Draft Report of the High Level Group on Services Sector

4.3 The Cabotage Issue
Coastal traffic has a share of more than 25 % in the traffic of major ports. It is expected to grow from a level f about 110 MMT in 2004-05 to 220 MMT by the end of the XI Plan period (2011-12). The country’s coastal vessel tonnage as on 30-09-2007 comprised 497 vessels of 870255 gt.
As mentioned earlier the policy on cabotage was a subset of the policy of cargo reservation whereby foreign flag ships were not to be permitted to carry coastal cargo. The Merchant Shipping Act 1958 does not prohibit the carriage of coastal cargo by foreign flag vessels but requires permission of the Director General Shipping to be taken under sections 406 and 407 of the Act for the purpose. Permission for chartering of foreign flag vessels is granted on receipt of an application seeking such permission if no objection is received within 24 hours of the notice inviting objections being published on the website of the Directorate General of Shipping.
The Group considered the cabotage policies pursued by advanced maritime nations and noted that the US and Chinese cabotage laws are quite restrictive in the world. These countries have taken a very strident position in protecting the coastal trade to vessels of national ownership, documentation, control, construction and crewing. Japan and Korea also pursue cabotage policy for strategic cargoes like LNG and have almost exclusive control over the transportation of their LNG imports. They have gone one step further by backward integration of the LNG chain by building LNG ships in their country and thus also controlling LNG shipping. The Committee took the view that the policy on cabotage needed to be continued. The brand value of the national flag can be maintained only through such policies like first right of refusal and cabotage. Allowing foreign lines to have an open access in the carriage of Indian cargo, without the need for registering ships in India, will defeat the objective of building a national tonnage.