Indian shipbuilders get government subsidy

With the Indian government now ready to disburse Rs 5,000 crore towards outstanding subsidy for the fledging Indian shipbuilding industry, the future is beginning to look brighter. The industry, going through a down cycle, is also looking forward to a fresh subsidy scheme from the next government to help it survive through the current difficulties. After 17 months of dispute between the shipping ministry and finance ministry, the latter recently cleared the outstanding subsidy. It is to be given to companies for confirmed orders booked before 14 August, 2007, when the scheme was finally closed by the government.

While public sector yards were to be given subsidy on instalment basis, the private sector got it after the delivery of the ship. “In the last 12 months, the order booking has almost dried up and there is a supply glut too. The industry the world over has slipped into a down cycle,” said an analyst with a leading domestic brokerage.

He said most of the country’s shipbuilding companies are either experiencing a steep decline in orders or cancellation of bookings and the domestic industry, which was booming a year ago, is struggling to survive. The Rs 5,000 crore will provide a much-needed financial cushion.

P C Kapoor, managing director, Bharati Shipyard, said, “The company is eligible to receive subsidy of about 50% to 55% of its outstanding order book of Rs 4,898.13 crore. The subsidy would help shipbuilding companies in planning for the future capex requirement and expansion and also in easing liquidity and cash flows, especially in a downturn.”

S Hajara, chairman and managing director, Shipping Corp of India (SCI), said, “Before the close of the subsidy scheme in August 2007, several companies had booked orders hoping that the scheme would be extended. However, when it did not come, there was a lot of ambiguity in the industry.” SCI, too, is planning a foray into shipbuilding, he said.

Dhananjay Datar, chief financial officer, ABG Shipyard, said, “The private shipbuilding industry currently has an outstanding subsidy of about Rs 250 crore. Therefore, the subsidy from the government will act as a big relief and a welcome move that the government is with the industry.” The funds could also be used for future investments of these companies, he said.