the Maritime Amrit Kaal Vision 2047 unveiled by Prime Minister Narendra Modi at the Global Maritime India Summit in October recommending continuation of the financial assistance for as much as ten years.
“This policy may be further extended for a period of 5-10 years at a rate of financial assistance in the range of 15-20 percent to attract more shipbuilding contracts and boost the overall ecosystem,” the Amrit Kaal Vision document suggested.
The financial assistance to shipbuilders, both state-owned and private, is valid for a ten-year period beginning 1 April 2016, scaling down the quantum of aid by three percentage points every three years, starting with 20 percent during the first three years, 17 percent for the next three years, 14 percent for the next three years and 11 percent in the tenth year.
The aid was capped at Rs40 crore for building a standard (non-specialised) ship within three years from the date of contract, according to the norms framed by the Ministry of Ports, Shipping, and Waterways to implement the shipbuilding financial assistance scheme.
The government had budgeted Rs4,000 crore for the ten-year scheme which was designed to promote the government’s ‘Make in India’ programme, encourage the local shipbuilding industry by providing a level playing field vis-a-vis foreign shipyards and help India raise its stature as a ship building nation.
But local shipyards have not been able to take advantage of the scheme mainly because some big shipbuilders such as Pipavav Shipyard, ABG Shipyard and Bharati Shipyard collapsed under a huge pile of debt and had to be sold or liquidated under India’s bankruptcy law.
This resulted in only a little over Rs241 crores or a paltry 6 percent of the total corpus being used up so far, with less than three years left for the scheme to end.
“The current incentives seem to have had a limited impact on attracting tonnage to the Indian flag,” the vision document observed, noting further that the COVID-19 pandemic disrupted almost every area of the shipping industry with yard closures, logistical challenges and other delays.
India currently has less than 1 percent share of the global shipbuilding market, which is dominated by China, South Korea and Japan.
Top shipbuilding nations such as China, South Korea, Japan, Brazil, Vietnam, Russia and Turkey have pursued a mix of fiscal and non-fiscal incentives for decades to develop and grow the shipbuilding industry, not only in the initial years but also after the industry matured.
Indian shipyards face stiff competition in the domestic market in the absence of “protection” against foreign shipyards through tariff barriers. As a result, Indian shipyards are outbid by foreign shipyards in the domestic and global markets with the cost disadvantage pegged as high as 35 percent.
India has the lowest labour costs – a key factor deciding a nation’s competitive position in the labour-intensive shipbuilding industry. The labour cost per worker in India is estimated at $1,192 per year compared to $10,743 and $21,317 per worker in South Korea and Singapore, respectively.
However, this advantage has not translated into cost effectiveness because of factors such as reliance on import of key raw materials used in making ships and higher financing costs. India’s dependence on imports for most of the inputs consumed in shipbuilding puts cost pressure on local shipbuilding firms.
Whereas China being one of the cheapest steel makers in the world helps its yards to reduce costs and lower shipbuilding prices in the global market.
The cost differential is being offset through the state aid.
The Shipyards Association of India (SAI), a lobby group for private shipbuilders, said that extending the aid beyond 2026 was necessary to raise India’s share in the global shipbuilding market, an industry where price plays a major role in winning contracts.
“As Indian yards suffer from systematic cost and price disadvantage of around 25-35 percent compared to South Korea, Japan, Vietnam, Indonesia, Malaysia and Philippines, among other nations, it is considered inescapable to extend the shipbuilding financial assistance policy beyond 2026 with a rate of subsidy in the fixed range of 20-25 percent instead of the existing 20 percent reducing rate (which reduces by 3 percent every three years) for 10-15 years,” said Sanjiv Walia, Advisor, Shipyards Association of India. The extended scheme should also cover hybrid and green ships, he added.
The Association said that yards could not fully reap the benefits of the financial assistance scheme due to pandemic-induced disruptions that lasted for more than two years.
“With the time loss compounded with lack of orders, the utilisation of the subsidy funds as envisaged has been too low,” Walia acknowledged.
As the shipbuilding activities gradually picked up after the pandemic, orders are being booked by all the shipyards and benefits of the subsidy were being claimed. With the ongoing surge in demand for ships, more orders are likely to be booked by domestic and global customers and the delivery of such vessels are likely to spill over to beyond 2026 on receipt of confirmed orders, SAI said while arguing the need for extending the financial assistance scheme, which it said benefitted shipbuilders, particularly the micro, small and medium shipyards.
Shipbuilders have also urged the government to ease the eligibility criteria for securing the state-aid. This includes reducing the length of the ships that are eligible for the financial assistance to 20 metres from 24 metres. There have been cases where ships of 23.9 metre length have not been considered for subsidy because the scheme restricts the eligibility to not less than 24 metres.
“This relaxation in length of the ship from 24 to 20 meters will encompass many more vessels and benefit the industry in the long run,” Walia said.
The Association has also suggested enlarging the list of specialised vessels eligible for the aid to include floating dry dock (FDD) beyond 135 meters in length and 35 metres in width, offshore support vessels and hybrid powered vessels, with longer/revised time limits for construction instead of the three years stipulated by the current policy due to the complexities involved.
Shipbuilders have further sought a higher subsidy limit for building specialised vessels to Rs80 crores from Rs40 crores given the high cost of building such ships. The Customs duty exemption for imports made by shipyards for use in the construction and repair of vessels should also be restored for at least 15 years to help Indian yards sustain and compete globally. The Customs duty exemption is currently valid till 31 March 2025 for shipbuilding and till 31 March 2024 for ship repairs. The duty withdrawal will adversely impact shipbuilding as well as ship repair costs, Walia added.
