Prodded by the International Financial Services Centres Authority (IFSCA), the Union government has initiated consultations on the next wave of shipping sector reforms, including potential relaxations under the Merchant Shipping Act, 2025 and the Coastal Shipping Act, 2025, to grant greater freedom in flagging and licensing of vessels to entities operating out of Gujarat International Finance Tec-City (GIFT City).
IFSCA has sought exemptions from provisions of the newly enacted Merchant Shipping Act to allow GIFT City-based companies to own and register ships outside India. It has also urged the Ministry of Ports, Shipping and Waterways to scrap the requirement for such entities to obtain licences from the Directorate General of Shipping (DG Shipping) under the Coastal Shipping Act when chartering foreign-flag vessels for cross-trade and export-import (EXIM) operations.
Government officials said the DG Shipping will shortly seek stakeholder views on whether IFSCA’s proposals can be accommodated within the existing legal framework without compromising core maritime governance, safety and sovereign interests. “The idea is to build consensus on a balanced framework that strengthens India’s maritime competitiveness while safeguarding regulatory and national interests,” a senior official said.
At present, Indian entities must obtain a DG Shipping licence to charter foreign-flag vessels. IFSCA has argued that this requirement should be removed for companies domiciled in GIFT City, a deemed foreign territory offering tax and regulatory incentives to global financial and maritime businesses.
However, the proposals have triggered apprehensions within the government. Officials cautioned that allowing GIFT City entities to own and register vessels overseas could lead to similar demands from shipowners operating in the domestic tariff area, potentially undermining efforts to expand India’s shipping tonnage. “This could deplete Indian-flag capacity at a time when the government is trying to scale up the national fleet,” an official said.
The government has also indicated that GIFT City entities registering ships abroad may not be eligible for benefits under the Right of First Refusal (RoFR) policy, a cargo support mechanism that gives domestic fleet owners priority in public sector tenders. “You cannot take tax benefits overseas, register ships in foreign jurisdictions and still seek RoFR benefits meant to support Indian tonnage,” the official noted.
Under amendments made to the RoFR policy in October 2023, the highest priority is accorded to Indian-built, Indian-flagged and Indian-owned vessels, followed by Indian-built and Indian-flagged ships owned by IFSC entities. Lower priorities apply to foreign-built or foreign-flag vessels.
As a possible middle path, the government is considering extending the Indian Controlled Tonnage (ICT) scheme to IFSC entities. Introduced in 2014, the ICT scheme allows Indian shipping companies to flag vessels abroad under certain conditions while retaining effective control in India, enabling them to operate in jurisdictions with strict cabotage laws. Similar conditions could be imposed on GIFT City entities, including mandatory registration of a portion of vessels under the Indian flag and domestic management and crewing.
The debate comes in the backdrop of the Merchant Shipping Act, 2025, which replaced a more than six-decade-old law and liberalised ship registration norms to boost India’s meagre shipping capacity. The new law allows ships “substantially owned” by Indian entities, as well as those owned by NRIs, OCIs and LLPs, to be registered under the Indian flag—marking a significant shift from the earlier requirement of wholly Indian ownership.
India currently ranks 18th globally in ship owning, controlling just 1.4 per cent of global tonnage, despite accounting for about 11 per cent of global seaborne EXIM trade—a share projected to rise to 30 per cent by 2047. In FY20 alone, India paid $85 billion in sea freight, with nearly $75 billion going to foreign shipping lines. Between 2008 and 2021, outbound freight payments touched $637 billion, underscoring the cost of reliance on foreign fleets.
The Ministry of Ports, Shipping and Waterways has warned that overdependence on foreign tonnage poses risks to food and energy security during geopolitical crises, citing disruptions during the COVID-19 pandemic, the Russia-Ukraine conflict and the Red Sea crisis. Expanding India’s shipping capacity, estimated to require investments of about ₹55 lakh crore under the Maritime Amrit Kaal Vision 2047, is seen as critical to building an “Atmanirbhar” and globally competitive maritime sector.
As consultations begin, the government faces a delicate balancing act—leveraging GIFT City’s global ambitions while ensuring that policy reforms do not dilute the long-term objective of strengthening India’s national shipping fleet.
