Posted on February 18, 2025
By Rear Admiral Sanjay Roye AVSM VSM (R), Indian Navy
The Government of India has unveiled a comprehensive strategy to invigorate its shipbuilding industry, as highlighted in the Union Budget announced on February 1. This multifaceted approach encompasses substantial financial allocations, policy reforms, and international collaborations, all aimed at positioning India as a formidable player in the global maritime sector.
Financial Commitments And Policy Reforms
A cornerstone of this initiative is the establishment of a Maritime Development Fund (MDF) with a corpus of Rs 25,000 crore (approximately US$3 billion). The government will contribute 49% to this fund, with the remainder expected from ports and private investors. The MDF is designed to provide long-term financial support to the shipbuilding and repair sectors, addressing the industry’s need for sustained capital infusion.
The Shipbuilding Financial Assistance Policy (SBFAP) will be revamped to address cost disadvantages, including credit notes for shipbreaking at Indian yards.
The budget also proposes classifying large ships above a certain size as infrastructure assets, facilitating easier access to financing and attracting investments.
Additionally, shipbuilding clusters will be facilitated with additional infrastructure in Andhra Pradesh, Gujarat, and Odisha to enhance production capacity and technological development.
Tax Incentives And Regulatory Simplification
Recognizing the importance of a conducive tax environment, the government has announced multiple tax and tariff-related measures. Some of the salient features are listed below:
- A fixed-rate subsidy for shipbuilding to be provided for ten years.
- The exemption of Basic Customs Duty (BCD) on raw materials, components, and parts for shipbuilding to be extended for another decade.
- The same tax exemption dispensation will apply to shipbreaking.
- The time limit for finalizing provisional assessments to be set at 2+1 years.
- The tonnage tax scheme will be extended to include the Inland Water Transport (IWT) sector.
- The rationalization of the customs tariff structure will remove seven tariff rates, leaving only eight.
- The FDI limit for the insurance sector will be raised from 74% to 100%, but only for companies that utilize the entire premium in India.
- IFSC-specific benefits will be extended to ship leasing units and insurance offices, with the cut-off date for commencement extended by five years.
- The period of incorporation for start-ups will also be extended by five years.
Digital And Infrastructure Enhancements
To modernize the shipbuilding ecosystem, the government has introduced multiple digital and infrastructural initiatives. Amongst these, the PM Gati Shakti initiative will further Public-Private Partnerships (PPP) and assist private sector players in project planning by providing access to relevant data and maps.
Also in the plans is the establishment of a National Digital Repository for knowledge sharing in the maritime industry. In addition, a Digital Public Infrastructure initiative will be launched under the Bharat Trade Net to serve as a unified platform for trade facilitation.
International Collaborations And Delegations
India is actively seeking international collaborations to integrate global best practices and technologies. The Korea Herald reported last month that a high-level delegation from Hanwha Ocean Co. Ltd. of South Korea recently visited India to explore potential partnerships with Indian shipyards, including Cochin Shipyard Ltd. and Hindustan Shipyard Ltd.
Concurrently, Indian officials have been engaging with Japanese counterparts, visiting top shipyards in Japan to study their operational efficiencies and technological advancements.
Global Challenges In Shipbuilding
Despite India’s ambitious push, several global challenges need to be factored into its shipbuilding strategy:
- Supply Chain Disruptions: The COVID-19 pandemic and geopolitical tensions have exposed vulnerabilities in the global supply chain. Delays in procuring critical components like engines, navigation systems, and specialized steel can impact shipbuilding timelines. India must strengthen its domestic supply chain resilience by continuing to localize production and securing alternative sources for critical imports.
- Environmental Regulations and Green Shipbuilding: The International Maritime Organization (IMO) has been enforcing stringent environmental regulations, including carbon emission reduction targets. This necessitates investment in green shipbuilding technologies, such as LNG-powered vessels, hydrogen fuel cells, and electric propulsion. Indian shipyards must innovate to remain competitive while adhering to these evolving standards.
- Competition from Global Shipbuilding Hubs: Countries like China, South Korea, and Japan dominate the global shipbuilding market, benefiting from decades of experience, economies of scale, and state subsidies. India will need to enhance its competitiveness through policy support, skilled workforce development, and improved industrial efficiency.
- Rising Costs of Raw Materials: The volatility in the prices of steel, aluminium, and other essential materials directly affects shipbuilding costs. Establishing long-term procurement agreements and incentivizing domestic production of shipbuilding materials can mitigate cost fluctuations.
- Skilled Workforce Shortages: Advanced shipbuilding requires highly specialized skills in naval architecture, marine engineering, and automation. Investing in maritime education, training partnerships with global shipyards, and skill development programs will be crucial to ensuring a steady pipeline of skilled professionals.
Strategic Imperatives And Future Outlook
The government’s concerted efforts in the shipbuilding sector are driven by both economic and strategic imperatives. Economically, a robust shipbuilding industry can generate significant employment opportunities, stimulate ancillary industries, and contribute to the nation’s GDP. Strategically, enhancing domestic shipbuilding capabilities is vital for national security, ensuring that the country’s maritime defense requirements are met indigenously.
The emphasis on sustainability is also evident in the proposed policies. The introduction of the ship recycling credit note scheme not only incentivizes environmentally responsible recycling practices but also ensures that valuable materials are reintegrated into the production cycle, reducing waste and conserving resources.
Moreover, the establishment of shipbuilding clusters is poised to create centers of excellence that foster innovation, skill development, and technological advancements. These clusters are expected to attract both domestic and international investments, creating a synergistic environment that propels the industry forward.
The government’s proactive engagement with global leaders in shipbuilding, such as South Korea and Japan, reflects a pragmatic approach to capability building. By learning from established players and adapting their best practices, India aims to accelerate its journey towards becoming a significant hub for shipbuilding.
Conclusion
The Government of India’s comprehensive strategy, as delineated in the recent Union Budget, signifies a robust commitment to revitalizing the shipbuilding industry.
