Exclusive: Suez Crisis: India mulls subsidies for exporters facing higher shipping costs, says source

Around 12 percent of global trade passes though the Red Sea route.

Given the recent spate of attacks on cargo ships in the Red Sea, India is mulling a variety of measures, including subsidisations for Indian exporters to offset higher shipping costs and insurance premiums, a government official told Moneycontrol. New Delhi is also in touch with the US-led multi-nation coalition to ensure the safe passage of commercial vessels in the Red Sea.

“Indian exports are getting impacted, and there are concerns that agricultural commodities may see a fall in exports, because it goes to Europe through the Red Sea route. The government is mulling measures, either via the US-led coalition, or by subsidising Indian exporters so that the cost does not go up for them,” the official added.

Commerce ministry did not respond to a mail seeking comments on the above.

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Limiting the impact on agricultural exports is crucial for India as it directly affects farm income. India's agricultural exports to Europe stood at $2.28 billion in April-November 2023, mostly comprising fruits, vegetables, coffee, and rice, according to data from commerce ministry's NIRYAT portal.

Following the Israel-Hamas war in October, the Red Sea, a route through which around 12 percent of global trade passes, has been in the news for periodic attacks on commercial vessels by the Houthi rebels of Yemen, sparking concerns over its impact on global maritime commerce.

India's exports to Europe through the Suez Canal (in the Red Sea) includes food products, apparel, and electronics, among others, and its imports include crude oil. In FY2023, India’s overall merchandise trade (exports and imports ) with Europe and North Africa were worth $106 billion and $98 billion, respectively. Approximately 50 percent of these imports and 60 percent of exports, totalling $113 billion, may have been through the Suez Canal, Moneycontrol reported on December 27, quoting Ajay Srivastava, founder of the think-tank GTRI.

Srivastava further said that India's shipments, like low-end engineering products, steel, and commodities such as rice and garments, stand to be affected by the crisis unfolding in the Suez Canal.

The government official cited above added that India’s commerce ministry has been in touch with exporters, who have raised concerns about rising shipping costs. Their concerns have been communicated to the finance ministry as well.

Indian exporters are worried over a rise in shipping costs as attacks on commercial vessels taking the Red Sea route continue, forcing freight companies to opt for the longer route around Africa to reach the west or wait at nearby ports to ensure safe passage though the Suez Canal.

The latest attack came on December 31, when Houthi militants attacked a Maersk container vessel with missiles and small boats, prompting the company to pause sailing through the Red Sea for 48 hours.

The attacks, which targeted commercial ships sailing through the Suez, started with a drone attack on December 15 on the Liberia-flagged MSC Palatium III in the Bab al-Mandab strait, off Yemen, at the southern end of the Red Sea. Following repeated attacks, some global shipping companies last month said that they would be re-routing some of their services through the Cape of Good Hope. The trading route, which passes through the southern coastline of Africa, will delay shipments by 19-30 days.