Taking cognizance of the strategic importance of shipyards, they have been granted infrastructure status, enabling access to flexible long-term project loans, lower interest rates from Infrastructure Funds, relaxed External Commercial Borrowings (ECB) norms, and infrastructure bond issuance for working capital needs.
The Pradhan Mantri Matsya Sampada Yojana (PMMSY) also has provisions in the form of the Standard Operating Procedures for Chartering of Tugs and Procurement of Deep-Sea Fishing Vessels which aim to promote small and medium shipyards.
To realize the vision of ‘atma nirbhar’ or self-reliance and to promote tonnage under Indian flag and ship-building in India, the government revised the criteria for granting the Right of First Refusal (ROFR) in chartering vessels, as part of which, preference is now given to vessels that are Indian-built, Indian-flagged, and Indian-owned.
Moreover, The Public Procurement policy, as revised in 2020, dissuades government Ministries or departments against issuing global tender enquiries for public procurement of goods and services below the value of INR 200 crores, which supports domestic shipyards.
One of the major factors behind soaring costs in Indian shipbuilding is the taxes and duties levied on input material used in shipbuilding, and therefore, to bring down the cost disparity faced by Indian shipyards and encourage the growth of indigenous shipbuilding, the Indian government has exempted customs and central excise duties on material used in shipbuilding.
However, despite these proactive measures from the government, there has not been much progress in the output from the Indian shipbuilding in terms of tonnage, as pointed out by the author earlier.
For example, out of the INR 4000 Cr corpus allocated for the Shipbuilding Financial Assistance Package introduced in 2015, a mere INR 241 crore had been reportedly approved for very few shipyards as of March 2023.
One of the main reasons behind this lack of progress is said to be the coinciding of the implementation of these schemes with the three major private shipyards going bankrupt, namely the ABG Shipyard Ltd. (ABGS) (120 thousand DWT), Bharti Defence & Infrastructure Ltd. (BDIL) (70 thousand DWT), Reliance Naval and Engineering Ltd. (400 thousand DWT).
For instance, the Annual Report of the Ministry of Ports, Shipping & Waterways for 2022-2023 stated that “the lack of infrastructure in the country due to the collapse of private shipyards, resulted in the erosion of capacity and no proper financing system became a big deterrent to attract the attention of the leading ship owners and market players”.
Nevertheless, the Modi government remains persistent in its effort to bolster India’s domestic capabilities in shipbuilding, as part of which, it is forming maritime clusters to bring together all stakeholders in the sector, and developing shipbuilding and repair centers in several places.
Furthermore, the Indian government is reportedly planning to set up a new shipping company to increase the size of country’s shipping fleet by at least 1,000 ships in the next ten years, which would also contribute to the domestic demand for new vessels.
Earlier this month, Reuters published a report citing unnamed Indian government officials as saying that the aim of Prime Minister Narendra Modi’s administration is to reduce freight outgoings to foreign companies by at least a third by 2047.
“Current estimates show freight costs will rise to $400 billion as we boost our exports and imports by 2047,” an anonymous source with the direct knowledge of the matter reportedly told Reuters.
The firm, whose name is yet to be known, is reportedly going to be jointly owned by state-run enterprises in the oil, gas and fertiliser sectors, together with the state-run Shipping Corp of India (SCI) and foreign companies, per an Indian government document claimed to have been seen by Reuters.
According to the aforesaid government document, India’s oil and shipping ministries agreed in January that all state-run oil companies and the planned company will work together, and they would rely on the expertise of the SCI in “tanker acquisition and ownership, operations and other areas of shipping”.
The new shipping company will reportedly be based at GIFT IFSC, a financial centre in the state of Gujrat and it would draw seed capital from a maritime development fund of approximately 300 billion rupees (US$ 3.6 billion), which is planned to be set up by the Indian government in a tie-up with major port authorities, per the Reuter’s source.
Most importantly, for acquisition of indigenously built ships by this new shipping company, the two ministries want state-run companies to sign 15-year charter deals with the new firm, so as to secure low-cost, long-term loans for financing ship-building.
This would mark a shift from the current practice of booking specific voyages or one- or two-year charters. “In return the state-run companies can also become stakeholders in the new ship owning and leasing entity,” the Reuter’s source added.
Shipbuilding: A Great Boost To Indian Economy
Expansion of shipbuilding holds immense potential for India’s overall industrial growth due to its corollary effects on ancillary industries like steel, aluminum, electrical machinery and equipment etc., which support the building of ships.
The process of shipbuilding begins with fabrication of the ship’s hull in a dry dock or a launch way and integrating various equipment and systems with that hull in outfitting basins. This requires around 300-400 types of raw materials and electronics, engineering and electrical equipment, which constitutes around 60-70 per cent of the total cost of the vessel.
Now, the shipbuilder has to acquire these raw materials and equipment from various industries, and therefore, expansion of India’s shipbuilding sector would result into increased demand for ancillary products and services, thereby fostering the growth of Micro, Small, and Medium Enterprises (MSMEs) in the country.
Expansion of shipbuilding and associated ancillary industry would contribute to employment generation as well, and accelerate the transition of labourers from agricultural sector which employs over 40% of Indian workforce to more advanced manufacturing enterprises that would provide avenues for skill development.
In fact, among manufacturing activities, shipbuilding industry boasts one of the highest employment multipliers of 6.4, according to a written reply to a question raised in Rajya Sabha in 2019 by the then incumbent Minister of State for Shipping (I/C) and Chemical & Fertilizers, Mansukh Mandaviya.
Employment Multiplier is a measure of the direct, indirect and induced jobs created in an area by the arrival of a particular type of industry. Direct jobs are related to a particular industry, whereas indirect jobs are those that support the industry, and Induced jobs are those that are a result of the spending by direct/indirect employees.
So, for every single job created by shipbuilding activity at a shipyard, 6-7 other jobs are created through indirect and induced jobs in ancillary industries and consumption goods industries, respectively.
India’s economic growth has created and will continue to create a persistent domestic demand for new ships, and therefore, expansion of Indian shipbuilding industry holds tremendous potential for employment generation and contribution to GDP, on the back of country’s entire tonnage requirement.
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