Indian Shipbuilders Struggle to Access ₹4,000 Crore Aid
MUMBAI: A significant ₹4,000 crore financial assistance scheme for Indian shipbuilders is facing underutilization, with only ₹499.61 crore, or about 12.5%, disbursed so far. Launched in April 2016, the scheme is set to expire in just eight months, raising concerns about its effectiveness. Union Minister Sarbananda Sonowal revealed that the funds have been allocated for 177 vessels, but the slow uptake highlights challenges within the industry.
Challenges in the Shipbuilding Sector
The Ship Building Financial Assistance scheme, which began on April 1, 2016, was designed to support local shipyards by providing financial aid based on a decreasing percentage over time. Initially, shipbuilders received 20% of the contract value, which will drop to 11% by the end of the ten-year period. However, recent amendments have adjusted these terms, allowing for a retention of 14% aid in the final year and removing the ₹40 crore cap on non-specialized vessels constructed within three years of the contract date.
Despite these changes, the uptake of financial assistance has been sluggish. Sonowal attributed this to the long construction times associated with shipbuilding and the impact of the COVID-19 pandemic. The disbursed amount has seen a gradual increase, from ₹29 crore in 2018-19 to projected figures of ₹90 crore and ₹137 crore for the upcoming years. The Ministry has also granted in-principle approvals for 142 export vessels, with 19 already delivered to international markets, including Europe and the UAE.
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Local shipbuilders face numerous hurdles, including a lack of infrastructure and a preference for government-funded defense contracts, which do not qualify for the financial assistance. Currently, India holds less than 1% of the global shipbuilding market, dominated by countries like China and South Korea, which have long benefited from various incentives to bolster their shipbuilding industries.
Future Prospects and Policy Changes
In response to the challenges faced by Indian shipyards, the Union Cabinet is set to consider a new shipbuilding policy aimed at enhancing competitiveness. This proposed policy includes a ship recycling credit note scheme and a fixed rate of financial assistance for local yards over the next decade. The financial aid is expected to be structured at 15% for standard ships valued up to ₹100 crore, 20% for specialized vessels, and 25% for environmentally friendly ships.
Under the ship recycling credit note scheme, fleet owners will receive a credit note equivalent to 40% of the scrap value of dismantled ships, which can be used to offset the cost of constructing new vessels at Indian shipyards. This initiative aims to promote Indian shipyards in the global market and increase their order volumes.
As the government seeks to boost manufacturing and enhance the competitiveness of Indian shipbuilders, these policy changes could play a crucial role in revitalizing the sector and ensuring that the financial assistance scheme achieves its intended goals before its expiration.
