New Delhi, June 1: A host of fiscal incentives like tax-free maritime bonds, maritime development fund, liberal depreciation rates and KS bonds will form the key features of the Ninth Plan strategy to invite larger private sector participation in the Indian shipping industry.

The sub-group on shipping finance for the Ninth Plan, headed by former SCICI vice-chairman and managing director, S C Singhal, has also recommended liberal external commercial borrowings provisions for meeting the foreign exchange requirement of the shipping industry.

The total fund requirement of the shipping sector for the Ninth Plan period has been pegged at $ 4.12 billion (approximately Rs 15,000 crore).

To bring about larger participation by the private entrepreneurs, the sub-group recommended introduction of the tax-free maritime bonds. It argued that the cost of traditional sources of funds was comparatively high and hence alternative sources of funds should be tapped as had been the case with railways. The funds raised through the tax-free maritime bonds could be utilised by the borrower shipping company.

The sub-group has also favoured introduction of the KS bonds to encourage investment in ship acquisition. Several European countries have introduced such a scheme which was essential a limited partnership arrangement through which individuals or corporates invest in the acquisition of ships.

The system is primarily operated by the established ship which invite subscriptions to partnership options on individual ships. It was pointed out that the KS bonds scheme could be targeted ,"at corporates and high networth individuals and can be structured as a pure debt instruments. The marketing of such bonds can be done either directly or through financial institutions."

Referring to easing of the ECB norms for the shipping industry, the sub-group was of the view that the limits should apply to specific ships and not to the company as a whole. It was stressed that the shipping industry was a substantial earner of foreign exchange with gross earnings/savings of around Rs 4,200 crore, contributing net forex earnings of Rs 2,600 crore a year. Also the industry has significant potential to contribute or save more forex with expansion of the fleet.

The sub-group further suggested that the shipping sector be declared a priority sector and the projects involving the acquisition of ships be placed on par with infrastructure project.Another important suggestion was the establishment of the maritime development fund.

The sub-group wanted that the fund be dedicated to the needs of the private sector shipping industry. The fund may also be used for meeting debt and equity requirement of the industry. The investor's to this fund could comprise major ports, Dredging Corporation of India, Seamen Welfare Fund, Seamen Provident Fund and other agencies operating under the Ministry of Surface Transport.

It also wanted the government to explore the possibility of setting up an offshore "development (debt and equity)" fund for investment in the Indian shipping industry. Referring to the depreciation norms, the sub-group suggested that the rates should be increased to 40 per cent. It argued that ships operate for 24 hours in a day and are subject to substantial wear and tear even when not in use.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.