India’s Vision to Redefine Global Shipping Insurance Landscape
In a move that will have significant global ramifications in the future, India is looking to set up its own protection and indemnity (P&I) insurance entity. This will allow shipowners, especially those based out of India, the option to purchase insurance that dominant Western players are generally reluctant to provide. At a time when an inland waterways revolution is underway in India, having a domestic shipping insurance entity will work wonders for India’s logistics sector. Officials at the Ministry of Ports, Shipping and Waterways say discussions around setting up a P&I entity have already begun.
For starters, India is looking to have this P&I entity cater to coastal shipping and inland waterways. Gradually, India will expand the entity’s reach, and provide an alternative to the West’s shipping insurance ecosystem. India too, like much of the world, presently depends on the International Group of P&I Clubs for shipping insurance.
Global supply chains depend primarily on maritime shipping. To ensure smooth shipping, it is essential for vessels to be covered by insurance that is recognised around the world. This is called the protection and indemnity (P&I) insurance. Currently, 13 P&I clubs have a stranglehold over global shipping insurance. Together, they form the International Group of P&I Clubs, which is based in London, United Kingdom. Without such insurance, ships are not allowed to dock at ports.
This international group of shipping insurers was weaponised by the West to impose sanctions on Russia, and it played an especially pivotal role in imposing the G7 and European Union’s price cap on Russian crude oil. The G7 and EU declared that any ships carrying Russian oil over and above the price cap would be deprived of P&I insurance, making docking for such ships impossible (at least in theory). That the oil price cap against Russia fell flat on its face from the very outset is a separate matter altogether.
However, the episode provided an opportunity for the world, especially the Global South, to witness how the West’s monopoly over international shipping insurance could be turned into a threat to supply chains. Essentially, the West has the power to deny insurance to any ship, and thereby, control global maritime shipping.
A new, resurgent and ‘Atmanirbhar’ India does not like the sound of that. Why should a club based out of London, with a knack for obeying the orders of Western governments, decide which ships can operate on the seas? The fact that in recent times, the international group of P&I clubs has been used to impose sanctions on entities the West deems hostile to it is all the more concerning not just for India, but the collective Global South.
Therefore, true to its character of providing solutions to the developing and underdeveloped world, India has taken the mantle of challenging the West’s dominance in this area.
Such a move allows Indian ships to operate without hindrance and circumvent sanctions. Having its own system of insuring ships will allow India to not be dependent on the West for the stability of its supply chains, while also allowing Global South countries to not be beholden to the “developed world”. This is in line with India’s own push for “Atmanirbharta” and also helps its “Vishwamitra”, or ‘friend of the world’ image.
In October last year, Finance Minister Nirmala Sitharaman had said India should have a full-fledged protection and indemnity entity in order to reduce the country’s vulnerability to international sanctions and pressures. She added that such an entity would provide “greater strategic flexibility” to India’s shipping operations and provide the country “a foothold into the specialised segments of protection and indemnity (P&I) business”.
Why Does India Want to be “Atmanirbhar” in Shipping Insurance?
India has had the chance to experience first-hand how the West’s monopoly can have a debilitating impact on international shipping and even Indian vessels. In April last year, the International Group of P&I Clubs members withdrew insurance from a large chunk of tankers operated by Mumbai-based Gatik Ship Management. Gatik was briefly one of the world’s fastest-growing shipping companies. In just over a year, it came to operate a fleet of 60 vessels, mostly oil tankers. By July last year, it was left only with four tankers on the sea. The rise and fall of Gatik Ship Management provides a vivid example of what Western hegemony over the shipping insurance ecosystem can do to companies, and as a result, to a country’s strategic interests.
More than challenging the West, there is another factor behind the Modi government’s push to become self-sufficient in shipping insurance. You see, the Centre plans to facilitate India’s emergence as one of the top five shipbuilding nations in the coming decade. What that means is over the next 10 years, the size of India’s ship fleet will increase. The government’s goal would be to facilitate insurance for such ships domestically, instead of relying on the West.
In October last year, Prime Minister Narendra Modi launched maritime projects worth Rs 23,000 crore and unveiled the long-term vision document for the country’s “blue economy”. The prime minister also dedicated more than 300 Memorandums of Understanding (MoUs) worth more than Rs 7.16 lakh crore for global and national partnerships in the maritime sector. The blueprint outlines strategic initiatives aimed at enhancing port facilities, promoting sustainable practices, and facilitating international collaboration.
What does this mean? That India aims to emerge as a formidable maritime player in the coming years. The Modi government is working on a plan called Maritime India Vision 2030, which seeks to develop world-class mega ports, and trans-shipment hubs while also modernising necessary infrastructure at an estimated investment cost of Rs 1.25 trillion. In July 2023, the Union Minister for Ports, Shipping And Waterways, Sarbananda Sonowal had said the Centre has identified investment opportunities worth more than Rs 10 lakh crore in the maritime sector, which are expected to generate no less than 15 lakh new jobs.
India’s maritime sector is witnessing an upswing. Statistics speak to the same effect.
- India has moved up to 22nd rank in the global rankings on the ‘International Shipments’ category from the 44th position in 2014
- In 2015, the capacity of India’s 12 major ports stood at 871 million metric tonnes (MMT) but has now risen to 1,617 MMT
- At the same time, the total capacity of Indian ports has gone up from about 1,560 MMT in 2015 to more than 2,600 MMT
- From 2015 to 2022-23, the value of operationalisation of public-private partnership projects in major ports has risen by 150 per cent from Rs 16,000 crore to Rs. 40,000 crore
Given the pace and scale at which India’s maritime sector is being modernised and expanded, the country will soon be a big player that has the capacity to rival the biggest maritime players on the global stage. That necessitates India to have its own shipping insurance entity. The number of India-flagged shipping vessels is quite low, which is why the setting up of a P&I entity was not taken seriously by previous governments.
However, now that India’s maritime sector has been reformed with new laws and is poised for trillions of rupees in investment, it becomes crucial for the country to have a shipping insurance body of its own. Besides, it is about time a powerful nation stands up to the West’s shipping insurance “club” and provides a real alternative to the world.
Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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