Indian shipyards poised for mega expansion

Indian engineering and maritime groups have lined up an estimated $4.5bn to invest in new shipyards, opening up a front in the nation?s competition with China to become a low-cost manufacturing centre.

The country?s newest shipbuilder, Pipavav Shipyard, is to “cut steel” on its first vessel today in its yard in Gujarat, western India, while across the industry there are plans to increase total capacity from 900,000 dwt a year in 2007 to 2.5m dwt in five years. Driving this growth is a boom in global orders for new shipping, projected to reach nearly 450m dwt this year, nearly triple the level of five years ago.

“We?re still very embryonic but we couldn?t have picked a better time to get into shipbuilding,” said Ray Stewart, chief executive of Pipavav Shipyard. He said Pipavav already had enough orders to make it India?s biggest shipyard by volume.

Arvind Mahajan, KPMG?s infrastructure and government national industry director, said groups including Pipavav, Bharati Shipyard, Hindustan Shipyard, ABG Shipyard, Larsen &Toubro and Shipping Corporation of India planned to invest Rs180bn in the industry, rising potentially to Rs400bn in five years and Rs2,000bn in 10 years.

Pipavav Shipyard, controlled by port operator SKIL Infrastructure, has $1.1bn of orders for 26 of its new 74,500 dwt Panamax bulk carriers, including from Golden Ocean Group. But the industry is facing hurdles, most importantly whether the Indian government will extend subsidies, which expired in August last year. Analysts consider the 30 % subsidy essential to competing with other countries, particularly China, which also offer generous tax breaks to producers. The industry argues that, as a labour-intensive sector, shipbuilding meets the government?s goals of creating more manufacturing jobs for the country?s vast pool of underutilised workers.

Nikhil Gandhi, group chairman of SKIL Infrastructure, said the government had “responded encouragingly” to industry lobbying for the extension of the subsidy. “It might be renewed in a couple of months,” he said.