Govt drafting subsidy scheme to promote shipbuilding

Govt drafting subsidy scheme to promote shipbuilding

Bangalore: The shipping ministry is working on a proposal that encourages Indian fleet owners to buy from or build ships at local yards according to Rajiv Gupta, a joint secretary-rank official in the ministry.

The move will provide a fillip to the local shipbuilding industry, and cascade down into other industries. Shipbuilding is a capital, labour, and raw material-intensive industry.

The ministry’s proposal could form part of the new shipbuilding subsidy scheme, currently being drafted by the ministry for the approval of the finance ministry and the Union cabinet.

“The earlier shipbuilding subsidy scheme was loaded in favour of export orders placed by foreign fleet owners," Gupta said. This scheme ended on 14 August 2007 after a five-year run.

The old subsidy scheme offered shipbuilders an incentive equal to 30% of the value of the order for building ocean-going merchant vessels that were at least 80m in length, if they were manufactured for the domestic market. For export orders, however, ships of all types and capacities were eligible for the subsidy.

The subsidy was given to state-owned shipyards in instalments, while private firms got it after the ship was built and delivered to the buyer.

“The earlier subsidy scheme was more beneficial to foreign fleet owners than Indian owners because they could buy ships from Indian yards at cheaper rates," added U.C. Grover, director in charge of the technical and offshore division at India’s biggest ocean carrier, the state-run Shipping Corp. of India Ltd, or SCI.

This was because, Indian owners had to pay extra taxes and other levies for buying ships from Indian yards, which foreign owners were not required to pay. “This jacked up the cost of ships purchased by Indian owners from Indian yards," he said.

So while Indian owners placed orders for new ships at global yards, many foreign fleet owners turned to India to buy new ships, particularly small- and medium-sized carriers. This is reflected in the order book position of Indian shipbuilders. At least 90% of the around 250 ships currently under construction at Indian yards are for foreign fleets.

Gupta said the shipping ministry wanted to “remove the disadvantages" faced by Indian fleet owners in buying ships locally. “Subsidizing export orders only benefited foreign owners and did not contribute to the Indian economy," he added.

A policy shift in favour of domestic orders would ensure that the assets remained in India apart from boosting shipping capacity. Shipbuilders have been lobbying the government for a reintroduction of the subsidy scheme.

“Ships owned by Indian firms should be built in India," said a Larsen and Toubro Ltd executive who did not want to be identified. The firm is setting up a mega shipbuilding facility at Kattupalli in Tamil Nadu.

About half of India’s shipping fleet by capacity is at least 20 years old, and needs to be replaced in five years, said Y.D. Khatau, vice-chairman and managing director of Varun Shipping Co. Ltd.

Shipowners say they were willing to support Indian yards in return for incentives from the government. “If a level playing field is created, why would we run around elsewhere for buying ships?" asked Grover at SCI, which plans to buy 40 new ships worth close to $2.5 billion (Rs11,650 crore) over the next four-five years to replace old ships.

“The new policy, if approved, would be a win-win situation for both shipowners and shipyards," said Dhananjay Datar, chief financial officer of ABG Shipyard Ltd, India’s biggest private shipbuilder.

Indian shipbuilders and shipowners have been going through a tough time since September 2008 after the global liquidity crunch and the recession cut demand for trade and, in turn, for ships.