Mint Explainer | India spends defence budget on foreign ships. Can India chart its own course in shipping?
India is completely reliant on foreign vessels for its export-import trade and pays them as much as $75 billion annually for carrying merchandise.
Today, India is an inconsequential player in the global shipping space.
Indian ships carry a minuscule share of the country's export-import trade, and Indian shipyards take years to deliver a ship. This makes the nation vulnerable strategically and economically, as the resilience of its trade and supply chain is weak. The government, aware of this situation, recently announced measures to revitalize the sector. Mint evaluates these proposals.
How poor is India’s shipping play?
The maritime sector is the backbone of India’s economy, as 95% of the trade, in volume terms and 70%, in value terms, happens through sea. But only around 5% of India’s export-import (EXIM) merchandise is handled by Indian ships. This is a sharp drop from 40% in 1987-88.
The country, today, pays as much as $75 billion annually to foreign vessels for carrying its EXIM goods. This is almost the same as India’s defence budget, pointed out Prime Minister Narendra Modi recently. The Indian shipping fleet accounts for just 1% of the total global deadweight tonnage.
What about its shipbuilding industry?
India’s shipbuilding capacity is just 0.072 million gross tonnes (mgt), according to professional services firm KPMG. This is a fraction of the global capacity, which is estimated at 65 mgt. In value terms, it is $1.1 billion as against the global market size of $150 billion.
There are government-owned shipbuilding yards such as Mazagon Docks, Hindustan Shipyard, and Goa Shipyard, but they predominantly focus on building ships for the Indian Navy. Private shipyards such as those operated by Larsen and Toubro Ltd or the likes of Bharati Defence and Infrastructure Ltd build specialized and commercial vessels. But their output is nowhere near that of global standards.
What ails this sector?
For years, the sector has been constrained by a smaller pipeline of large commercial orders, which has meant the capacity available is limited. It lacks facilities to build large commercial ships, like container vessels, which are the bread and butter of global shipyards. Production costs are high, and so is the turnaround time, which is two to three years, as opposed to China’s 12 months.
What are the implications for the country?
The lack of an adequate number of India-flagged vessels to transport EXIM goods and dependence on foreign shipyards to build vessels hurt India’s ability to ensure a resilient trade and supply chain. As India’s economy grows rapidly, its dependence on foreign vessels will only increase, further compromising its strategic independence. The government understood the need for more India-flagged vessels built within the country.
What has the government done?
On 24 September, the government announced a ₹69,725 crore package to revitalize India’s shipping sector to strengthen domestic capacity, improve long-term financing, promote shipyard development, enhance technical capacity, skilling, and bring about policy reforms. The policy incentivizes ship ownership, shipbuilding, and shipbuilding clusters, including ship repairs and breaking.
A few weeks earlier, it had given infrastructure status for building ships with a gross tonnage of 10,000 or more. This will help players access cheaper funds. The government wants to move India from its 16th rank in shipbuilding to the top 10 by 2030 and the top four by 2047.
How will it help?
By tackling long-standing bottlenecks such as the lack of finance, fragmented infrastructure, and a weak commercial shipping ecosystem, the policy hopes to support 4.5 million gross tonne shipbuilding capacity. It is expected to attract investments worth ₹4.5 trillion into the maritime sector and create 3 million jobs. Through these efforts, it wants to make India a competitive force in the global shipping and shipbuilding sector and ensure national security.
Who dominates the shipping building sector globally?
China is by far the biggest player, accounting for more than 50% of the global capacity. In 2024, it built ships aggregating 33mgt, followed by South Korea (18mgt) and Japan (10mgt). The three East Asian nations control 90% of global production. This domination continues. In 2024, China accounted for 59% of all new shipbuilding orders by tonnage.
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