Indian shipyards may sink without government support
Depressing freight markets and downturn in shipping have already dealt a heavy blow to India’s still-fledging shipbuilding industry, My Digital Fc reports. High cost of steel and other inputs, sky-high interest rates and a slew of taxes have now made the industry extremely non-competitive in the international market.
Order books of most local shipyards have dwindled over past one year, and no one expects a quick revival in 2012. Several new shipyards that are getting ready for operations in the country – both greenfield and brownfiled projects, are now staring at a disastrous take-off.
Both privately-held shipbuilders such as ABG Shipyard, Bharati Shipyard and Larsen & Toubro as well as government-owned, such as Cochin Shipyard and Hindustan Shipyard, are unsuccessfully competing with their counterparts in South Korea and China, which are quoting enormously competitive rates. In 2011, every three in four ships built world over were built in South Korean/Chinese yards. Last year, even Indian shipping companies preferred yards in China and Korea over local yards. Shipyards Association of India (SAI), a platform of private shipyards, claims that their far-east counterparts are 30-35 per cent cheaper.
Since 1990s, India had supported shipbuilding industry with a 30 per cent subsidy for several years. This subsidy was available to all shipyards building ships for export market. The scheme, which helped local yards win a slew of foreign orders with competitive pricing, came to an abrupt end on August 14, 2007. Several new shipyards that were designed and set up with an eye on export markets with the help of subsidy were in for a rude shock. Most promoters subsequently slowed down their project implementation in the hope that the government would revive the scheme. But that was not to be. Recently, shipping ministry made an effort to re-introduce a subsidy scheme, but it seems to have hit a roadblock in the North Block.
As the old subsidy scheme expired, domestic shipyards saw their global market share fall from 1.2 per cent in 2007 to 0.1 per cent last year. Shipping ministry’s plan of boosting domestic shipyards and hike their global market share to 5 per cent by 2020 remains a distant dream.
While the business conditions remain tough for most shipyards, the debt-ridden Bharati Shipyard (BSL), India’s second largest shipbuilder, is already undergoing a debt restructuring process. The company, which took over Mumbai-based Great Offshore (GOL) in a bitter corporate war with its rival ABG Shipyard in 2009, has mounted a huge debt pile, and lenders have classified over Rs 5,650 crore into bad debts. Apart from all general issues, Bharati is also struggling with fall in newbuilding orders from European countries, its traditional market.
Bharati’s two brownfield projects at Dabhol (Maharashtra) and Mangalore are on the verge of completion. So is L&T’s mega shipyard project at Kattuppalli, near Ennore, which has already seen an investment of over Rs 4,000 crore. With orders for new ships shrinking, it is not difficult to hazard a guess on their immediate prospects.
Domestic players believe that a strenuous tax regime in India makes their shipyards non-competitive in international market. If government wants local yards to earn foreign exchange, it has to revive the subsidy scheme, which could be ph-ased out in staggered manner, over next few years. A 15-20 per cent payback scheme for every export delivery could help the industry swing back to life. The government may also look at providing an infrastructure status to shipbuilding industry that could help them avail some tax sops as well as cheaper financing. If not, banks may have to cope with more bad debts from the sector, in near future.
Order books of most local shipyards have dwindled over past one year, and no one expects a quick revival in 2012. Several new shipyards that are getting ready for operations in the country – both greenfield and brownfiled projects, are now staring at a disastrous take-off.
Both privately-held shipbuilders such as ABG Shipyard, Bharati Shipyard and Larsen & Toubro as well as government-owned, such as Cochin Shipyard and Hindustan Shipyard, are unsuccessfully competing with their counterparts in South Korea and China, which are quoting enormously competitive rates. In 2011, every three in four ships built world over were built in South Korean/Chinese yards. Last year, even Indian shipping companies preferred yards in China and Korea over local yards. Shipyards Association of India (SAI), a platform of private shipyards, claims that their far-east counterparts are 30-35 per cent cheaper.
Since 1990s, India had supported shipbuilding industry with a 30 per cent subsidy for several years. This subsidy was available to all shipyards building ships for export market. The scheme, which helped local yards win a slew of foreign orders with competitive pricing, came to an abrupt end on August 14, 2007. Several new shipyards that were designed and set up with an eye on export markets with the help of subsidy were in for a rude shock. Most promoters subsequently slowed down their project implementation in the hope that the government would revive the scheme. But that was not to be. Recently, shipping ministry made an effort to re-introduce a subsidy scheme, but it seems to have hit a roadblock in the North Block.
As the old subsidy scheme expired, domestic shipyards saw their global market share fall from 1.2 per cent in 2007 to 0.1 per cent last year. Shipping ministry’s plan of boosting domestic shipyards and hike their global market share to 5 per cent by 2020 remains a distant dream.
While the business conditions remain tough for most shipyards, the debt-ridden Bharati Shipyard (BSL), India’s second largest shipbuilder, is already undergoing a debt restructuring process. The company, which took over Mumbai-based Great Offshore (GOL) in a bitter corporate war with its rival ABG Shipyard in 2009, has mounted a huge debt pile, and lenders have classified over Rs 5,650 crore into bad debts. Apart from all general issues, Bharati is also struggling with fall in newbuilding orders from European countries, its traditional market.
Bharati’s two brownfield projects at Dabhol (Maharashtra) and Mangalore are on the verge of completion. So is L&T’s mega shipyard project at Kattuppalli, near Ennore, which has already seen an investment of over Rs 4,000 crore. With orders for new ships shrinking, it is not difficult to hazard a guess on their immediate prospects.
Domestic players believe that a strenuous tax regime in India makes their shipyards non-competitive in international market. If government wants local yards to earn foreign exchange, it has to revive the subsidy scheme, which could be ph-ased out in staggered manner, over next few years. A 15-20 per cent payback scheme for every export delivery could help the industry swing back to life. The government may also look at providing an infrastructure status to shipbuilding industry that could help them avail some tax sops as well as cheaper financing. If not, banks may have to cope with more bad debts from the sector, in near future.