The following is the text of a press-release made by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) on APR 16, 2002 (Source ASSOCHAM’s website www.assocham.org):
Shipbuilding & ship repair industry to reach Rs 9,200 crore by 2015: ASSOCHAM
Monday, April 16, 2012
The Indian shipbuilding and ship repair industry is likely to reach Rs 9,200 crore [USD 18.4 b] from the current level of just over Rs 7,310 crore [USD 36.6 b) and is growing at a compounded annual growth rate (CAGR) of about 8 per cent, apex industry body ASSOCHAM said today.
India accounts for just about one per cent of the global shipbuilding industry worth about Rs 7.3 lakh crore, [USD 146 b] according to a study titled ‘Shipbuilding Industry in India: An overview’ released by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
The global shipbuilding and ship repairing industry is growing at a CAGR of about 24 per cent and is likely to reach Rs 14 lakh crore [USD 28 b] by 2015 owing to rising global sea borne trade, according to the ASSOCHAM study.
“Lower costs of labour, availability of skilled workforce together with robust demand in the domestic market and a growing steel industry are certain factors that build up a strong case for shipbuilding sector in India,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the findings of the study.
“For a well balanced and comprehensively developed domestic shipbuilding and ship repair industry, the government should provide fiscal incentives to develop strong research and development facilities, designing capabilities and set up an auxiliary base to encourage the growth of the sector,” said Mr Rawat.
The overall cargo traffic at major ports in India is about 600 million tonnes and is likely to reach 1,230 million tonnes by 2015 and 3,000 million tones by 2020 growing at a compounded annual growth rate (CAGR) of about 20 per cent, said ASSOCHAM study.
“For this India needs to furbish up its ports and the whole shipping infrastructure to enhance the handling capacity and facilitate operation of larger shipments to increase its share in the global maritime business,” said Mr Rawat. “The government should rope in maritime states to identify and make land available, thereby seeking their contribution for setting up a new port or a shipyard in each of these states.”
“This also denotes huge scope for private sector and foreign direct investment (FDI) in the shipping industry and the maritime states can develop a composite project on the public-private partnership model,” he said.
China, South Korea and Japan are leading shipbuilding nations and cater to over 80 per cent of the global shipbuilding industry. China alone accounts for over 35 per cent of this global industry. India and Vietnam are upcoming centres for global shipbuilding.
Indian companies are cashing in on the huge scope in building and repair of offshore vessels (OSVs) as leading nations in this industry are jostling with limited capacities.
High input costs and rising costs of raw material, freight together with miscellaneous duties and taxes being imposed amounts to a huge price differential of about 50 per cent in building a ship in India and other countries, said ASSOCHAM.
Besides, though the costs of labour in India is low compared to that in other nations but shipbuilding being a labour-intensive industry, fulfilling the requirement of skilled workforce is another significant problem being faced by the shipbuilding companies.
The government has a key role to improve the efficiency and productivity of domestic shipbuilding companies to enable them compete with their overseas counterparts. ASSOCHAM recommends revival of subsidy scheme, easing tax related regulations and declaring the shipbuilding a status of strategic industry.
With about 8,000 kilometre long coastline there are about 27 shipyards, 12 major ports and 200 ports under states’ jurisdiction in India, there is huge scope for development of shipping sector considering that country’s opportunities in the maritime business have not been utilized fully. Besides, the government should simultaneously boost inland water transport.
Here is what I have to say:
The domestic shipbuilding industry may be growing at eight per cent annually, but it accounts for just one per cent of the global shipbuilding market. There isn’t a shadow of a doubt that we’ve missed the opportunity to become a major player in shipbuilding despite the fact that the government invested heavily of the years immediately after independence. The biggest shipbuilding nations are China, South Korea and Japan which between them account for over 80% of the global shipbuilding industry. China alone accounts for over 35 per cent of the global market.
ASSOCHAM has suggested that in order to put Indian shipbuilding on a faster track, the following should be done:
• Bracket the industry as a strategic one
• Revive the subsidy scheme for shipbuilders
• Cut the slack on certain tax regulations
These three could be taken up for starters.
Let us see what the subsidy they are looking at is. This, they say, should be provided to the extent of 30 per cent of contract price of orders, subject to certain conditions such as price discovery through competitive bidding. How much will the exchequer be affected by this? Domestic shipyards put the estimate in the range of Rs 700 crore [USD 14 m] in 2011-12. Both the shipbuilding and ship-repair industries are expected to see huge growth despite the current slowdown in the shipping markets. The study estimates that the global shipbuilding and ship repairing industry is seen as growing at a CAGR of about 24 per cent.
Will subsidising actually be of benefit to Indian shipbuilding? And, will such a regime be WTO-compliant? According to ASSOCHAM secretary-general DS Rawat, “Lower costs of labour, availability of skilled workforce together with robust demand in the domestic market and a growing steel industry are certain factors that build up a strong case for shipbuilding sector in India.” No doubt, the input costs together with miscellaneous duties and taxes, makes manufacturing ships in India about 50% more expensive than other countries. A 30% subsidy in this case will hardly help as there will still be a 20% difference.
So, what is the alternative? In my opinion, the main reason why shipbuilding costs are higher in India is the tiny scale of operations compared with the major shipbuilding nations. An infusion of investments and increase of capacity is the only way out. In an earlier article (see BRICS: Possible Benefits to Civil Aviation posted on APR9) I had said that BRICS nations could get together to build a third alternative to Boeing and Airbus. As far as shipbuilding is concerned, I have no such hope for the simple reason that China will not allow it. However, I don’t see a reason why India can’t go ahead on its own. The Central Government will have a minimal role in this. The maritime states though will be important players to ensure that the necessary land and sea accesses are put in place to enable the private sector to build the infrastructure.
I do see India as a major shipbuilding nation, maybe number one.
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