The $75 billion drain: How India lost the global shipping race and the bold mission to reclaim it
Once a maritime superpower, India now pays $75 billion annually to foreign ships. Can the Maritime Amrit Kaal Mission close a staggering gap with South Korea and China? Discover how India plans to reclaim the oceans and catch the shipbuilding bus.
Chennai/Kochi: The divergence is stark. Both Cochin Shipyard Ltd (CSL) and HD Hyundai Heavy Industries were established the same year—1972. In 53 years, the South Korean company has become the largest shipbuilding entity in the world with revenue of $9.85 billion (2024). A few weeks ago, it delivered its 5,000th vessel—a patrol frigate for the Philippines navy. On the other hand, CSL, India’s largest shipbuilder, is a fraction of that size. It generated revenue of about $550 million in 2024-25 and had only built 241 vessels till March this year.
India, once a maritime super power, has lost its way and has fallen off the global shipping map. Its share in shipbuilding is a paltry 0.06% of global output measured in terms of gross tonnage. It is ranked 20th in the world. In terms of ship ownership, India is ranked 22nd with an overall share of 0.7%. Just 1,150 of the 60,000 oceangoing cargo vessels are registered in India. Foreign ships carry 92% of India’s total trade and are paid $75 billion annually for it. This amount, Prime Minister Narendra Modi recently pointed out, is more than India’s defence budget.
Three recent events have jolted the Indian government into action. First was the covid-19 pandemic that disrupted the global supply chain. Indian exporters found it extremely difficult to move cargo as foreign vessels avoided Indian ports. That was followed by the Russia-Ukraine war. The US sanctions complicated India’s efforts to buy and move crude from Russia. And then, the Red Sea crisis erupted—Yemen-based Houthis started targeting Western ships forcing them to take a long detour around Cape of Good Hope. Indian ships remained unaffected, but there weren’t enough of them available for Indian traders to get a competitive advantage.
These events exposed India’s strategic weakness in not having an adequate domestic fleet. After all, 95% of India’s cargo—exports and imports—in volume terms, and 70% in terms of value, use the sea.
A policy overdrive has ensued now. The Indian government has announced, for immediate term, a Maritime India Vision 2030 and for the long term the Maritime Amrit Kaal Mission 2047. The idea is to build a stronger domestic fleet and a shipbuilding industry that is among the top five in the world, along with ship repair and dismantling facilities. In September, a ₹69,725 crore package to revive shipbuilding and vessel ownership was announced.
Missed bus
In the pre-industrial era, India dominated the seas. “India has one of the longest histories of maritime activity in the world, going back to the Bronze Age when Harappan ships traded with Sumerian cities," Sanjeev Sanyal, an economist, historian and member of the economic advisory council to the Prime Minister of India, said. This was followed by ancient Indian mariners exploring the Indian Ocean, and sailing to South-East Asia, Japan and China.
“They traded, spread Indian culture and set up empires. The Indian age of exploration lasted for thousands of years till roughly the 12th century, and then we ceded the oceans to the Arabs, the Chinese and finally the Europeans," he added.
The Industrial Revolution delivered the next blow. “When it was wood, we had everything: large forests and craftsmen to make ships," said Madhu S. Nair, chairman and managing director, CSL. When the world began to use steel to build ships, India lost out.
During colonization, Britain used India as a source of raw material to make steel in the UK. They built the ships there. Post-Independence, successive governments had other priorities—health, education, infrastructure, light engineering and services. Shipbuilding, considered the mother of heavy engineering, remained neglected.
Meanwhile, other major economies of Asia—Japan, South Korea and China—made shipping a priority.
Post-World War II, Japan saw shipbuilding as the fastest route to reindustrialize its economy. Shipbuilding, which requires large fabrication and assembly, created many downstream industries and its job multiplier effect was significant. The norm was ‘if you can make a ship, you can make anything.’ South Korea followed suit in the 1970s and China in the 1990s. These governments doled out huge subsidies as support.
China today has the biggest shipbuilding capacity in the world with a share of 55% followed by South Korea (28%) and Japan (13%).
“India clearly missed the shipbuilding and heavy engineering bus," said CSL’s Nair.
The paradox
In the last 75 years, India did set up shipbuilding capacity both under the public and private sector. CSL, Mazagon Dock Shipbuilders, Garden Reach Shipbuilders & Engineers (GRSE), Goa Shipyard and Hindustan Shipyard are the public sector shipyards while Larsen & Toubro (L&T) and the Adani Group have invested in private yards. Most of these yards focus on building defence ships and a few have built some really advanced vessels, too.
CSL built the aircraft carrier INS Vikrant; Mazagon Dock Shipbuilders has delivered submarines while GRSE has built stealth frigates.
“It is a paradox that Indian shipyards can build such complex vessels but they find no place in the commercial shipbuilding arena," pointed out Arun Ramchandani, the head of L&T’s defence business.
The reasons are not far to seek. Compared to defence orders, commercial shipbuilding is a different animal. Indian shipbuilders cannot match their global peers in efficiency as they do not have their scale. Their processes are not world-class and consequently the production cost is high. The time taken to deliver a vessel is far higher than China or South Korea.
Also, commercial contracts are brutal and allow cancellation and foreclosure in case of delays. “It is critical to maintain the golden triangle of time, cost and quality here," said Nair.
China has mastered the art. “It is impossible for us to match China on time and cost," he added. Not surprising that Indian shipyards have a very small pipeline of commercial orders.
The 1987 moment
For Indian shipbuilders to become globally competitive, they need to invest time and money in multiple areas.
“The Indian shipbuilding industry today is where the Indian car industry was in 1987," explained Nagesh Krishna Moorthy, general manager, business development, CSL.
That was the time Maruti Suzuki cars entered the market. India’s auto component ecosystem was underdeveloped and manufacturing practices weren’t world-class.
Shipbuilding in India is in a similar state.
“Our man hour per tonne is very high in fabricating steel because the level of automation is negligible," Moorthy said.
Today, modularity—fabricating large self-contained sections separately and assembling them at the final site—is the norm. This considerably reduces the time for building large vessels and is the secret behind China’s speed.
Then comes process efficiency without which the trifecta of time, cost and quality cannot be delivered in shipbuilding, Moorthy added.
Supply chain is another critical factor. As much as 70% of a ship’s cost is equipment and they need to be procured from across the world. Unless most of them are available locally, procurement will be costly and time consuming. That will not be possible unless India starts building more ships, a perfect chicken-and-egg situation.
The ₹69,725 crore package has addressed some of the challenges. It facilitates expanding shipbuilding capacity, tackle (read: subsidize) the domestic shipbuilding cost disadvantage and create clusters. By offering infrastructure status for building large ships, access to low-cost long-term funds has been made easy. But a lot more needs to be done to offset some of the mentioned challenges.
Learn from experts
The government’s long-term vision and commitment to building a strong shipping sector comes at a time when a new trend is catching on in this space. With the population in Japan and South Korea greying, companies in these countries are keen to move production to other geographies while retaining the design expertise at home. India has an opportunity to attract these investments. Large multinational shipbuilders would also bring along their suppliers—it could be the fastest way to build the ecosystem, experts said.
HD Hyundai has already announced the setting up of a shipbuilding yard in Thoothukudi in Tamil Nadu. Media reports peg the investment at $2 billion. If the market grapevine is to be believed, the Samsung Group is talking to other Indian shipyards such as GRSE. “Global companies are keen to enter India if we show demand," said Moorthy.
This is where the government’s demand aggregation plan can come in handy. To reduce the annual $75 billion chartering costs, it has mandated that public sector oil and fertilizer companies own 30% of their fleet requirement. This works out to about 214 ships. That’s the carrot.
Global players are also keen to tie up with Indian yards. CSL is setting up a ₹4,000 crore block fabrication facility at Kochi. It will consume 120,000 tonnes of steel per year as against the 25,000 tonnes CSL consumes today. “China learnt and grew by tying up with South Korea. We should also do the same," Moorthy said.
Strategic domestic fleet
In 1987-88, India registered vessels carried 41% of all its export-import cargo. Today, that number has fallen to just 8%. This fall was triggered post economic liberalization in 1991 when the government opened up India for foreign vessels.
“A large number of foreign vessels flooded the market and Indian players could not compete with them. The number of Indian vessels gradually declined," said C.V. Subba Rao, managing director at Sanmar Shipping Ltd and president of the Indian National Shipowners’ Association (Insa), the lobby that represents Indian shipowners.
Competition apart, Indian shipowners suffered “reverse discrimination." Vessels flagged in India suffered higher taxes and other charges, explained Anil Devli, chief executive officer, Insa.
These include 5% goods and services tax (GST) on the value of second-hand foreign vessels purchased by Indian firms, a similar GST Indian firms have to pay on repair value incurred abroad and higher income tax on Indian seafarers working in Indian shipping companies. Such levies are not applicable to foreign firms.
A study by Insa put that extra cost at 19.2% compared to foreign vessels due to GST and other costs. Though Indian vessels had the right of first refusal (they will get the cargo if they match the price quoted by a foreign vessel), significantly higher costs ensured that they could never match the cost of a foreign vessel, he added.
“We are not asking for any additional benefits. We want a level playing field with foreign vessels," said Sanmar’s Rao.
The government wants to add at least 300 more Indian ships by 2030. It is also reviving the public sector Shipping Corporation of India to achieve this. Once considered a mini-ratna, the company fell into prolonged decay after the government diluted its focus on the shipping sector. It was on verge of being privatized five years ago.
The package announced by the government will lower the cost of financing a purchase, but many policy issues remain.
Sweet timing
India’s shipping push could not have come at a better time. Clarksons Research, a global shipping research company, has warned that global demand for ships, which has been strong for a while, will start tapering. As global demand falls, Indian demand will rise and that is the best time to build a domestic fleet.
If the government drops the 5% GST on imported ships for five years and eases other levies, India registered vessels will rise sharply. Indian shipbuilders can use the time to build capacity for the next boom cycle.
On 29 December, the INSV Kaundinya, a wooden vessel that has revived an Indian traditional shipbuilding method called tankai (where wooden planks are stitched with coir rope and fibre without using nails), will sail to Oman relying entirely on wind and other traditional navigation methods. Sanjeev Sanyal, the man behind this initiative, says the objective is to retrace an ancient trade route. The vessel will take about 10 days to complete its journey. But for India to regain its past maritime glory, the journey will be a lot more demanding.
topics
