The shipping ministry is looking to extend the subsidy given to domestic yards for building ships even as more and more orders flow into Indian yards riding on a global boom in shipbuilding.
“We plan to approach the Cabinet soon seeking its approval to extend the subsidy scheme beyond August 2007,” said a shipping ministry official who did not wish to be named.
Currently, local builders get a 30% subsidy for building ocean-going merchant vessels that are over 80 metres in length if they are manufactured for the domestic market. And for export orders, ships of all types and capacities are eligible for the subsidy. Typically, this means that for building a ship priced at Rs100 crore, the yard would get a total of Rs130 crore. The five-year subsidy scheme, which was introduced on 15 August 2002, will end on 14 August. The scheme was re-introduced in 2002 with certain modifications and also made applicable to private yards, such as ABG Shipyard Ltd, Bharati Shipyard Ltd and Tebma Shipyards Ltd.
The original subsidy scheme covered only state-run yards such as Hindustan Shipyard Ltd, Cochin Shipyard Ltd and Mazagon Dock Ltd, among a few others.
In 2002, when the subsidy was reintroduced, domestic yards were sitting on orders worth Rs1,500 crore. “Today, Indian yards have 210 ships on order, at an estimated worth Rs14,000 crore,” says Ajit Tewari, chairman and managing director of state-run Hindustan Shipyard, based in the southern port city of Visakhapatnam.
“Shipbuilding industry is a highly competitive business. Globally, it is observed to be generally supported by national policies and subsidies; without government support, the growth and sustenance of shipbuilding industry would be difficult,” says the National Maritime Policy report prepared by the shipping ministry. The domestic shipbuilding industry is expected to grow at a compound annual growth rate of 30%, according to a report prepared by Mumbai-based consultancy firm, i-maritime.
India’s share in global shipbuilding is expected to be around 15%, or $22 billion (Rs92,400 crore), by 2020, from the current level of 0.4%, aided mainly by cost competitiveness and ample supply of skilled manpower, the i-maritime report said. The labour cost-per-worker in India is estimated at $1,192 per year when compared with $10,743 and $21,317 in South Korea and Singapore, respectively. Shipbuilding grade steel which used to be imported earlier, is now made by state-run Steel Authority of India Ltd.
While labour costs are cheap in India, productivity and input costs are still higher when compared with global yards. Productivity is low in India due to lack of mechanisation. The i-maritime report assumes subsidy will continue in terms of its growth projections.
The Indian Shipbuilders Association, of which Tewari is the president, has recommended continuation of the subsidy scheme by “at least 10 years”. “If the government scraps the subsidy scheme, Indian yards will die,” claims Tewari. “Builders who are investing huge money in modernizing and upgrading yards are looking for a long-term subsidy policy and not a short-term one. The continuation of subsidy will give a big boost to shipbuilding.”
Indian yards, such as ABG and Bharati, which built only smaller vessels earlier, are now expanding their facilities in Gujarat and Maharashtra to build larger vessels. And, new players such as engineering and construction major Larsen & Toubro Ltd, have entered the sector to grab business that are pouring into India, given the full order-book position of yards in Norway, Japan, Korea and Singapore.
Indian yards had failed to capitalize on an earlier boom in global shipbuilding.
“This is the first time we are getting an opportunity to build ships on this scale. It’s time to support yards by extending the subsidy scheme so that they can improve their infrastructure, modernize yards and become competitive on the global stage,” said Tewari, who headed a four-member committee set up by the shipping ministry to study the impact of the existing scheme and to suggest improvements. Among other things, the committee had suggested that the subsidy payment process need to be refined to make the disbursement faster.
As per the existing policy, the subsidy is released in stages or instalments to public sector yards, while it is given to private sector yards only after the ship is delivered to the owner. About Rs10,000 crore of investments are expected to flow into building new yards and modernizing and upgrading of existing yards in the next couple of years, he said. “ Besides, the spin-off benefits in terms of development of ancillary industries and job creation will be far more than the subsidy outgo for the government,” Tewari stated.