India: Government plans to set up shipbuilding development fund

17
2008

The shipping ministry has initiated discussions with financial institutions such as IFCI and IDBI to establish a fund of as much as Rs.15,000 crore to extend low-cost loans to shipbuilders.

The shipbuilding development fund will form a key part of a policy being drafted by the shipping ministry to promote local shipbuilding as announced by finance minister Arun Jaitley in his budget speech on 10 July.

“We are discussing the finer details of the shipbuilding development fund with IFCI and IDBI,” a shipping ministry spokesman said.

Other features of the policy could include granting special economic zone (SEZ) status to shipyards and declaring it as a strategic sector with attendant fiscal incentives.

“Shipbuilding is a big opportunity today,” Prime Minister Narendra Modi said on 16 August during the foundation stone laying ceremony for a special economic zone (SEZ) and road connectivity project at Jawaharlal Nehru Port Trust located near Mumbai.

“India’s contribution to global shipbuilding has been very low. South Korea, a very small country, smaller than the state of Maharashtra today alone has a 40% share of global shipbuilding,” Modi said. “We want to encourage shipbuilding.” Elaborating on his theme of “come, make in India”, which he mentioned during his Independence Day speech, Modi said his government will encourage foreign investment in shipbuilding.

India, Modi said, has a large army of youngsters which was as long as the country’s vast coastline. “We have young people, skilled manpower who can be easily mobilized. Shipbuilding is also not about technology. Turner, fitter, welder also are involved in shipbuilding. The poorest of the poor gets employment,” Modi added.

Local shipbuilders have been struggling to get orders for constructing merchant ships after the global recession of 2008.

Indian shipyards are outbid by Chinese and Korean shipyards due to cost differentials arising from lack of support for the industry in India, said a spokesperson for the Shipyards Association of India, an industry lobby.

“On the other hand, foreign shipyards benefit from direct fiscal and non-fiscal support from their respective governments,” he said.

Indian shipyards pay an interest of 13-14% on capital expenditure and working capital loans for purchasing raw materials and other inputs as against around 4-6% in countries such as China and South Korea.

“The differential interest cost imposes a significant cost burden on Indian built ships,” the Shipyards Association spokesman added.

China’s EXIM bank gives preferential loans to its domestic shipyards at rates as low as 2.7% which provides a huge cost advantage to Chinese shipyards, especially when a ship is financed at debt-to-equity ratios which are as high as 90:10 and the working capital requirements for building a ship can be as much as 35% of the cost of a ship, on an average, during its construction period, the ministry spokesman said.

“Korea, China and Japan have pursued a mix of fiscal and non-fiscal incentives for encouraging growth and development of their shipbuilding industry. Shipbuilding is a capital intensive industry with a sell first, build later model where buyers pay a small percentage of the price of the ship upfront. This requires shipbuilders to invest substantial capital in executing orders,” the spokesman said. “Availability of loans at a low cost is a significant support provided by most shipbuilding countries to their yards.”
– The Shopping Tribune

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