The right of first refusal is a contractual right, but not obligation, to enter into a business transaction with a person or company before anyone else can. If the entity with the right of first refusal declines to enter into a transaction, the owner of the asset who offered the right is free to open the bidding up to other interested parties.
A proposed move by the Centre to abolish the ROFR clause for transportation of Indian cargo by Indian-flagged vessels, the only benefit available to Indian shipping companies is threatening the existence of the domestic shipping industry.
If the clause is scrapped, it could hurt the Indian shipping industry. Indian shipping companies have a combined fleet of 1,372 ships with a total capacity of 12.35 million Gross Tonnage (GT).
The move may also prompt Indian Shipping firms to deregister their vessels from India and flag them in tax havens of Panama and Bahama to survive and compete with foreign lines.
Currently, 92% of India’s export-import trade is carried by foreign flagships. And the 8% that is assured to Indian ships is likely to go if the ROFR is scrapped.
The right of first refusal is the only incentive to the Indian flag, which suffers from many disadvantages versus foreign flags.
De-registering of vessels from the Indian flag will be a strategic blow to Indian security as merchant naval fleet always acts as a second line of defense for coastal security.