As the Centre moves closer to finalising rules for licensing foreign-flag vessels under the Coastal Shipping Act, 2025, the International Financial Services Centres Authority (IFSCA) has urged the government to exempt entities operating from International Financial Services Centres (IFSCs) from the requirement of obtaining licences from the Directorate General of Shipping (DG Shipping) when leasing foreign vessels.
According to a senior official, IFSC entities should be kept outside the proposed licensing framework as they merely act as intermediaries. “When IFSC entities lease in foreign vessels, they charter them either to Indian entities in the Domestic Tariff Area (DTA)—which will in any case have to obtain permission from DG Shipping or comply with the Right of First Refusal (RoFR)—or to overseas entities where RoFR does not apply because it is not Indian business,” the official said.
The government had, on December 19, 2025, notified draft rules titled Coastal Shipping (Licensing of Foreign Vessels) Rules, 2026, inviting public comments within 30 days. Under the Coastal Shipping Act, foreign-flag vessels are prohibited from engaging in coasting trade in Indian waters without a licence from DG Shipping. The law also extends licensing requirements to foreign vessels chartered by Indian citizens, companies or entities for voyages touching Indian ports or operating abroad.
IFSCA maintains that exempting IFSC entities from licensing would be crucial in attracting Indian ship operators currently domiciled overseas back to India. It has sought to allay concerns that such an exemption could dilute the RoFR policy, which is aimed at protecting domestic shipowners during public tenders by state-owned entities.
“RoFR will not be affected at all,” the official said, explaining that IFSC-registered entities are permitted only to own or time-charter foreign-flag vessels. They cannot directly undertake voyage charters unless they already own or have time-chartered tonnage. “An IFSC entity cannot simply set up shop and start doing voyage charters. It needs to have an asset first,” the official added.
Under the IFSC framework, entities are allowed to lease in foreign ships through ownership, financial charters or time charters, which can then be deployed on voyage charters to DTA entities. However, IFSC entities themselves cannot act as end users or traders buying and selling cargo.
IFSCA has also highlighted the limited availability of Indian domestic tonnage, particularly in segments such as tankers. “With only three to four Indian shipowners operating in the tanker segment, nearly 90 per cent of RoFR benefits end up going to foreign-flag ships by default, and only about 10 per cent to Indian-flag vessels,” the official said.
The authority further argued that foreign and Indian operators are reluctant to operate from the Domestic Tariff Area due to the complexities of the Foreign Exchange Management Act (FEMA). In contrast, IFSCs such as GIFT City offer a dollar-denominated, FEMA-free environment, making them far more attractive. “Entities are comfortable coming to IFSC because everything is in dollars, currency risk is manageable, and FEMA doesn’t apply,” the official noted.
However, government and industry sources indicate that DG Shipping’s intent behind the draft rules is to curb the use of GIFT City solely as a conduit to access lucrative coastal and government cargo contracts. “These contracts are priced 20–30 per cent above the market, making them highly attractive,” an industry source said.
The government’s broader objective, according to officials, is to expand GIFT City’s appeal beyond coastal and government cargo to include international shipping business. This thinking also underpinned the 2023 rejig of the RoFR policy, which introduced a graded priority system favouring Indian-built, Indian-flagged and Indian-owned vessels, followed by Indian IFSC-owned ships, and then foreign-built or foreign-flagged vessels.
India’s shipping ecosystem includes a large number of Indian-origin operators and Indian capital based overseas that do not own ships but operate through time and voyage charters. These include BainBridge Navigation, Panbulk Shipping, Auxin Shipping, YB Global Shipping, Tata NYK Shipping, Team Bulk Carriers, Avenir Maritime, Norvic Shipping and Aequo Shipping, among others. Their business model relies on market expertise and operational efficiencies—often saving $30,000–40,000 per voyage—rather than asset ownership.
Industry players argue that stringent licensing requirements under the new law, including the criminalisation of chartering foreign vessels without a DG Shipping licence, discourage such operators from basing themselves in India. Even international voyages between foreign ports would require licences if the operator is India-based.
IFSCA has clarified that it is not seeking changes for DTA-based entities or the RoFR policy. “Our focus is on operators sitting in Dubai or Singapore. We want them to operate from India,” the official said. Under the current framework, operators say they face licensing hurdles when their clients are overseas, even if the vessels are the same.
The authority has proposed a middle ground, suggesting that DG Shipping retain overriding control by determining which foreign flags are permitted. “DG Shipping can always blacklist certain flags without assigning reasons. For example, vessels flagged in Pakistan can be barred from IFSC operations,” the official said.
“Hundreds of ships are chartered annually by Indian-origin operators overseas, generating immense economic value. To bring them back, India needs a FEMA-free zone—and IFSC is the only answer,” the official added.
