It is proposed that a credit note equivalent to 40% of the scrap value of a ship being dismantled at an Indian shipyard be provided to fleet owners, both Indian and international. This amount can be reimbursed against the cost of building a new ship at an Indian shipyard, officials said.
“Under this scheme, fleet owners will be incentivised to recycle their ships in India,” said one of them. “The only condition is that they will have to build new ships in India to get the benefit of the scheme. If they go outside India to order new ships, the credit note will not be applicable. The idea is to promote Indian shipyards in the global market and help them get more orders.”
The government is seeking to boost local shipbuilding by linking it to recycling with the incentive of a credit note.
Cost-offsetting disadvantage
Alang-Sosiya in Gujarat’s Bhavnagar district (home to the world’s largest expanse of shipbreaking facilities) left 125 ships stranded for recycling in FY24, compared with 131 in the previous year, according to the Gujarat Maritime Board. India has less than 1% of the global shipbuilding market but aims to enter the top 10 by 2030 and the top five by 2047.
According to the proposal, there will be a tiered level of subsidy for shipyards making various types of ships — 20% for a normal vessel, 25% for special category vessels including oil, gas, chemical and container ships, and 30% for green and other vessels with futuristic technology. The subsidy rate will be fixed for the duration of the scheme, which will run till March 2034, with a possible extension till 2047 to give long-term “visibility” to shipyards while booking orders, one of the officials said.
This is different from the current shipbuilding financial aid programme, which was launched in April 2016 for a period of ten years, in which the subsidy was reduced by three percentage points every three years. It started with 20% in the first three years, 17% in the next three, 14% in the next three and 11% in the tenth year.
The government had budgeted Rs 4,000 crore to be disbursed as subsidy under the existing scheme, but barely 10% of the capital has been utilised so far and there are less than two years left for the scheme to end. The scheme was introduced to help offset the 20-35% cost disadvantage faced by local shipbuilders in competing with foreign shipyards for orders.
The financial assistance scheme did not yield the desired results, partly due to disruptions caused by the pandemic and lack of capacity at shipyards to build commercial vessels. Shipbuilders focused on building warships for the Indian Navy and Indian Coast Guard vessels.
“We are trying to address the reasons for the poor performance of the current scheme in the shipbuilding policy 2.0,” one of the officials said.
Major shipbuilding countries such as China and South Korea offer subsidies of 20 to 30 percent to shipbuilders.
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