SHIPBUILDING INDUSTRY IN INDIA – AN OVERVEIW - by Charanya Krishnan Background: Shipbuilding (encompassing shipyards, the marine equipment manufacturers and

a large number of service and knowledge providers) is an important and strategic industry in a number of countries around the world. This importance stems from the fact a nation's need to manufacture and repair its own Navy and vessels that support its primary industries. This paper presents a brief overview of the shipbuilding industry in India and the possible challenges and opportunities that Indian companies could enjoy in the future. The Uniqueness of Shipbuilding sector: § The shipbuilding industry has its own distinctive feature as compared to other industries in the country. It is unique in a way that it has to sell first and construct later, unlike the auto industry or others, where one manufactures first and sells later. § Further shipyards get orders only if they are credible (deliver quality ships on time) and it can be credible only after successfully executing consistently under international competition. § Further, subjoined, it has to be globally competitive against the best yards in the world. Unfortunately, the shipyards are faced with very stiff taxes, tariff, duties, and financing charges as compared to foreign yards. § The deliverables of the sector involves long gestation periods and requires high cost finances over a long period. Global Scenario: Globally shipbuilding is a USD 20 billion industry. The global shipbuilidng order book recorded a 29% CAGR over the period of 2003 – 06. An upward trend has been witnessed in the world order book as a percentage of worldfleet indicating a strong demand outlook. Fortunes of shipping and shipbuilding industries seem to be linked to each other or at least move in tandem. For nearly three decades in the post World War II era, both the industries were dominated by European nations and United States. Historically, shipbuilding industry suffered from the absence of global rules and a tendency of over-investment due to the fact that shipyards offer a wide range of technologies, employ a significant number of workers and generate foreign currency income (as the shipbuilding market is dollar-based and a global one). However, high labour costs in the yards of Europe and USA, one of the major determinants in this cost competitive industry, has led to a gradual shift of the center of shipbuilding to these Asian nations over the last two decades. Today shipbuilding has become an attractive industry for developing nations. Japan used shipbuilding in the 1950s and 1960s to rebuild its industrial structure, Korea made shipbuilding a strategic industry in the 1970s and China is now in the process to repeat these models with large state-supported investments in this industry. The tidal shift in shipbuilding activities, from Europe to Asia, has opened up huge opportunities for Indian yards, and both public and private ship-builders are capitalizing on them Indian Scenario:

000 crs (roughly 3060 m $) in 2006 The Indian shipbuilding industry is on a high growth trajectory and is expected to grow at a compounded growth of 30%. the Indian shipbuilding industry is emerging as internationally competitive export led industry.1% in the beginning of 10th Plan to 1. today contrary to expectations the Indian Shipbuilidng order books stand at 1. Thanks to the gradual shift of shipbuilding from Europe to Asia. and the rest in the private sector. The industry is expected to become self sufficient in 10 years time and will no longer require subsidy thereafter. has been created for the Indian shipbuilding industry. the industry is still in its nascent stage and dependent on government support for subsidy. Country Completions M DWT Employees Productivity DWT Person Japan (2004) 23. a window of opportunity which was not available earlier.3m DWT . It is clear from the above that India can grow in the shipbuilding sector in a healthy manner if shipbuilding is recognized as a strategic industry and if it can enjoy simple taxation policies with a fully empowered regulating body for quick decision-making .2 80. Though India has not yet become a significant player in the global shipbuilding business. China India Shipbuilding & Repair Yards 492 28 Manufacture of Equipment 148 Not Known No of Employees 2. The current shipbuilding capacity of India is only 2. 2 with state governments. This has been possible on account of the shipbuilding boom and both foreign/Indian Shipping Companies are coming forward to place new building orders on Indian Yards. poor productivity and lack of modernisation.800 320 China (2004) 8.000 290 Korea (2004) 23 71. Tracking India’s performance: India has 23 shipyards. it’s productivity is almost the same as India and this is one area that India can take a lead on the strength of its IT industry and setting up new modern shipyards. of which 7 are under administrative control of the central government. India’s share in the world market has gone from an insignificant low of 0.81.000 DWT. A comparison of productivity shows that while China may be well ahead of India in total ship building.702 (total industry) 12.87. which is quite undersized according to global shipbuilding standards.000 Orderbook 40 m DWT 1.000 56 India (2006) 0. Nevertheless.3 million DWT. it has gained a strong foothold in the niche offshore segment. it’s productivity is almost the same as India and this is one area that India can take a lead on the strength of its IT industry and setting up new modern shipyards. This has enabled the industry’s order books to grow from Rs 1500 crs in 2002 to Rs 14.8 158. The Indian shipbuilding industry had always been dogged by low capacity. Hence from an an inward looking industry dependent on government orders.000 50 Comparing India and China: A comparison of productivity between India and china shows that while China may be well ahead of India in total ship building. and inadequate given the country's requirements.With global shipping industry pitching for an unprecedented demand for new shipbuilding .3% in 2006.6 12.

Apart from skilled welders and fitters.192 per year. With the exponential growth in the number of ships calling on Indian ports. The labour cost per worker in India is estimated at $1. India has world-class naval engineers and architects.520 44.95 billion in the shipbuilding industry.018 Conducing Studies 190 NA 190 Total 20. The growth of Chinese shipbuilding industry is now becoming a threat to almost all major shipbuilding nations as China is planning to become the leading shipbuilding nation with an aim to corner more than 30% global share by 2015. The fact however remains that India’s contribution is tending towards being a significant component in the global shipbuilding industry and that we need to get our act together to use this very promising window of opportunity. can make India a global power.018 NA 2.500 5900 Setting up of two International size Shipyards 15.Global share 19 .317 per worker in leading shipbuilding countries like South Korea and Singapore.000 30. India is probably the only country that will be able to match the Chinese prices with its relatively low labour costs and industrial base for manufacture of equipment. against $10. Stakeholders in Indian Shipbuilding sector: Government: § FDI: the government has permitted 100% FDI in shipbuilding and ship repair activity § Investments: the government has proposed to invest INR 71. India has a lot of catching up to do.608 23. towards the modernization of infrastructure and development of a research design base § XI plan outlay: Name of shipyards/schemes Government Budgetary Support (INR million) Internal and External Budgetary Support Total Cochin Shipyards 400 5. the country missed due to lack of industrial growth. along with top-class management.000 R&D schemes in Shipbuilding 2.000 15. providing shiprepair facilities is becoming an increasingly attractive opportunity.743 and $21. Watching the Indian Shipbuilding Market: Key players: Key issues and challenges: The Indian Government has been trying various promotional and subsidy measures since the 70’s which managed to keep the industry alive at a time when the global industry was passing through a deep recession after the boom of the 70’s which.128 Private Players: Indian corporates and shipyards plan to invest over 170 billion INR over the next 5-7 years that has the potential to take india’s share to over 3% to 5% of global shipbuilding. These. Indian business is convinced that India has a major comparative advantage in ship-building that has been masked all these years by an inefficient public sector notorious for high costs and time overruns. Not only does ship-repair and building activity help generate substantial local jobs. it also builds the capacity of local industry. .20% 1% China has been gaining almost 2% of the world’s share every year.

Lack of ship design and limited investment in R&D: Indian players need to work hard to meet the international players in ship automation and technology Benchmarking it to international standards: The Indian shipbuilders must focus on benchmarking their own processes to international standards to improve the efficiency. plasma cutting machines. price and quality. etc could be introduced to improve efficiency. there is a need to ensure that that prescriptive procedures governing eligibility to receive subsidy are removed. As a result there is significant cost disadvantages on account of import dependence which eat into low labor cost advantages of Indian shipbuilders. Measures such as performance incentives. the policy of GOI to extend subsidy support to Indian shipbuilders enabled them to effectively compete in the global market. which could lead to optimal and effective contribution towards the global shipbuilding industry. These taxes cumulatively put Indian shipyards at a disadvantage and . Infact the time is just ripe for India to carve a niche in this sector. the Cochin shipyard is the only one that has the capability to build large and modern ships. However in order to achieve this objective. which effectively ensure that the benefits of the subsidy scheme are not realized by the private ship-owners as most of their ship building orders are through negotiations Deficient infrastructure: Indian yards lack the capability to build large and modern ships. A cluster development approach for building ancillary capacity could be adopted. Supporting the growth of ancillary industries: Ancillaries need to develop along with the shipbuilding industry as they are the key competitive differentiator for establishing/relocating shipbuilding and shiprepair facilities. While the government has provided subsidies to shipyards but it has to ensure that the benefits reach the private players as well Disadvantages accruing from small scale of operations: the shipbuilding sector in China and South Korea have received government fiscal and policy support. This is an opportunity for India to revive its shipping industry and bring it at par with the rest of the world. will enhance the competitiveness of the shipbuilding sector. Presently. These advantages of scale are not available to Indian shipbuilding industry. even as its renewal is under construction. PPP models. It is essential for India to put together strategies. which imports most of its input materials and is therefore unable to leverage advantages offered by bulk purchases and Just in Time supplies. enabling them to develop scale as well as a cluster of ancillaries. it would be imperative to address concern areas which could be detrimental to the future progress of the sector: Procedure governing subsidy support: with Indian shipyards suffering systemic and scale disadvantages.0% is levied on them (d) Onerous Tax Structure: Indian shipyards are subject to 19 different taxes/ duties. However. Training and human skills issues: Development of training programs in various academies to produce high quality talent should be prime focus No tariff protection from imports Multiple clearances: As the industry Is dynamic and cyclical in nature these clearances result in procedural delays and hampers augmentation of capacity (a) Presently there is no supervisory Authority/Apex body (b) High customs and excise Duty on capital investment: The government levies 35% duty on all capital equipments such as cranes. which will in turn. after expiry of the subsidy scheme. and other material handling equipment purchased for running a shipyard (c) Duty on sale of ships to Indian Shipping Companies: The materials and parts imported for building ships are exempted from payment of custom duties but these ships once built are treated as imported ships and a custom duty of 5. delivery time. These include necessity to win an order through international bidding or certification from the ship owner that the bid process had been followed before selecting the Indian shipyard.The shipbuilding industry is now witnessing a growth phase after a gap of almost 25 years.

resulting in a shift towards India Replacement Demand: 40% of the Indian owned fleet is more than 20 years old and Indian owners will need to spend about $ 4 billion to replace these in the next 5 years. there is increased exploration and production (E&P) activity. Indian shipyards have carved a niche in the construction of OSVs. The successful shipbuilding industrial development of Japan. when compared with USD 10. labor cost per worker per year of USD 1. Approximately 70. particularly in the offshore segment. .317 in South Korea and Singapore respectively Offshore segment: As the proven oil and gas reserves are likely to meet the global energy requirements only till 2030. The International Maritime Organization (IMO) has mandated the phasing out of all single hull vessels by 2010. After all.0 % of Bharti’s and ABG’s order book is directed towards the oil and gas sector. cooperation and even acquisition and Joint Ventures with leading foreign yards. Conclusion: Worldwide the shipyards are full and the world is turning to India to meet its requirements. China and India have the skills and cheap steel to make the best and cheapest ships. Exemption of Service Tax on Shipbuilding and Ship Repair.192 is very low. Encourage Design capability and R&D through fiscal benefits as given to R&D investment in pharmaceutical sector. Single hull tankers constitute 15.8% of the total vessels SWOT Analysis: Recommendations: § § § § Dedicated SEZ for integrated and clustered development of Shipbuilding sector in India.743 and USD 21.diminish their cost competitive as compared to the international players Growth Enablers: The growth in overall trade. Globally India has one of the largest OSV order books. Korea and Japan have limited OSV capacity. Leveraging labor cost advantage: In India. Constitution of an apex body to regulate the working of the sector. and demand from the naval force and coastal guards are the key growth drivers for the Indian shipbuilding industry. This is expected to drive the demand for OSVs. increase in offshore drilling activity. Korea and China has not happened by chance but by a carefully crafted policy where the government has provided the core administrative guidance and support. Such an integrated policy initiative would be required for the revitalisation of the Indian ship repair industry as well so that conditions are created for the Indian firms to become technological leaders instead of followers. Industry leaders. through promoting competition.

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