Global Shipbuilders Invited To 'Make in India'

A Rs 25,000 crore Maritime Development Fund, which Finance Minister Nirmala Sitharaman announced while presenting the Union Budget this year, will soon be activated, official sources said.

India’s large shipbuilding yards have been facing financial challenges, and this has affected their functioning, forcing some companies to sell out. Officials said the government has taken cognisance of this "and that is why the fund is being activated".

According to a recent ICRA report, the absence of long-term shipbuilding credit facilities and a dedicated maritime financing institution has dented India’s competitive edge in the industry. It added that the shipbuilding industry in India did not have “infrastructure” status till recently, due to which long-term financing was not extended by banks.

“We are working to bring down the dependence on foreign shipping companies. We want to expand our own India-flagged and Indian-owned vessels,” T K Ramachandran, Secretary, Ministry of Ports, Shipping and Waterways told The Secretariat. 

Ramachandran added that the issues related to financing are being resolved. The current shipping fleet is also in need of “urgent replacement”.

Steep Financing Costs

India's shipbuilding industry has been facing headwinds, as local shipyards grapple with steep financing costs, with interest rates range between 9-10 per cent, significantly higher than the 4-8 spread offered in major shipbuilding nations like South Korea, China, Japan and European countries.

High cost financing places Indian shipbuilders at a considerable disadvantage. With shipyards in distress, overhaluing and repair activities have also taken a hit, leading ship owners to send their business to shipyards in East Asia or the Gulf.

The Ministry has set a target to increase the share of India-flagged vessels in the overall global cargo share to 20 per cent by 2047. These ‘Make in India’ ships will also support the critical logistics required to support exporters, who have been hit by a rise in freight costs, among other things.

Sources said Prime Minister Narendra Modi is keenly monitoring the progress on shipbuilding in the domestic yards.

“India’s high logistics cost as a percentage of the GDP needs to be reduced, and the government is taking the steps required for that,” said Gopal Krishna Agarwal, BJP’s spokesperson on economic affairs, adding that shipping infrastructure is crucial for India to touch the US$ 5 trillion economy.

Agarwal said that addressing issues related to logistics, connectivity and infrastructure is something which is an ongoing exercise for the government. 

India has a dismal 0.06 per cent share of the global shipbuilding industry, which is dominated by China, South Korea and Japan. While there are about 1,530 India-flagged vessels supporting 13.7 million gross tonnage (GT), 485 operate in overseas trade, as per government data. 

Not only is India looking to boost "Made in India" vessels to reduce dependence on foreign ships, but is also keen to develop cruise ships to promote tourism.

Port-Led Development

The Narendra Modi government has been pushing for a port-led economic growth. India has a 7,500 km-long coastline and 14,500 km of potentially navigable inland waterways, and occupies a strategic location on major international major trade routes, a KPMG report in 2019 said.

More than 70 per cent of India’s trading in value terms is undertaken through maritime routes, underlining the need to strengthen its port linkages.

The government’s attempt to transform and modernise the country’s port infrastructure to address critical issues related to logistics, red tape and cost, has caught the attention of the world community.

Meanwhile, India has also set its eyes on developing ports outside its boundaries, amid rising geoeconomic tensions.