The Indian government is implementing a programme that will increase the government’s support for domestic shipbuilding. The authorities in New Delhi are optimistic that the new Program will not only improve the overall efficacy and balance of the sector but will also significantly contribute to accelerating the country’s future industrialisation. The Program’s details and manner of implementation were made public in February of this year while the Indian Parliament was discussing the proposed state budget for the fiscal year 2023-2024. The Republic of India currently has significant shipbuilding potential.
The government owns the seven largest shipbuilding and ship repair companies out of the country’s total of roughly 35 shipbuilding and ship repair businesses. More than eighty per cent of the Republic’s total shipbuilding capacity is held by only three state-owned corporations: Cochin, Hindustan, and Mazagon. The Republic’s overall shipbuilding capability is approaching two hundred and fifty thousand tonnes of deadweight produced yearly.
The country’s national shipbuilding market is rapidly expanding. According to analysts from the Indian marketing firm Infogence Global Research, the capacity of the local market for shipbuilding products in 2022 is predicted to be $6.77 billion, with a forecast of $8.07 billion for 2027.
Thus, the industry’s compound annual growth rate (CAGR) is 3.57%, which is significantly higher than the corresponding global shipbuilding indicators for the same period (2.0% – 2.3%) and is additional evidence of its investment attractiveness.
Simultaneously, the country’s leadership adheres to a policy of prompt (and maximum possible) localisation of the production of ships of the main types at Indian shipyards, as well as the predominant production of materials and components required for shipbuilding/ship repair at national enterprises, as part of a set of measures for the modernisation and further development of national shipbuilding.
Shipyard investment – freight savings
In addition to significantly increasing production volumes in the shipbuilding industry, the new government state support program’s strategic goal is to boost the capacity of the national merchant fleet. This includes maintaining the export cargo base and assuring raw materials and merchandise import into the country.
It should be mentioned that during the worldwide economic crisis of 2019-2020, which was caused by the first wave of the Covid-19 pandemic, the Indian fleet’s share of the country’s export-import operations fell below 7%, and its tonnage accounted for only approximately 1% of the global total. China’s commercial shipping accounted for 16% of all worldwide maritime freight flow in the same period.
Over the next two years, India failed to significantly improve its situation by restocking its merchant fleet. The next global economic crisis (this time connected to events in Ukraine) further compounded the problem of a scarcity of vessels for diverse purposes. The Republic’s merchant fleet consists of over 1,500 vessels with a total deadweight of almost 13 million tonnes. However, its capacity needs to be improved in light of India’s recent (from 0.8% to nearly 2.0%) increase in its proportion of global merchandise exports.
As a result, Indian cargo owners must drastically raise their costs for chartering foreign ships. According to the Federation of Indian Export Organizations (FIEO), its members will have to spend up to $100 billion for these reasons by 2021, nearly doubling three years ago. As the Ukrainian conflict worsens and becomes protracted, freight charges continue to rise fast, negatively affecting cargo owners and end users.
This is especially true for routes connecting India to Russian ports, where the intensity of cargo transportation has surged since the beginning of the year, and freight costs have increased by about 60% on average.
According to preliminary estimates from FIEO management, implementing government initiatives to support national shipbuilding (including relatively small regional enterprises in the development of which private companies are willing to invest) will allow Indian cargo owners to save at least $ 25 billion per year on freight rates.
State support in Indian style: facts and figures
According to preliminary data reported by foreign news agencies (particularly Reuters) citing sources in the Indian government, the new Program to Support National Shipbuilding provides for a significant reduction in industrial enterprise taxation with the mandatory allocation of a portion of the funds thus received to the development of production, as well as the introduction of various types of state compensation in its individual segments.
As a primary source of funding for the Program, it is proposed to establish a fund with a starting capital of 10 billion Indian rupees ($123 million), which will be refilled both directly from the country’s state budget and through other (including private) contributions.
According to officials of Indian government shipping circles, it is intended to build at least 50 new merchant fleet ships during the implementation of the state support programme; however, the exact timeframe and size of the ships have not yet been established.
A set of measures is also intended to boost the construction of relatively small transport vessels and create an environmentally friendly small-tonnage fleet, the vessels of which will be outfitted with electric motors driven by batteries. According to the proponents of this initiative, this will drastically reduce dangerous substance emissions into the atmosphere while conserving significant amounts of hydrocarbon fuel.
One of the Program’s most essential elements is the grant of “infrastructure” status to the national shipbuilding industry, which (the Program’s creators expect) will greatly ease access to bank financing for industrial businesses.
The Indian government cites a lack of balance in the taxation structure, particularly at the municipal level, as one of the issues severely impeding the further expansion of private investment in shipbuilding. It is worth noting that, according to this metric, India remains much inferior to Cyprus, Panama, Malta and Singapore.
According to Indian sources, to which Reuter’s specialists refer in their publications, the anticipated cost of building ships in India is over 20% lower than in Indonesia and the Philippines. According to official Delhi, the latter condition is a further reason to change the current tax legislation.
The Indian government has fully recognised the losses that the country is already suffering as a result of the lack of its transport tonnage, including the additional costs of chartering the missing ships (which automatically raises the cost of the cargo carried on them) and the country’s growing reliance on foreign operators. The Indian leadership is conscious of the possibility of these risks increasing if the global economic crisis worsens, up to and including concentrated political pressure on the Republic.
The decision to provide state support not only to large but also to small-tonnage shipbuilding (including private shipyards) demonstrates the country’s authorities’ desire to create an incentive for the inflow of investments into the industry – both from the domestic side (at the initial stage) and (in the future) from foreign business.
The implementation of such plans creates favourable conditions for achieving a dual goal: intensifying shipbuilding product production in the broadest range and range of directions in a relatively short period (and without excessive state budget expenditures), as well as creating a modern transport fleet that is well balanced in terms of types and the number of ships.
According to New Delhi’s most recent shipbuilding plans, India is serious about expanding its merchant fleet’s capabilities and greatly boosting the volume of cargo transportation (mainly of Indian-made commodities) on ships flying the national flag, both on coastal and international routes.
As a result, the Republic joins a trend gaining traction among “sea” powers. Its essence is to further improve the national economy by prioritising the development of maritime transportation.
China, Thailand, and Vietnam, for example, have made substantial efforts in recent years to improve the capabilities of their national merchant fleets. South Africa also implements a large-scale plan to create a new national shipping company.
The requirement placed on governments around the globe to improve their economic sovereignty by bolstering their transport component is becoming increasingly rigorous. A contemporary marine fleet that is well-balanced in terms of vessel types and sizes is necessary for successfully resolving this problem. So, it is now up to the shipbuilders of the Republic, for whom life provides the circumstances for the ongoing expansion of their industry.