Budget 2025 – Has the FM Woven a Dream for the Shipping Sector?
India’s shipping industry has long been yearning for attention in the Union Budget, only to face disappointment year after year. Budget 2025 has tried to address some of their long pending demand.
The current government deserves full credit for its commitment to developing the maritime sector, which had been largely neglected by its predecessors. This focus is clearly reflected in the expenditure on the government’s flagship program, Sagarmala, which, as on September 2024, had outlined 839 projects requiring an investment of ₹5.8 lakh crore by 2035. Of these, 241 projects, worth ₹1.22 lakh crore, have been completed, while 234 projects, valued at ₹1.8 lakh crore, are under implementation. Additionally, 364 projects, with an estimated investment of ₹2.78 lakh crore, are in various stages of development.
Within Sagarmala, the allocation of funds has been as follows: ₹2.91 lakh crore (over 50%) for Port Modernization, ₹2.06 lakh crore (more than 35%) for Port Connectivity, ₹55.8 thousand crore (10%) for Port-Led Industrialization, the remaining 5% was distributed between Coastal Community Development (₹11.57 thousand crore) and Coastal Shipping & Inland Water Transport (IWT) (₹14.52 thousand crore).
Notably, expenditure on coastal shipping primarily covered the development of berths at ports for coastal vessels, rather than direct shipping incentives.
India’s economy has witnessed remarkable growth over the past decade, with GDP rising from ₹153 trillion in 2016-17 to ₹272 trillion in 2022-23—an increase of 43%, growing at a CAGR of 7%, despite two years of COVID-related setbacks. The economy is projected to reach $3.7 trillion this year, $5 trillion by 2027, and $7 trillion by 2030.
During this period, India’s EXIM (Export-Import) trade has also seen substantial expansion, growing from $66 billion in 2016-17 to $116 billion in 2022, reflecting a cumulative increase of over 77% and an annual growth rate of 12.83%. The country now aims to boost exports to $2 trillion by 2030, further strengthening its global trade position.
Despite consistent high growth in the Indian economy and increased investments in the maritime sector, the Indian shipping industry has remained stagnant. According to MoPSW statistics, despite substantial investments in port infrastructure and modernization, the cargo handled at major ports has only marginally increased from 1,071.76 million tons in 2016-17 to 1,249.99 million tons in 2020-21, reflecting a cumulative growth of 14.26% or an annual increase of just 2.85%. In contrast, the number of vessels handled at these ports has actually declined by 5.93%, dropping from 21,655 vessels in 2016-17 to 20,371 in 2020-21.
In terms of Indian-registered ships, the number has increased from 1,313 in 2016-17 to 1,526 in September 2024, marking a cumulative rise of 16.77% and an average annual growth of 2.4%. Over the same period, gross tonnage has grown from 11,547,576 GT in 2016-17 to 13,744,897 GT, registering a cumulative increase of 17.44% and an annual average growth of 2.5%.
A major concern has been the aging fleet of Indian vessels, with the average vessel age rising alarmingly to 26 years in 2022-23. However, this has now improved to 21 years, owing to the addition of 34 relatively younger vessels (with an average age of 14 years) during the year 2024, driven by strong regulatory interventions by the Directorate General of Shipping.
In comparative terms, India's global ranking in ship ownership has declined from 17th to 19th, highlighting the need for further reforms to strengthen the domestic shipping industry.
Clearly, the assumption that increased investment in ports would automatically drive growth in Indian shipping has been proven wrong. In reality, during this period, Indian shipping has continued to lose market share—to foreign-flag vessels in carrying Indian EXIM cargo and to rail and road transport for domestic cargo. The reason is simple: the needs of shipowners and shipbuilders are vastly different from those of port and terminal operators.
Challenges Facing Indian Shipping
Indian shipping faces multiple challenges that hinder its competitiveness. These include: Lack of capital and high borrowing costs, Short loan tenures and rigid collateral requirements, where shipowners must provide additional security instead of using ships as collateral, Limited understanding of the industry's cyclical nature, leading to inflexible loan restructuring policies, Unfavourable taxation laws, which often favour foreign-flag vessels over Indian vessels—even for operations within Indian waters, Delays in repatriating funds for ship acquisitions, Stringent regulatory requirements imposed by maritime authorities, Additional financial burdens, such as the mandatory training of Indian seafarers and higher port charges, further eroding competitiveness.
In contrast, ships registered in tax havens—which also double as flags of convenience—benefit from easier access to capital, lower borrowing costs, lenient regulatory standards, concealed ownership structures, and minimal executive or judicial oversight. This makes Indian-flagged vessels significantly less competitive in global shipping markets.
Challenges in Shipbuilding
Beyond capital constraints, India’s shipbuilding industry also struggles with: Inadequate infrastructure for constructing large vessels, High input costs, particularly on steel, A weak ancillary industry, leading to dependency on imports, Customs duties on imported machinery and spare parts, increasing production costs, and Skill gaps that limit workforce efficiency.
Additionally, funding challenges for shipowners and delays in new-build vessel deliveries deter potential buyers from investing in Indian shipyards, further weakening the domestic shipbuilding sector.
The Indian National Shipowners Association (INSA) has long advocated for measures to ease capital constraints and eliminate discriminatory tax policies. Two key recommendations—the creation of a Maritime Development Fund (MDF) and granting infrastructure status to ships—were incorporated into the Maritime India Vision 2030. Additionally, industry stakeholders have been pushing for the removal of the 5% IGST on ship capital costs and the exemption of Indian seafarers from TDS requirements.
Budget 2025: A Game-Changer for Shipping?
The 2025 Budget, presented by the Finance Minister, has the potential to be a landmark budget for the shipping industry. Most of the industry’s long-standing demands—except for tax-related relief—appear to have been addressed. In a single sweeping move, the government has announced:
A ₹25,000 crore Maritime Development Fund (MDF).
Infrastructure status for large vessels.
Facilitation of shipbuilding clusters.
A 10-year extension of the basic customs duty exemption on shipbuilding spares and equipment.
A revamped financial assistance policy for shipbuilding.
Credit incentives for shipbreaking in Indian yards.
An extension of the tonnage tax scheme to inland vessels.
This is an impressive set of announcements that could significantly boost the sector.
The Challenge: Funding and Implementation
However, the devil lies in the details. The government's contribution to the MDF will only be 49%, with the remainder expected to come from major ports. It is unclear whether the ₹25,000 crore will be mobilized in a single year or spread over multiple years. Given the high capital intensity of the shipping, shipbuilding, and port sectors, this amount may still fall short of industry needs.
The aging Indian shipping fleet requires urgent replacement, and GHG emission reduction targets will necessitate investments in green technology. The sector requires long-term financing with lower interest rates and repayment tenures of 7–10 years. Additionally, India needs new shipyards to build large vessels, while existing yards require expansion and modernization. Although ports have seen substantial capital infusion under Sagarmala, additional funds may still be necessary for modernization, dispite transitioning to a landlord model.
However, if the MDF is strategically utilized to attract external commercial borrowings (ECBs) at lower interest rates, it could help bridge the funding gap across the maritime sector. At present, though, it remains unclear whether long-term financing for the shipping industry is a key government priority.
The Budget 2025 appears to have missed a crucial opportunity to address the tax disparities that put Indian ships at a disadvantage compared to their foreign counterparts, even when operating along the Indian coast. Indian-flagged vessels are subject to a 5% IGST on their purchase price, a levy not imposed on foreign-flagged ships. Additionally, Indian shipping companies must deduct tax at source (TDS) on seafarers' salaries, whereas foreign vessels employing Indian seafarers on Indian routes face no such obligation.
To make Indian shipping truly competitive, the government must eliminate these persistent bottlenecks. Budget 2025 is a promising step forward, but it must not become another half-measure in the name of shipping reforms. The industry needs decisive action, not just incremental progress.