IFSCA Seeks Exemption for Foreign Vessel Licensing in Coastal Shipping
MUMBAI: The International Financial Services Centres Authority (IFSCA) is advocating for a significant change in the licensing requirements for foreign vessels under the upcoming Coastal Shipping Act. As the Central government prepares to finalize regulations for foreign vessel licensing, IFSCA officials are urging that entities operating within the tax-free International Financial Services Centre (IFSC) be exempt from obtaining permits from the Directorate General of Shipping (DGS) when leasing foreign-flagged ships. This proposal aims to streamline operations for IFSC entities that charter foreign vessels for either Indian companies or overseas clients.
The Right of First Refusal (RoFR) policy, which supports domestic fleet owners during public tenders from state-owned entities, remains a focal point of this discussion. An IFSCA official emphasized that exempting IFSC entities from licensing requirements would not undermine the RoFR policy. According to the official, IFSC-registered entities can only engage in time charters of foreign vessels and cannot take on cargo for voyage charters. This clarification aims to alleviate concerns regarding the potential impact on domestic shipping operations.
The draft rules for the Coastal Shipping (Licensing of Foreign Vessels) Rules 2026 were published in the Official Gazette on December 19, 2025. These regulations stipulate that foreign-flagged vessels cannot participate in coasting trade within Indian waters without a license from the DGS. The government has set a 30-day period for public feedback on these draft rules, which are part of the broader Coastal Shipping Act, 2025.
Challenges and Opportunities for Indian Shipping Operators
The IFSCA argues that the current licensing framework poses challenges for Indian ship operators, particularly those based overseas. Many Indian entities have relocated to jurisdictions like Dubai and Singapore due to stringent licensing requirements under the Foreign Exchange Management Act (FEMA). The IFSC aims to attract these operators back to India by offering a more favorable regulatory environment, where transactions can be conducted in U.S. dollars without the complexities of FEMA.
Currently, the Indian shipping industry is characterized by a limited number of domestic operators, particularly in the tanker segment. An official noted that only about 3-4 Indian ship owners are active in this space, resulting in a situation where approximately 90% of RoFR benefits inadvertently favor foreign-flagged vessels. The IFSCA believes that relaxing licensing requirements for IFSC entities will encourage more Indian capital and operators to engage in domestic shipping activities.
The government has expressed a desire to broaden the scope of operations within the IFSC by attracting entities involved in international business. Recent adjustments to the RoFR policy prioritize Indian-built, flagged, and owned vessels, followed by those owned by IFSC entities. This restructuring aims to enhance the competitiveness of Indian shipping while ensuring that domestic operators can effectively participate in coastal trade.
In conclusion, the IFSCA’s push for licensing exemptions reflects a broader strategy to revitalize the Indian shipping industry and encourage the return of Indian operators who have sought more favorable conditions abroad. The outcome of this initiative will depend on the government’s response to stakeholder feedback and the finalization of the Coastal Shipping Act regulations.
