Even with an eternal history of shipbuilding, India was never a major shipbuilding nation. With cheaper labor and efficient working conditions on offer, India has started emerging as a force to reckon with in this sector. India, which plans to make all kinds of commercial ships, aspires to be a  US$ 20 billion industry by 2020

Despite a legacy of over thousand years in shipbuilding, India is far from being a major player in the $200 billion global industry, dominated by Korea, Japan and China—the trio together having 75% of the overall market. The shipbuilding industry is interlinked with shipping, which, in turn, is intricately connected with the international trade of a country. Trade might have dipped in the current global scenario, but India’s exports have grown from $44 billion in 2002 to $163 billion in 2008 (CAGR of 24.5%), and imports from $51 billion to $251 billion (CAGR of 30.3%) in the said period. This has augured well with the shipping industry, and shipbuilding activity has also increased as a result. India aspires to be a leading player in the shipbuilding industry by 2020. Market size is estimated to grow from the current $5 billion to $20 billion by then, when India will have 15% of the global market. This piece is an attempt to give an overview of the Indian shipbuilding industry and strategies different players involved in the industry have adopted, and how the industry is coping with the slowdown.

History & overview
Traces of shipbuilding activity in India can be traced to the Harappan days, but in the modern sense, it took off in the 1990s when India’s share in the global trade started increasing gradually. Initially to mitigate any possible risks of downtrend in shipbuilding, shipyards were equipped with ship repair facilities. Private players started shedding their initial reluctance once they were sure of the surge in demand and support from the government. According to the report of the Working Group for Shipbuilding for the 11th Five-year Plan (2007-2012), India’s shipbuilding sector grew by 72% with an average rate of 15% per year during the10th plan (2002-2007). Contrast this to the average growth per year of only 4.5% achieved during the 9th plan (1997-2002) and one can understand how shipbuilding has evolved gradually in India.

Increase in trade, coupled with availability of cheaper and efficient labor, created an encouraging environment for the shipbuilding industry in the country. Indian efforts received a boost by a directive from International Maritime Organization (IMO)—a UN affiliated body responsible for improving maritime safety and preventing pollution from ships—to phase out all single hull tankers by 2010. This has fuelled demand for replacement ships, considering almost 32% of the fleet worldwide at present are single hull. Demand is getting further encouragement from an internationally accepted regulation of replacing 25-year old vessels with new ones. At present, almost 65% vessels in use are over 15 years old. Rise in exploration and production activities has also helped in sustaining demand for vessels of particular types. No wonder, order books of major shipbuilders in India are full till 2012.

It should, therefore, come as no surprise that a number of new players have shown intent to enter shipbuilding with various kinds of investments. Steelcast, a Gujarat-based company, with an annual turnover of Rs18 crore, is setting up a greenfield shipbuilding facility in Bhavanagar with an investment of Rs100 crore. ABG Shipyard, on the other hand, is going ahead with its Rs400 crore plan to build a new shipyard at Dahej. Reliance is reported to be spending some $2 billion on shipbuilding.

Major shipyards
According to the report of the Working Group for Shipbuilding for the 11th Five-year Plan, there are 27 shipyards around which Indian shipbuilding is based. Of these, eight are in public sector (six under the central government, and two under state governments) and the rest are in the private sector. ABG Shipyard and Bharati Shipyard, largest of the private shipbuilders, are based in Mumbai, while Chowguhle and Dempo are based in Goa. Major public sector players include Vishakhapatnam-based Hindustan Shipyard, and Cochin-based Cochin Shipyard. Pipavav Shipyard, sitting on order books of Rs4,360 crore, is working on building the largest shipbuilding facility in India 130 kms east of Bhavnagar in Gujarat. The Shipyards Association of India (SAI), a lobbying body of the Indian shipbuilders, insists that investments in new shipyards are moving forward.

Shipyards are usually built taking into consideration a lifespan of 100 years, which is bound to see many ups and downs in the global economy. This explains why Indian shipbuilders are going ahead with their plans to build their own yards despite problems with raising finance. L&T, which already has a shipyard at Hazira, has, however, decided to scale back investment on its upcoming shipbuilding facility at Katupalli near Chennai. It had expressed intentions to spend Rs3,000 crore on this.

Shipbuilding activity is expected to remain strong in India for another two decades, for it has moved here as a spillover from other countries. The industry started moving from Europe to Asia in the 1960s. First it moved to Japan and from there to Korea, and subsequently to China. With slots full in these countries, India has emerged as a new favorite. From India it is expected to move to Vietnam, which is already being seen as a force to reckon with.

Government policy
Though order books for Indian shipbuilding players, whose 70-80% orders come from foreign companies, are full till 2012, new orders are too hard to come by in the current slowdown. Global players like Hyundai and Daewoo are also feeling the heat. The role of the government thus assumes significance for the shipbuilders.

Shipbuilders are lobbying with the government to continue with the subsidy scheme that was in place till August 2007. Prior to August 2007, Indian shipbuilders were given 30% subsidy on all ship sales to foreign firms and on ocean-going merchant vessels more than 80 meters to domestic clients. The abolition of the subsidy scheme, according to Shipyard Association of India, has adversely affected new orders, as Indian vessels are now pitched unfavorably against those from Korea, Japan and China, where subsidies are as high as 40%. The old subsidy scheme is now expected to be re-implemented from April 1 this year.

KPMG, which was hired by the Shipyards Association for a study on shipbuilding subsidies as prevalent in other countries, has advised the government to confer infrastructure status on shipbuilding activity. This would render the sector applicable for tax holidays extended to infrastructure companies. KPMG also asked the government to extend the subsidy scheme till 2017.

Comments (3)

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The info is very usefull
written by Niravraj Jhala, March 07, 2010

The accurate information provided here is perfect and helping.
The flow as well is perfect.
Thank you.

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akrep ilaçlama
written by akrep, June 05, 2009

thanx men information...

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gaziantep evden eve nakliyat
written by gaziantep nakliyat, May 31, 2009

thank you:d

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