The development came up after steel-maker ArcelorMittal said it was keen to shift one of its ships from Singapore to IFSC-GIFT City but on the condition that it is allowed to continue flying the foreign flag.
If allowed, it would be a radical shift in approach by India as it looks to become a maritime hub on the lines of Singapore, Dubai, Hong Kong, Shanghai, London, Athens, New York, Tokyo and Oslo.
ArcelorMittal, according to sources, has impressed upon the IFSCA the need to continue flying the foreign flag after switching to IFSC-GIFT City because lenders are “not comfortable with the Indian flag”.
The Gujarat International Finance Tec-City (GIFT City) is India’s first International Financial Services Centres (IFSC) under the Special Economic Zone Act.
Currently, only Indian flag ships are allowed in IFSC-GIFT City (like in the Domestic Tariff Area) because it comes under the Merchant Shipping Act, 1958. IFSCA has powers under multiple acts but not under MS Act, which mandates that Indian shipping companies have to register their ships under the Indian flag only.
“The IFSCA has submitted a representation to the DG Shipping to see what can be done about it,” said an official with the Ministry of Ports, Shipping, and Waterways.
Some Indian shipping companies have moved operations to Singapore and Dubai because in India they cannot run foreign flag ships, typically registered under flag of convenience (FOC) such as Marshall Islands, Cyprus, Panama, Liberia, among others. But by domiciling their business overseas, they can fly foreign flags that help secure bank loans easily.
“The idea is to bring back those who have left India for operational and tax reasons and also foreign shipping companies to IFSC,” the Ministry official said. IFSCA is wooing shipping companies to set up ship leasing units in the GIFT City, offering a host of tax incentives and exemptions, such as tax holiday for ten years, no capital gains during tax holiday, stamp duty exemption for five years and no capital gains on transfer of ships by a IFSC unit enjoying 100 percent tax exemption. Additional exemptions have also been granted on income generated by way of royalty or interest paid on account of leasing of ships.
