India plans to establish a new shipping company to expand its fleet by at least 1,000 ships over the next decade, aiming to capture a larger share of revenue from increasing trade, according to two government officials.

India is investing billions of dollars to upgrade its infrastructure in its quest to become a world-class manufacturer. Prime Minister Narendra Modi, who secured a third term this week, aims for India to achieve developed nation status by 2047.

The yet-to-be-named company will be jointly owned by state-run firms in the oil, gas, and fertiliser sectors, which will provide it with business. It will also involve the state-run Shipping Corporation of India and foreign companies.

The central oil and shipping ministries did not respond to requests for comment.

The aim is to reduce freight payments to foreign firms by at least a third by 2047, according to sources who requested anonymity as they were not authorised to speak to the media.

"Current estimates show freight costs will rise to $400 billion as we boost our exports and imports by 2047," said one of the sources, who has direct knowledge of the matter.

Indian companies paid $85 billion in freight costs during the financial year 2019/20, with $75 billion of that amount going to foreign vessels, the source added. This reliance on foreign carriers arises because India's shipping fleet has not kept up with its surge in trade, including energy imports and refined oil product exports.

According to the sources, India has a fleet of approximately 1,500 large vessels, including tankers, gas carriers, container ships, and dry bulk carriers.

In January, the oil and shipping ministries agreed that all state-run oil companies and the proposed new shipping company collaborate. This was outlined in a government document reviewed by Reuters.

They would draw on the expertise of the Shipping Corporation of India in "tanker acquisition and ownership, operations and other areas of shipping", it added.

On May 16, the two ministries established a joint working group comprising government and industry officials to develop a roadmap, as indicated by the document.

The new company will be headquartered at GIFT IFSC, a financial centre in PM Modi's home state of Gujarat in western India. GIFT IFSC aims to rival hubs like Singapore by providing fiscal incentives and a more efficient regulatory framework.

According to the first source, it would initially receive seed capital from a maritime development fund of around Rs 30,000 crore ($3.6 billion), which the government intends to establish in collaboration with major port authorities. To secure low-cost, long-term loans for financing shipbuilding, the two ministries aim for state-run companies to enter into 15-year charter deals with the new company.

This marks a departure from the current practice of booking individual voyages or entering into one- or two-year charter agreements.

"In return the state-run companies can also become stakeholders in the new ship-owning and leasing entity," the source added.

"The plan is to consolidate the government-side cargo demand from other ministries, mainly the energy and fertiliser cargoes."

Image source: Bloomberg