India has removed customs and excise duty on bunker fuels for India-flagged vessels in coastal and domestic trades in an effort to promote the carriage of containers by water rather than on its congested roads.

The tax exemption is applicable to IFO 180 CST and IFO 380 CST bunker fuels for Indian vessels transporting export-import (EXIM), empty and domestic containers between two ports in India, the government said in a statement.

"This tax incentive for transportation along the coast will go a long way in enhancing Indian tonnage as well as in promoting development of transportation hubs in India," said the government.

India-flagged vessels carrying EXIM and empty containers between two Indian ports have been exempt from paying customs and excise duty on bunkers since November 2014. This exemption has now been extended to carriers transporting domestic containers.

India is the world's third largest polluter and is looking for ways to cut its greenhouse gas emissions.