On reforms in merchant shipping | Explained

Government introduces transformative bills to reform shipping industry, focusing on modernization, welfare, and coastal development for economic growth.

The story so far:

The Government is preparing to introduce several significant bills aimed at driving much-needed reforms in the shipping industry. Key among them are the Merchant Shipping Bill, 2024 and the Coastal Shipping Bill, 2024, both of which promise to bring transformative changes to boost the sector.

The Merchant Shipping Act, 1958, and the Coasting Vessels Act, 1838, which the new bills aim to repeal, have become outdated and fail to address the contemporary needs of the merchant marine sector. Significant regulatory gaps exist, particularly for vessels operating in the offshore sector which comprise nearly 50% of Indian-flagged vessels. Furthermore, maritime training was liberalised allowing private sector participation, yet there is no legal framework in the existing Act to regulate their activities effectively.

The Merchant Shipping Act, 1958, also restricts seafarers’ welfare provisions to Indian-flagged ships, despite 85% of the 2,80,000 active Indian seafarers working on foreign-flagged vessels. Additionally, the Act lacks enabling provisions for implementing certain international conventions that India has signed or plans to ratify. Crucially, the outdated, license-era provisions of the Act have become a roadblock to modernising maritime administration, which needs to transition from being a mere regulator to a regulator-cum-facilitator, thereby promoting the ‘ease of doing business.’

The Merchant Shipping Bill introduces significant changes to modernise India’s maritime framework, drawing upon the best practices of leading maritime jurisdictions like the U.K., Norway, and Singapore. Some of the key reform measures include:

i) Ease of registration: the existing law restricts vessel registration to entities with 100% Indian ownership. The new Bill proposes significant reforms to attract foreign investment. It also reduces the ownership threshold for Indian citizens/entities from 100% to 51%, enabling more flexibility. It allows Limited Liability Partnerships (LLPs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) to own and register Indian vessels. This is in line with the law of the U.S. where Green card holders are permitted to own American flagships or Singapore law where permanent residents can own ships of their flags. It also permits foreign entities to hold shares in Indian vessels while ensuring majority ownership remains with Indian entities, NRIs, or OCIs.

Additionally, the Bill allows the registration of vessels chartered by Indian entities under the bareboat charter-cum-demise, enabling entrepreneurs to acquire ownership of vessels at the end of the charter period. This provision, particularly beneficial for capital-deficient entrepreneurs, facilitates entry into the shipping industry without upfront investment.