News
Govt plans incentives, ban on foreign vessels to boost local shipbuilding
Summary
- The government’s objective is to boost India’s capacity to put its own vessels on coastal, inland as well as global trade routes. In 2022, the country ranked 18 on international ship-owning list, with a less than 1% share in global shipbuilding.
New Delhi: The government is working on a plan to finance and develop shipbuilding infrastructure in the country on the lines of developed markets such South Korea and Japan to reduce reliance on foreign vessels and increase the country’s share in sea-borne trade.
The Union shipping ministry is discussing a policy that will provide viability gap funding (VGF)—or financial support to make projects commercially feasible—for domestic shipbuilding, two officials aware of the plan said. It also plans to introduce purchase preference so that any vessel seeking new registration for coastal cargo transport in India from fiscal FY31 onwards would need to necessarily be built at a domestic shipyard, the officials said on the condition of anonymity.
National Shipbuilding Mission on anvil
The policy aims to establish a National Shipbuilding Mission to steer the implementation of a newer version of ship building financial assistance programme or SBFAP 2.0 worth ₹18,000 crore for another 10 years up to FY34, the officials said.
The government’s objective is to boost India’s capacity to put its own vessels on coastal, inland as well as global trade routes. In 2022, the country ranked 18 on global ship-owning list, with a less than 1% share in international shipbuilding, according to the ministry data.
“The aim of the new policy, which will be finalized post inter ministerial consultations, is to gradually enhance use of Indian-made and Indian-flagged ships in cargo operations, increasing country’s self-reliance in line with the government’s endeavours towards Atmanirbhar Bharat," said one of the officials quoted earlier. “The percentage share of Indian built ships in the country’s fleet is projected to increase from 5% at present to 7% by 2030 and 69% by 2047 under the initiative."
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The government also plans to introduce a new system allowing entities offering their vessels for shipbreaking to get a credit note of 40% of its fair scrap value. This would be reimbursed against the cost of building a new vessel if it happens an Indian shipyard.
Mint had in September reported about the government’s mega plan to promote shipbuilding in the country, including the launch of multiple missions to support the initiative.
Queries emailed to the ministry of ports, shipping and waterways remained unanswered till press time.
A maritime development fund
A key element of the new ship building policy would be instituting a ₹25,000-crore Maritime Development Fund (MDF) for providing long-term and low-cost financial support for indigenous shipbuilding and other blue water infrastructure including ports, trans-shipment hubs, terminals, ship-braking and repair yards, marina development, dredging and container manufacturing.
The government is expected to hold a minority shareholding of at least 26% in the proposed fund, while the majority stake will be offered to multilateral financial institutions and global funds, among others. The money would be used to provide funding via debt, equity, VGF and buyer credit to borrowers.
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“Countries like Singapore, Denmark, Malaysia, which have strong maritime sectors, have dedicated maritime financing institutions or funds that provide stable, long-term capital," said Manish R Sharma, partner and leader-infrastructure, transport and logistics, PwC India. “India needs a similar institution to compete globally and support its aspirations of becoming a major maritime power."
Mihir Shah, partner, transport and logistics, EY India, said lessons learnt from implementation of the existing SBFAP and other related initiatives should be analyzed while formulating measures under the new policy to drive demand and capacity augmentation.
Aid to address challenges
"The proposed Maritime Development Fund should help address the specific financing-related challenges facing the sector and thereby spur availability of long term and cost-efficient capital to meet the emerging needs of India’s maritime sector, including expansion of Indian-flag shipping tonnage, decarbonization, cruise tourism, port modernization, coastal shipping, inland waterways and EXIM logistics, amongst others," Shah said.
The initiative would also address concerns about global uncertainties driving up shipping costs for Indian trade. Domestic shipping lines at affordable prices could help contain freight rate volatility triggered by black swan events such as Covid-19, the Russia-Ukraine war, Red Sea crisis.
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The new policy will help India achieve the target of at least 5% of global tonnage from the present 1%, which is not enough to meet the nation’s economic growth targets, according to Pushpank Kaushik, chief executive officer & head of business development (subcontinent, Middle East and Southeast Asia) at Jassper Shipping, a Hyderabad-based shipping and logistics company. Besides supporting local ship owners, he said, it would make India “an alternate ship building destination away from Vietnam, Korea, Japan and China".
