Shipowners in the subcontinent have been severely hit by the lack of ship finance for vessel acquisitions, and the fund is expected to tide the shipping industry over the liquidity crisis.
Most ship financing firms and banks in the west have shut their books for the year since September and many Indian shipowners depend upon European banks for low-cost credit, Lloyds Lists reported.
Under the new plan, the Indian government will provide shipowners with soft loans, but on condition that they order from domestic shipyards. The interest rates will be comparable with those offered by the European banks, which offer shipping loans at one to two per cent above the London Inter-Bank Offered Rate (LIBOR). The fund will tie up with domestic banks to keep the rates at an attractive level.
Said Shipping Corp of India (SCI) chairman and managing director Sabyasachi Hajara, also president of the Indian National Shipowners' Association: "It is a drop in the ocean, but at least it is a start. In order to simply hold on to their current 13 per cent share of the country's overseas trade, Indian owners require more than INR1 trillion by 2012 to replace ageing fleets and add capacity."
The state-sponsored fund is expected to help smaller companies with less than five ships, which have been hard hit by the lack of funds available in the market for vessel acquisition.
The order books of Indian yards have been largely unaffected by the global financial meltdown. Unlike the Chinese, Japanese and Korean yards, which account for 84 per cent of the global market, Indian shipyards can only offer building slots after 2012.
State-owned Hindustan Shipyard has 10 bulk carriers and five patrol vessels for the Coast Guard on order, while the private-sector Pipavav Shipyard has orders for 22 panamax bulk carriers from Golden Ocean, France's Setaf and Avgi Maritime and Greece's Kyrini group.
ABG Shipyard continues to sit on orders worth INR14 billion to build 105 ships, including 39 bulk carriers and 66 offshore supply vessels.