Shipyards may lack punch as FinMin pitches for lower quantum in Ship Building Financial Assistance Policy 2.0, ET Infra
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The much-awaited Ship Building Financial Assistance Policy 2.0 will likely see a lower quantum of aid for different categories of ships than the one mooted by the Ministry of Ports , Shipping and Waterways with the Ministry of Finance pitching for a lesser percentage, a move that is expected to hurt local shipbuilders while competing with global yards for orders.According to the proposal piloted by the Ministry of Ports, Shipping and Waterways, shipyards would be entitled to get 20 per cent extra as government aid on the cost of constructing a normal ship, 25 per cent as financial assistance for building special category vessels including oil, gas, chemical tankers and container ships and 30 per cent extra for green ships and other vessels with futuristic technology.The quantum of financial assistance will be static for the duration of the scheme that will run through March 2035 with possible extension up to 2047 to give 'long term visibility' to the yards while booking orders.But, the Ministry of Finance is said to have advocated a lower quantum of financial assistance for building ships: 15 per cent for normal ships, 20 per cent for large ships and 25 per cent for specialised vessels including green ships, potentially chopping off 5 per cent from each of the categories suggested by the Ministry of Ports, Shipping and Waterways, sources said.The revamped Ship Building Financial Assistance Policy was appraised in March by the Expenditure Finance Committee (EFC), headed by Secretary (Expenditure) in the Ministry of Finance, basis which the Ministry of Ports, Shipping and Waterways has prepared a note for the consideration of the Union Cabinet Finance Minister Nirmala Sitharaman announced a ₹25,000 crore Maritime Development Fund , a revamped Ship Building Financial Assistance policy, credit note for shipbreaking in Indian yards and infrastructure status to large ships in the February 1 Union Budget.'For long term financing of the maritime industry, a Maritime Development Fund with a corpus of ₹25,000 crore will be set up,' Nirmala Sitharaman said in her Budget speech to Parliament. This will be for distributed support and promoting competition.The Ship Building Financial Assistance scheme will be revamped to address cost disadvantages, Sitharaman said. This will also include credit notes for shipbreaking in Indian yards to promote the circular economy.Besides, large ships above a specified size will be granted infrastructure status to help access long-term, low-cost funds, Sitharaman pledged while unveiling the Budget.Under the existing Ship Building Financial Assistance scheme that started from April 1, 2016, for a ten-year period, the quantum of aid is reduced by three percentage points every three years, starting with 20 per cent during the first three years, 17 per cent for the subsequent three years, 14 per cent for the next three years and 11 per cent in the tenth year.However, the Ministry of Ports, Shipping and Waterways recently amended the norms for implementing the Ship Building Financial Assistance scheme by removing the cap of ₹40 crore for constructing a non-specialised ship within three years from the date of contract.Through the amendment, the Ministry also retained the quantum of aid at 14 per cent instead of the 11 per cent agreed earlier for the 10th year of the scheme that ends in March 2026 after a ten-year run.Local shipbuilders lobbied for removing the ₹40 crore cap on financial assistance per ship, saying that the upper limit was introduced when the shipbuilding prices were low.'However, due to various factors impacting supply chains, raw materials and equipment pricing, the global ship building prices have increased by about 80 percent,' said an executive with a private shipyard.Further, new regulatory guidelines for lowering carbon emission and emphasis on using green fuels have forced change in technology and the resultant higher capital investment for building ships.As a result, ships that were built at, say, ₹100 crore are currently costing more than ₹200 crore. Indian shipyards are now aiming to build ships of higher value.'The financial assistance for such high value vessels will exceed ₹40 crore at 14 per cent itself. If the vessels being built are capable of running on alternate fuels or are hybrid, then the cap of ₹40 crore will be of very low value and will be insufficient for local yards to compete with Chinese and other Southeast Asian shipbuilders who also receive substantial support from their respective governments,' the private shipyard executive said.Shipbuilders were of the view that the removal of ₹40 crore cap will help India secure high value shipbuilding projects, boosting export value and higher employment.Local shipyards reckon that a lower quantum of financial assistance preferred by the Finance Ministry in the revamped scheme would hinder their ability to compete with Chinese and South Korean yards for orders.India holds less than 1 per cent (0.06 per cent) of the global shipbuilding market and is ranked 20th in the industry but aims to break into the top 10 ranking by 2030 and top 5 by 2047.India has the lowest labour costs - a key factor deciding a nation's competitive position in the labour-intensive shipbuilding industry.However, this advantage has not translated into cost effectiveness because of factors such as reliance on import of key raw materials used in making ships and higher financing costs. India's dependence on imports for most of the inputs consumed in shipbuilding puts cost pressure on local shipbuilding firms.Indian yards suffer from systematic cost and price disadvantages of around 25-35 per cent compared to South Korea, Japan, Vietnam, Indonesia, Malaysia and Philippines, among other nations.The cost differential is sought to be offset through the financial assistance scheme.Whereas China, being one of the cheapest steel makers in the world, helps its yards to reduce costs and lower shipbuilding prices in the global market.
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