Govt may raise incentives, provide VFG to make India global ship-building hub

According to two persons aware of the development, ministry of ports, shipping and waterways is working out different schemes to incentivize ship manufacturing in the country, including raising the extent of financial support offered under an already operational Ship Building Financial Assistance (SBFA) scheme. Further, a ₹5,000-crore package is being worked out through a new VGF scheme to incentivise construction of inland vessels, with plans to later extend the support for entities manufacturing sea-bound vessels including cruise ships.

‘Incentives in form of 20% capital support may be reinstated’

One of the two persons said that under SBFA, the incentives in the form of 20% capital support may be reinstated for all kinds of shipbuilding, with the period of incentives being extended by four years from present sunset period of 2026 to align it with Maritime India Vision 2030. Under the Maritime India Vision, India aims to develop world-class mega ports, transhipment hubs and infrastructure modernization of ports.

The SBFA scheme may be considered for further extension by another six years till 2036, in line with new targets set under the recently formulated The Amrit Kaal Vision 2047, the person quoted above said.

Also Read: What an ‘Indian Club’ means for the country’s shipping industry

In addition, a new VGF scheme may be launched to encourage the construction of inland vessels and ships with plan to extend this support in addition to any other incentive programmes for manufacturing commercial blue water ships.

Under SBFA, financial assistance is provided to domestic shipyards for shipbuilding contracts signed between 1 April 2016 and 31 March 2026 with the rate of financial assistance starting at 20% in 2016 and diminishing to 11% in 2026. This scheme is now proposed to be amended again to reinstate financial assistance to full 20% level for another four years.

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

Also Read: Local ship cover may get an India club flavour

The scheme was amended last year with higher support for indigenous shipbuilding with regard to modern technologies and machinery. Accordingly, wind farm installation vessels and construction of sophisticated dredgers as specialized vessels are eligible to get higher financial assistance. Financial assistance of 30% is to be provided for vessels where main propulsion is achieved by means of green fuels and 20% for vessels with electric means of propulsion or vessels fitted with hybrid propulsion system.

VGF is a partial government capital grant for large and long-gestation public-private partnership (PPP) infrastructure projects. These grants make projects commercially viable, encouraging private investments. Normally, VGF support is given to the lowest bidder for capital grant, subject to a maximum of 20% of the total project cost. An equal amount of VGF (20%) can also be extended by the central sponsoring ministry from its budget if it so decides.

“India can become a global manufacturing leader for ships by implementing a three-part strategy. First, a phased increase in tariffs on imported ship components will encourage domestic production and enable industry to have a clear road map on localization. Second, a production-linked incentive (PLI) scheme will financially reward ship builders and component manufacturers who focus on indigenisation (local value addition). Finally, strict quality control measures will ensure competitiveness by guaranteeing high-quality products. This approach will address domestic needs while making India a global shipbuilding powerhouse,” said Saurabh Agarwal, partner & co-leader, investment growth group, EY.

The need for expanding ship manufacturing the country also stems from the fact that Indian shipyards are getting large orders from overseas markets, including from traditional shipbuilding nations such as Norway, Germany and the US. Indian shipbuilders are also close to striking deals with companies in the Netherlands, Denmark and West Asia. Closer home, contracts are also being looked at from Bangladesh, Sri Lanka and Myanmar.

As per the ministry data, as on 31 December 2022, India had a fleet of 1,520 vessels with 13.69 million gross tonnage (GT), compared to a fleet of 1,491 vessels and 12.99 million GT a year earlier. This reflects a net addition of 29 vessels with an increase of 0.7 million GT during the calendar year 2022. The directorate general of shipping data shows marginal growth in shipping fleet to around 1,530 vessels by December 2023, and gross tonnage rising to around 14 million GT.

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

Out of the 1526 vessels registered as on 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% between 16 and 20 years, 20% between 11 and15 years, 13% between 6 and 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.

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Published: 02 Jun 2024, 05:45 PM IST