Ease of Doing Business in Maritime Sector

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1 International Conference Role of Maritime Industry in Make in India Ease of Doing Business in Maritime Sector Knowledge Paper January 2016

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3 Contents Foreword... 3 Introduction... 4 Issues and Recommendations... 6 Summing Up Ease of Doing Business in Maritime Sector P a g e 2 13

4 Ease of Doing Business in Maritime Sector Foreword Indian economy has experienced fast-paced growth over the last decade. Foreign Direct Investment (FDI) has increased sharply in the recent years, the manufacturing output is also increasing. To sustain this growth in investments and manufacturing, Ease of Doing Business in India has an important role to play. The Make in India program is aimed at making India a global hub for Production, Design and Innovation. Improving the ease of doing business in the country is expected to be one of the key initiatives that will create apt investment environment for the success of Make in India. As over 95% of the country s trade in terms of volume is sea borne, Maritime sector plays an important role in the economy. Ease in business procedures of the maritime sector is crucial for the competitiveness of the sector and the performance of the economy. Keeping this in view, Bombay Chamber of Commerce and Industry Trust for Economic & Management Studies (BCTEMS) in association with Deloitte is bringing out this Knowledge Paper presenting factors affecting Ease of Doing Business in Maritime Sector. P a g e 3 13

5 Introduction India today is seen as one of the most attractive investment destination in the world. It is one of the fastest growing economies and among top emerging markets. The global growth is dependent on Asia where Indian economy is playing an increasingly important role. Government of India (GoI) has been taking several initiatives to make the business environment more investor friendly. Some of the landmark steps undertaken by the government for improving Ease of Doing Business in India includes: Land Acquisition Legislation, Foreign Direct Investment (FDI) Relaxation, Goods & Services Tax (GST) etc. In addition to these initiatives, GoI has also initiated Make in India program which is aimed at promoting Design & Innovation and making India a global manufacturing hub. Ease of doing business would act as an essential element for achieving the objectives of the Make in India program. India s Gross Domestic Product (GDP) grew at 7.3% in along with Index of Industrial Production (general index) increasing by 9.8% (October 2015) over the last year 2. These key development indicators of the country reflect that India has the required capacity and infrastructure to support growing production, imports and exports. Further, the FDI inflow in India has shown an increasing trend over the previous years. The total FDI inflow increased by 24.5% from FY14 to FY15 3. According to the World Investment Report-2015 by United Nations Conference on Trade and Development (UNCTAD), India acquired 9 th spot in terms of highest FDI in 2014 as compared to 15 th spot the previous year. India has been considered amongst the top five prospective investment destination indicating the attractiveness of the country as an investment destination. Initiatives for improving ease of doing business in the country will create investor friendly climate, which will improve the investor confidence and subsequently would attract more investments. The Make in India program by the government will increase focus on manufacturing and consequently the exports and imports are expected to surge. To sustain this growth, Ease in Doing Business will have an important role to play. Ease of Doing Business in Maritime Sector 1 Source: World Bank, World Development Index 2 Source: Industrial Performance, India in Business, Investment and Technology Promotion Division, Ministry of External Affairs 3 Source: Department of Industrial Policy and Promotion P a g e 4 13

6 In World Bank s report Doing Business 2016: Measuring Regulatory Quality and Efficiency, India was ranked 130/189 countries, lowest amongst the BRICS (Brazil, Russia, India, China, South Africa) member countries. In the areas of enforcing contracts and dealing with permits, India has been ranked amongst the last 20 nations during With this view, appropriate steps needs to be undertaken to identify and resolve the hindrances in different areas of business processes. As over 95% of the country s trade in terms of volume is sea borne, Maritime sector plays an important role in the economy. Ease in business procedures of the maritime sector is crucial for the competitiveness of the sector and the performance of the economy. Delays and congestions are common observations at ports, there are delays in cargo clearance at various stages and document submissions are complicated with involvement of multiple agencies. In order to improve the maritime business scenario, Global best practices have significant insights to offer. Experiences from leading countries such as Singapore, South Korea, Japan and China etc. indicates that some of crucial aspects resulting in Ease of Doing Business in maritime sector includes: 1. Simplifying the procedures and minimizing necessary statutory approvals/clearances/licenses. 2. Adopting integrated and holistic Information & Communication Technology (ICT) enabled systems. 3. Developing coordination across regulatory authorities to minimize regulatory interfaces for investors. In line with the above, GoI has taken several steps to enhance ease of doing business in the Indian maritime sector such as the simplification of Merchant Shipping Act, simplification of procedures and processes by Director General of Foreign Trade (DGFT), reduction in mandatory imports-exports paper work, simplification of shipping license procedures etc. In the subsequent section, we will be taking up these initiatives undertaken by the government and suggest way forward for improving the ease of doing business in the maritime sector. Ease of Doing Business in Maritime Sector P a g e 5 13

7 Issues and Recommendations Indian maritime sector has lagged behind the international standards on various parameters such as adoption of new technologies, paperless transactions and electronic platforms, complexity in clearance procedures, coordination between various departments and agencies etc. With reference to this paper, these issues encompassing the ease of doing business in maritime sector have been segregated in three key segments: Information and Communication Technology (ICT) Infrastructure, Policy & Regulatory and Administrative & Operational Issues. 1. Information and Communication Technology Infrastructure Timely and accurate information is a necessity of stakeholders for making informed decisions. ICT solutions are capable of processing and sharing information with stakeholders in a fast and reliable manner. At present, most of the ICT solutions function in isolation due to lack of a common platform for information exchange and limited functional support. In lieu of this, we have elaborated on ICT related issues for the maritime sector and their possible solutions as follows: Penetration of Electronic Data Interchange (EDI): EDI is a fast and paperless means of information transfer between various agencies and stakeholders. The penetration of EDI at ports or custom points has been around 37% (126 out of 344 locations) 4, information at rest of the locations is managed and shared manually, which take much more time and is prone to errors. Extension of EDI to more ports or custom points can improve the customer experience by improving the speed and reliability of operations. Ease of Doing Business in Maritime Sector 1 Source: Committee to recommend measures for improving Ease of Doing Business in Trading across Borders, DGFT, December 2014 P a g e 6 13

8 Breakdowns in EDI Applications: Breakdowns have been observed in EDI applications such as Indian Customs Electronic Commerce/Electronic Data Interchange Gateway (ICEGATE) which creates hindrances for the users thereby making the services unreliable. Details from the DGFT indicates that the ICEGATE of the customs have broken down up to 18 times during and 14 times in ; the extent of which have sometimes been up to 4 hours 5.The breakdowns in EDI applications should be analyzed and the cause of breakdowns should be appropriately identified and fixed. In this view, better hardware and network infrastructure can help make the online services more reliable by reducing the number of breakdowns. Integration of EDI Applications: There are several EDI applications implemented by various stakeholders such as Indian Customs EDI System (ICES) by customs, DGFT EDI by DGFT, Port Community System (PCS) and Special Economic Zone (SEZ) Online which have not been integrated. Integrating these systems would improve the information sharing between agencies and reduce duplicity of documents. Port Community System (PCS): PCS has been operational at all major ports and 5 minor ports. Expanding the coverage of PCS to all ports would enhance the service delivery to users and improve the ease of doing business. Furthermore, including coastal shipping in PCS would improve the ease of doing business in coastal shipping. A separate module for coastal shipping would help collect data for its study and development. PCS is an ambitious program and its success depends on the collaboration and contribution of stakeholders. Therefore, stakeholder capacity should be developed along with implementation of PCS; to make it a successful single window system. Usage of Digital Signatures: The Customs Department do not accept Portable Document Format (PDF) images and widespread use of digital signatures has not been implemented. Manual signing of documents is required, which leads to duplication of paper, delays and hindrances in document submission. The customs EDI can be enabled to accept PDF images of documents and digital signatures to enable faster and easy document submission. Physical documents can be randomly checked as a Risk Management measure. Acceptance of Digital signatures and PDF images by agencies and departments should be encouraged. 5 Source: Performance of Import and Export Trade Facilitation through Customs Ports, Report of the Comptroller and Auditor General of India for the year ended March 2014 Ease of Doing Business in Maritime Sector P a g e 7 13

9 Ease of Doing Business in Maritime Sector Issuance of No-Objection Certificates: Currently the No Objection Certificates (NOC) is issued by the concerned department after physical document submission, verification and cargo sample testing (if required) post cargo arrival at the port. The concerned department should accept required documents online from the importer/exporter prior to cargo arrival at the port to minimize the time spent on clearances and approvals. Based on these documents, the concerned agency can assign a status to the cargo and communicate the same through EDI, indicating whether testing is required or not. As soon as the consignment arrives at the port, customs can either clear the shipment or collect the sample for testing based on the status of the NOC application. These processes would substantially reduce the time consumed on approvals and clearances subsequent to cargo arrival on the port. 2. Policy and Regulatory Issues Policy and Regulations have a direct impact on business processes/procedures and ease of doing business. Simplification of complex policies and regulations, better information disbursal and vigilance by regulatory bodies can enhance the ease of doing business. Some of the key issues and possible solutions under this head are classified as follows: High Exchange Rates and Unwarranted Charges: Over the past, there have been instances when importers and exporters have been charged with higher exchange rates and other unwarranted charges. In lieu of this, the competent authority can set guidelines on various charges included in the freight bill, thereby separating the legitimate charges from the rest. It can be made mandatory to add all charges at the time of loading the cargo at the point of origin. Further, the exchange rates declared by the RBI or customs should be used for calculation of freight charges. Complex Procedures of Export Promotion Council: Export promotion council procedures are complex and include lot of paperwork resulting in substantial delays. Further, the waiting time to get duty free import authorization under these schemes is also high. With these constraints, it is important to have a more transparent and easy to administer export promotion schemes. Rationalization of scheme would simplify the procedures involved and subsequently reduce the transaction cost. P a g e 8 13

10 Single Information Source: The Indian Trade Certification Harmonized System (ITC-HS) manual by the DGFT contains information regarding licensing requirements but has incomplete coverage regarding requirements from ministries and customs including NOC permits, standards related requirements, and drawing of samples for exports/imports. All details regarding export import requirements from corresponding agency and procedural details should be compiled at one spot in a systematic manner by DGFT, creating a single information source. Inadequate availability of skilled manpower in coastal shipping: Trained man power shortage for coastal issue is one major challenge which industry has been facing from long time. Human resource development for coastal shipping needs to be taken up and at the same time benefits extended to international seafarers should be given to workforce working on coastal routes. Cabotage Law: Relaxation in Cabotage law can bring competitiveness in coastal shipping resulting in improved cost and quality of service delivery. But the industry largely believes that Indian players don t have a level playing field and therefore current situation of Indian shipping industry cannot be overlooked. Efforts are required to provide Indian players a level playing field as other foreign players. Therefore, relaxation in the law should be phased and well planned to maintain the interest of Indian players amongst various stakeholders. 3. Administrative and Operational Issues Administrative bodies play a key role in maintaining the operational efficiency and effectiveness of any organization. Better coordination amongst different departments and agencies, better resource management and fast adoption of relevant technology are some crucial aspects of improving the ease of doing business. Some of the key administrative and operational issues and possible solutions are as follows: Ease of Doing Business in Maritime Sector P a g e 9 13

11 Ease of Doing Business in Maritime Sector Coordination among Departments & Agencies: One of the key issues faced by EXIM players is the complexity in the laws and the lack of coordination between government departments/agencies following policy pronouncements. Coordination between agencies is important to build and enhance ease of doing business. A coordination plan should be devised at the policy formulation stage itself. Every policy pronouncement should be accompanied by a coordination plan identifying the key stakeholders and establishing coordination amongst these stakeholders on the procedural changes expected to come in force subsequent to the rollout. Slow Testing and Certification: There is delay in sample testing and certification of cargo by government agencies (such as Port Health Organization (PHO) etc.) due to lack of support infrastructure and manpower. The samples are tested at local labs or sent to nearby labs in case the facility is not present locally. Greater efforts are required to develop or identify local testing facilities. More investment in infrastructure and manpower would enhance the speed of testing and clearance of cargo. Factory Cargo Examination Procedures: Procedures for examination of cargo in factory or warehouse are not streamlined, which cause obstructions and delay the cargo clearance procedures. The permission for the same from Commissioner of customs takes about 2 weeks 6 to process. Furthermore, majority of the cargo has to wait up to a day, before the examination usually commences. This procedure should be made more effective by setting shorter time limits for approvals and deployment of more manpower for faster cargo clearance. Facility for online approval of factory examination permission would expedite this process. Limited Facility for 24x7 Clearance: Round the clock cargo clearance facility for only certain types of cargo has been commenced at four sea ports 7 (Chennai, JNPT, Kolkata and Kandla). This facility should be extended to other ports and custom locations and for all types of cargo for faster clearance. Logistical reasons such as non-availability of adequate manpower and infrastructure from customs and other agencies limit the capacity for cargo clearance. Deployment of adequate manpower at these locations can expedite cargo clearance and enhance the ease of doing business in the maritime sector. 6 Source: Trade Facilitation Gap Analysis for Border Clearance Procedures in India, A study by Centre for WTO Studies, IIFT and Ace Global Private Limited, New Delhi, March Source: Committee to recommend measures for improving Ease of Doing Business in Trading across Borders, DGFT, December 2014 P a g e 10 13

12 Ease of Doing Business in Maritime Sector XX Summing Up With a booming economy and increasing production, India has improved its prospects as an investment destination. The business environment in India is transforming and Ease of Doing Business holds critical importance with respect to India s growth in future. Adoption of better technology and a holistic approach towards automation, simplification of policies & regulations and improved coordination between departments and agencies would substantially enhance the ease of doing business in the maritime sector. Further, identification and resolution of roadblocks in trade facilitation through Maritime route would be the key to improve the business environment for the sector. P a g e 11 13

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