Domestic shipbuilding industry is all set for a facelift, with the Ministry of Shipping (MoS) planning to draft a new shipbuilding subsidy scheme in order to encourage Indian fleet owners to build ships at local yards. The earlier subsidy scheme favoured foreign fleet owners over the domestic players, as the former could purchase ships from Indian yards at a cheaper rate, since they were not required to pay extra taxes and other levies. However, this was not the case with Indian owners. MoS is currently working upon the scheme that will be sent to the Ministry of Finance and the Union Cabinet for approval.

“The initiative undertaken by the government is a positive step for the Indian shipping fraternity. This will definitely provide a fillip to the domestic shipping industry as the earlier scheme was largely beneficial to the foreign players,” says Anup Gupta, managing director of Sal Logistics Private Limited, a mid-sized logistics service provider in New Delhi.

Domestic shipping sector to benefit

Experts believe that the new scheme would create a healthy competitive environment for the domestic players. In this context, S Alexander, proprietor of Trinitys Clearing and Shipping Agencies, a mid-sized shipping firm in Chennai, says, “The new scheme will ensure that a level playing field is created for Indian fleet owners to vie with global players.”

It is to be noted that the old subsidy scheme forced Indian ship owners to look towards foreign companies to buy ships, whereas foreign players placed their shipping orders in India. Almost 90% of the 250 ships that are currently being built at Indian yards are booked by foreign companies. The new scheme will ensure that Indian yards get more bookings from domestic owners.

The proposal is being drafted at a very critical juncture, considering that almost half of India’s shipping fleet is almost 20 years old and need to be replaced. It is to be noted that to restrain oil spills, India is looking to phase out single hull vessels, which are more than 25 years old, by 2015. Therefore, the new scheme will encourage shipping companies to build single hull vessels in Indian yards rather than buying them from foreign yards. The Shipping Corporation of India (SCI) has plans to invest US$2.5 billion to buy 40 new ships in the next 4-5 years to replace old ships.

Step to fight recession

The scheme will facilitate the domestic shipping industry to overcome recessionary pressures, which led to severe credit crunch. “The lucrative scheme will generate high revenues for the domestic shipping community as more ship building orders will be placed in the country itself. We hope this would solve the liquidity crisis to some extent. Since global freight rates have not shown any significant improvement, the subsidy scheme will help us to recover the losses suffered during recession,” says H M Sharma, proprietor of Unison Logistics and Packers Private Limited, a mid-sized logistics firm in Mumbai.

Since shipbuilding is a capital-intensive business, the subsidies would ensure greater utilisation of resources and manpower and is expected to take the Indian shipping sector to global heights.

Arup Choudhury