals  and Fertilizers, A\_Wing  Shastri Bhawan, Dr. Rajendra Prasad Road, Nerv Delhi-110011.
9. Secretary,  Ministry  of Steel, Udyog Bhawan,  Dr. Maulana  Azad Road, New Delhi,11001t.
4. 10 secretary.  Ministry  of  Home Affairs, North  Block, Central secretariat,  New Delh  i,110001.