'Additionally, the significant employment multiplier will boost direct and indirect jobs of up to 1.1 million.'
Finance Minister Nirmala Sitharaman has announced measures for India's near-absent shipping and shipbuilding economy: A Maritime Development Fund (MDF), cheaper finance for large ships, a recycling scheme, and industrial clusters.
The Rs 25,000 crore MDF will give a strong start to India's shipbuilding journey, Union Minister of Ports, Shipping and Waterways Sarbananda Sonowal tells Dhruvaksh Saha/Business Standard in a written interview.
When will the MDF be launched and how will it operate?
We envision establishing it with an initial target corpus of Rs 25,000 crore till 2030, with 49 per cent equity investment from the central government and 51 per cent from major ports, financial institutions, private investors, and sovereign funds, among others.
Additionally, multilateral agencies and international development banks are potential partners for funding support.
The government is working on its launch through a structured approach. Key aspects like the fund's structure, the type of legal entity to be adopted for it, investment strategy, fund-management framework, governance, compliance mechanisms, etc are being finalised.
It is awaiting Cabinet approval, which is a critical milestone before its formal rollout.
By 2030, the MDF is expected to generate Rs 1.3-1.5 trillion of direct and indirect investment.
Additionally, the significant employment multiplier will boost direct and indirect jobs of up to 1.1 million.
What will the government offer in the shipbuilding financial assistance plan (SBFAP)?
We have envisaged around Rs 18,000 crore for SBFAP 2.0. This corpus will primarily be allocated financial aid to shipbuilders, allowing them to expand the production capacity, modernise infrastructure, and enhance technological capabilities.
It proposes to offer subsidies on the contracted price or fair value for vessels constructed in India from 2024 to 2034.
It will also cover existing committed liabilities from the first SBFAP.
A key feature of the revamped policy is the introduction of a credit-note mechanism, which will facilitate the purchase of replacement vessels from Indian shipyards by ship owners which have scrapped their vessels in India.
The policy is currently awaiting Cabinet approval.
The first SBFAP did not produce the desired outcomes for the government. What was your learning and how does SBFAP 2.0 address them?
Shipbuilding is a long gestation industry and shipyards take up projects that can be multiyear in nature.
Therefore, while the industry wanted to take advantage of the scheme, they were limited by their ability to react and retool.
The uptake of funds, including the disbursed amount, has risen in the past two-three years as the first scheme has been paying out and a substantial amount of the funds has been allocated as committed liabilities, which will be paid to shipyards after their contracts with their customers end.
Another key learning from the first scheme was that financial assistance was capped at Rs 40 crore, which did not incentivise the production of larger, more expensive ships, which are greater in demand globally.
This cap has been removed in SBFAP 2.0 and we expect a greater uptake.
Under the first SBFAP, the subsidy was set at 20 per cent of the contract price for ships in 2016-17 with gradual cut by 3 per cent every three years.
SBFAP 2.0 proposes a flat, non-reducing subsidy rate. Also, it will give greater financial assistance for specialised and green-fuelled ships to promote their adoption.
Has any large domestic or foreign shipbuilder shown an interest in being part of the shipbuilding-cluster programme?
The ministry has reached out to leading global shipbuilders, especially those from South Korea and Japan, which are among the top three shipbuilding nations.
Ministry delegations, which included industry partners, have visited these countries and their delegations came to India, with multiple rounds of discussion with state governments and our ministry.
There is a keen interest in collaboration from both Indian as well as foreign shipbuilding companies and we expect it to materialise into a partnership very soon.
What is the progress on shipbuilding and repair clusters with state governments?
Almost all coastal states have shown a keen interest in establishing shipbuilding clusters.
The ministry is working with state governments, the Department for Promotion of Industry and Internal Trade, and major ports to help identify potential locations.
Their feasibility is being studied for setting up shipyards as well as land for Tier-I, -II, and -III ancillaries along with necessary road, rail and air connectivity, utilities, and social infrastructure.
Many states are developing targeted shipbuilding policies to attract investment.
How much investment is expected in the shipbreaking and recycling sectors, following the Budget announcements?
The global shipbreaking market was valued at $3.98 billion in 2023 and is projected to grow to $7.64 billion by 2032, with a compound annual growth rate of 8.2 per cent.
Being the top-ranked player in shipbreaking, India is well positioned to attract a significant share of this growing market.
With the ship-recycling industry transitioning towards sustainable practices in alignment with the Hong Kong Convention and European Union Ship Recycling Regulation, compliance costs are expected to rise, in addition to evolving International Maritime Organisation regulations.
The proposed credit notes for shipbreaking will promote a circular economy in shipbuilding.
The extension of basic Customs duty aims to reduce the cost of dismantling and reusing materials, improving profitability and sustainability in the industry.
Feature Presentation: Aslam Hunani/Rediff.com
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