Shippers see fall in repair costs

Increase in FII investment limit in infrastructure sector will also help the sector.

Though it has got nothing much to cheer in the Budget, the shipping industry can gain from the import duty exemption on spares and capital goods required for repairs. This can cut repair costs to an extent that will reflect in next year’s bottom line, according to industry experts. The 25 per cent abatement on service tax will be another benefit the industry can gain from.

The port industry will also benefit from the rise in the cap on FII investment in the infrastrcuture sector to $ 25 billion.

The stock of Great Eastern Shipping went up 3.49 per cent to Rs 254.90 on the Bombay Stock Exchange (BSE) today while Shipping Corporation of India shares fell 0.3 per cent to close at Rs 99.5. Varun Shipping closed at Rs 27.05, up 0.93 per cent, and Mercator Lines closed at Rs 35.55, up 0.42 per cent.

S Hajara, chairman and managing director, Shipping Corporation of India, said, “The small and medium ship owners will benefit from the import duty exemption. The reduction of surcharge imposed on companies will also benefit industries like shipping. However, the major recommendations of the industry were ignored again this time.”

The major recommendations by the finance ministry include -- the capital gains made through sale of vessels to be treated as arising from ‘core activities’ of the tonnage tax regime and so not be subjected to the minimum alternate tax (MAT); the interest income from compulsory reserves to be treated as arising from ‘core activities’ of a tonnage tax. The crew who work on a foreign flag get an exemption from taxation, whereas the salaries of people working on Indian vessels are taxed, which adds to the cost of Indian shipping companies, industry officials complain.

Samir Kanabar, director infrastructure practice, Ernst& Young, said, “The exemption of import duty on spares was a long-standing demand of the shipping industry. Indian ships are mostly being repaired in Chinese shipyards, which can be avoided now with the import duty exemption.” Currently, the import duty on spares and capital goods is around 27 per cent.

“Port projects are getting delayed due to lack of local funding and higher local borrowing costs. The proposed FII limit as well as the additional infra funds to be set up will bring more foreign funds, which are cheaper, and help port projects achieve quick financial closure,” Samir added.

According to Vinay Kshirsagar, chief financial officer, Shreyas Shipping & Logistics Ltd, “The company’s bottom line will improve following the import duty exemption. There is no negative impact as the FM has agreed with a few of our requirements. The allocation of funds for warehousing and the steps announced to improve cold storage chains will indirectly help the logistics industry.”