ASK any aspiring seafarer whether he would prefer to work on an Indian or a foreign flagged ship, and the reply would come quicker than the blink of an eye — foreign flag.
The fact that on many foreign flagged ships, especially the new ones, there is only limited cabin space or inadequate lifeboat capacity, and that the working conditions are rigorous, does not stop them from queuing up before ships with foreign flags for job opportunities.
Even the bouquet of long-term benefits, such as gratuity, medical facilities and subsidised housing loans, offered by Indian ship owners would not make him change his mind. The reason is quite simple — the pay packet.

Indeed, were the aspiring seafarer to work as an officer aboard, say, an Indian bulk carrier, his average monthly pay packet would be $1,771 per month, while for a similar stint aboard a foreign flagged carrier he would take home, on an average, $3,500 per month.
This chasm between the wages on Indian and foreign flagships is, indeed, becoming a source of growing consternation for Indian shipping companies.

Shipping analysts fear that if this drift of Indian seafarers away from Indian flagged vessels were to continue, Indian shipping companies would face a serious problem in regard to availability of officers and crew over the next few years.

Various estimates have put the figure of Indian officers and ratings employed on foreign ships at 12,000-16,000 and 20,000-25,000 respectively.
Based on estimates put out by the Indian National Shipowners Association (INSA) for 2001-02, and assuming that about 85 per cent of their earnings are ploughed back into India in the form of forex earnings, it has been estimated that Indian officers and ratings on foreign ships earn annually about $250 million and $55 million for India respectively. As a matter of fact, recent studies have shown that there could be a global shortage of officers by 2010.

A recent study of the global supply and demand for seafarers carried out by the Baltic and International Maritime Council (BIMCO) and International Shipping Federation (ISF) has estimated the supply of officers and ratings at 4.04 lakh and 8.23 lakh, against the estimated demand of 4.20 lakh and 5.99 lakh respectively. It was also estimated that by 2010 there would be a shortage of 46,000 officers, going by the current trend. The scenario is different in India, but there is still a reason to worry. A study conducted by Tata Energy Research Institute (TERI), on behalf of INSA, has shown that in 2002 the supply of officers and ratings for Indian ships were 5,504 and 8005, against a demand of 5,253 and 5,723 respectively.

"The worrying factor for Indian ship owners here is that as there is expected to be a global shortage of officers by 2010; this would have an adverse impact on the availability of officers for operating Indian flagged vessels due to the continuing drift of personnel away from employment on Indian ships to foreign flagged ships," the report points out.
There has been a steady drop in wages offered by foreign flagged ship owners over the last few years given the increasing need to cut operating costs as a result of fierce global competition, flagging freight rates and dwindling margins.

Despite this, the drift of Indian seafarers continues due to the large gap in wages.
For example, an officer operating an Indian LPG carrier earns $1,571 per month against $3,000 per month that his counterpart operating a foreign LPG carrier takes home, while an officer on an Indian flagged crude tanker receives $2,079 per month against $3,500 per month that an officer on a foreign crude tanker earns.

The foreign flags beckon despite the workload on foreign flagged ships being higher, as they employ fewer officers and ratings compared to Indian ship owners. For example, while an Indian bulk carrier employs 15 officers, a bulk carrier flying a foreign flag has only 10 of them.
Interestingly, despite having to face the drift of Indian seafarers, an Indian ship owner has to carry the burden of a higher average wage bill as compared to his foreign counterpart.
Compiling data from various shipping companies, the TERI report has shown that the owners of an Indian bulk carrier and product tanker are stuck with an average wage bill of $45,883 and $40,857 per month respectively, while their overseas counterparts shell out $39,800 and $37,200 per month.

Higher manning norms for Indian ships, with the trade unions entering into separate pacts with the ship owners, and the fact that seafarers on Indian ships are employed on a permanent basis with long-term benefits like gratuity and medical facilities, are the key reasons why Indian ship owners have to cough up a heftier wage bill.

What, then, is the factor that differentiates the two wage bills? The tax-free status enjoyed by Indian seafarers on foreign flagged ships, unlike their Indian counterparts.
In fact, to stem the drift of qualified and experienced personnel, Sec 6 of the IT Act was amended in 1990, exempting income received by the Indian crew members serving on Indian ships outside India for 182 or more days in a year from tax.
However, this could not be achieved because of an interpretation of a relevant provision which denies the NRI status that is required for the tax exemption to about 80 per cent of the seafarers employed on Indian ships.

Moreover, as per Indian law, Indian shipping companies have to deduct tax from the salaries of the floating staff. According to the TERI report, the four major Indian shipping companies, which account for 64 per cent of the country's tonnage, deducted tax at source and paid the government Rs 639 million and Rs 511 million during 2000-01 and 2001-02 respectively.
The reasons for the reduction of TDS include fall in tonnage, difference in tax rates and change of number of seafarers falling in the NRI status.

Of course, if the Government were to exempt the Indian seafarers from payment of these taxes, it would lose Rs 798 million annually, but the result would be that Indian shipping industry would be able to retain qualified and trained officers and not have to face a shortage of personnel in the future. The choice is clear, but who will take the decision?