Budget 2004: Shipping
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The government has allocated Rs 110 bn towards renovation/modernisation of airports and ports. |
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Dividend tax removed at the hand of the shareholders. |
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One of the key reasons why Indian ports have not been able to attract significant tonnage traffic is due to slow turnaround time and lack of technology for faster loading/unloading. With the Finance Minister now proposing modernisation, prospects could change for the better. But we do not expect this measure to benefit the listed shipping majors significantly in the short-term. |
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Since shipping stocks like GE Shipping are attractive from the dividend yield perspective, the scrapping of dividend tax at the receiver's end increases the attractiveness of the stock among investors. |
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Fundamentally speaking, the industry's demand for removal of tonnage tax has not been addressed by the government. This reduces the competitiveness of Indian shipping majors like GE Shipping and Shipping Corporation in the international markets. This is because of higher incidence of tax, which results in lower profits to plough back into the expansion of fleet. This is not the case with international shipping companies that enjoy benefits of tonnage tax (tax on tonnage owned) and higher depreciation rates. |
| The existing taxation system should be modified so that Indian shipping companies have a level playing field with their foreign counterparts. If this is not possible, then the current depreciation rate should be brought equivalent to those availed by road or air transport companies. |
| Income earned by the Indian shipping crew, which is engaged with a foreign carrier, should be tax-free. This is primarily to attract as well as retain workforce. |
| The industry required infrastructure status for easy access to capital. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| No Budget measures |
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Increase in depreciation rate to 25%. |
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Increase in amount transferred to special reserves for capacity expansion. Shipping companies out of MAT purview. Corporatisation of major ports. |
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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| The government’s thrust on oil exploration programmes is a big positive for the sector, especially offshore segment |
| Following the sinking of ships, environmental regulations have become stringent. Thus, large scale scrapping of tonnage is being witnessed. This is a big positive for the shipping sector. |
| Another key focus area of the government is the privatization of ports. Though this is a long-term process, the move is a step in the right direction. |
| Since India is growing at a faster clip, demand for goods is expected to rise. Indian shipping majors are expanding capacities to regain the lost market share to foreign carriers. Tonnage demand could therefore rise in the long run. |
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| Key Negatives |
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| Freight rates across the segment, have declined considerably due to slowdown in key economies. The near-term growth prospects also remain challenging. |
| Supply of tonnage has been rising at a rapid pace. In fact, new orders have outpaced scrapping in recent years. |
| Indian shipping fleet is minuscule when compared with world tonnage. This has resulted in consistent fall in market share over the years. |
| Lack of fiscal incentives and unfavorable taxation policies have hampered fleet expansion plans. |
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