₹25K-cr shipbuilding fund set to be cleared to grow blue water economy

According to them, the new fund will take a corporate structure with the government holding a minority shareholding of at least 26% and the majority shareholding offered to multilateral financial institutions and global funds, among others.

“Currently, inter-ministerial consultations are on for the fund, which will provide funding support by way of debt, equity, viability gap funding (VGF) and buyer credit to borrowers, with the final cabinet note to be moved later this month for approval in time for the government’s 100-day agenda," said the first among the two persons quoted above adding that September end deadline has been kept for most important decisions now. 

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“The discussion on the proposal is regarding the size of the fund and extend of equity contribution to be made by the government in the new initiative. Suggestions are for keeping minority or equal government holding in the funding entity with stakes around 26% or going higher upto 49% while keeping fund size around ₹20,000- ₹25,000 crore," the person said.

A query sent to the ministry of ports, shipping and waterways remained unanswered till press time.

Pushpank Kaushik, CEO of Jassper Shipping, a Singapore based global logistic and shipping service provider said, “Such an institution is a necessity of the time. As a nation, we are targeting to be a $5 trillion economy. In order to achieve such mammoth goals, it is essential for us to have our logistics industry as a premier industry. Presently our maritime sector is dependent on other nations, and such institutions will help create an ecosystem. 

This ecosystem would open avenues for domestic business owners to explore maritime and logistics as an industry for investment and growth. In the way India has been a pioneer in fintech, I believe government support and industry’s willingness to grow will make maritime the biggest force of the nation." 

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The Maritime Development Fund may be set up on the lines of country’s youngest development financial institution - the National Bank For Financing Infrastructure And Development (NaBFID) that was set up in 2021, according to proposal made by ministry of ports, shipping and waterways. 

In fact, an earlier proposal in 2023 was to set up MDF as a dedicated vertical under NaBFID but given the specialized nature of funding and need to provide large scale focused funding to the sector, a dedicated fund or entity has been considered the best option.

The focus of the new entity would be promoting manufacturing of ships of all types and sizes within the country and make India a global hub for manufacturing. 

Right now, the country spends close to $75 billion annually on leasing ships from other countries. Also, India owns just about 2% of the world’s total tonnage and has some 1,500-odd ships under its flag.

Less than 1% share of global market

In shipbuilding, India currently has less than 1% share of the global market, which is dominated by China, South Korea and Japan.

The fund is expected to meet the long-term funding required for putting up ship-building infrastructure in the country. Cheaper funds available through long-term funds available from multilateral agencies and global funds would help in setting up a competitive industry in the country. 

“We want to have up to 5% of world’s tonnage soon. That is what the Maritime Development Fund will work towards," said the second person quoted above.

Apart from promoting domestic manufacturing, the fund would also promote development of cruise tourism in the country with the creation of infrastructure and support activities like mechanization and capacity expansion of existing ports through PPP, dredging, development of inland waterway systems and coastal shipping. 

The initial plan for the fund is to have a corpus of ₹25,000 crore spread over a seven-year-period, the first person quoted above said.

It is proposed that the fund would explore giving out long-term loans extending beyond the 10-year period to 15 to 25 years to enable the credit period to be in line with the life of a vessel that is around 30 years. It would also consider tax sops that similar funds in countries such as Norway, Korea, Japan extend for ship leasing to domestic lessors and ship management companies.

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As per MoPSW data, as of 31 December 2022, India had a fleet strength of 1,520 vessels with gross tonnage (GT) of 13.69 million GT as compared to 1,491 vessels with 12.99 million GT at the end of December 2021. The directorate general of shipping data shows marginal growth in shipping fleet to 1,526 vessels by December 2023 and gross tonnage rising to around 14 million GT.

Out of the 1,526 vessels registered as of 31 December 2023, 1,039 vessels with 1.72 million GT were engaged in coastal trade and the remaining 487 vessels with 12.02 million GT were deployed for overseas trade. 

The age profile of Indian merchant shipping vessels indicates that about 44% of the fleet is above 20 years of age, 13% of the fleet was between 16-20 years, 20% of the fleet was between 11-15 years, 13% of the fleet was between 6-10 years while 9% of the fleet was in the age group of 0-5 years. This means that a lot of replacement of existing merchant ships would be required over next couple of years.