Bangalore: India is delaying reintroducing a subsidy to shipbuilders that would offset the high costs of manufacturing a ship in the country at a time the government is fighting record inflation and soaring oil prices.
The previous scheme, which expired on 15 August 2007, provided a 30% subsidy on all ship sales to foreign firms and ocean-going merchant vessels more than 80m in length sold in the domestic market.
Indian shipbuilding yards carry a minimum cost disadvantage of 32-37% on the price of a typical vessel, when compared with yards in other major shipbuilding countries that include South Korea, Japan, China and Germany, according to a recent report by audit and consulting firm KPMG India Pvt. Ltd.
Hectic lobbying by local shipbuilders to maintain the subsidy at the earlier level of 30% has added to the delay. The shipping ministry has withdrawn a cabinet note drafted in January proposing a subsidy of 20% for 10 years beginning 15 August 2007.
Top officials from ABG Shipyard Ltd, Bharati Shipyard Ltd, Cochin Shipyard Ltd and Hindustan Shipyard Ltd met shipping minister T.R. Baalu on Tuesday to discuss the issue.
“The finance ministry has so far not responded to the proposal to extend the subsidy scheme,” said shipping secretary A.P.V.N. Sarma.
“Because of the government’s preoccupation with other pressing issues, a decision on the subsidy is taking a bit longer to come,” said a shipping ministry official, who declined to be named.
Shipbuilders have been lobbying for the subsidy as it would boost the domestic shipbuilding business, which is beginning to gain acceptability among global fleet owners due to a worldwide scarcity.
Order books of Indian yards have grown from Rs816 crore in 2002 to Rs22,000 crore today, according to industry body Shipyards Association of India .
“If the government gives back the subsidies it withdrew last August, the industry can do better,” said Ray Stewart, chief executive officer of Pipavav Shipyard Ltd, which began constructing dry bulk cargo carrying ships earlier this year with an order book of $1.1 billion (Rs4,675 crore today).
Local shipbuilders plan to invest close to Rs20,000 crore in the next three-five years to boost capacity to cater to rising demand.
They want the government to revive the old scheme. They also say the subsidy should be available to negotiated orders as well as orders won through competitive bidding. The January cabinet note had sought to restrict the subsidy to only orders won against global competitive bidding.
“We feel a 30% subsidy will wipe out the systemic disadvantages on financial and taxation faced by local builders and put Indian yards on a par with global yards,” said Vijay Kumar, managing director of Bharati Shipyard and secretary of the shipyards association.
In the recent report submitted to the government, KPMG has recommended an extension of the 30% shipbuilding subsidy scheme till 2017. It had also suggested that the business be treated as an infrastructure activity, making it eligible for incentives such as tax holidays.
The firm was hired by the shipyards association after finance minister P. Chidambaram asked for a study on shipbuilding subsidies given by other countries.
The KPMG report said shipbuilding has been supported by governments in countries such as Japan, South Korea, China and Vietnam.