India ponders reintroducing shipbuilding subsidy

The shipping ministry in India is reportedly working on a proposal that encourages domestic shipowners to buy from or build ships at local yards according.

The aim is to provide a boost to local shipbuilding industry and cascade down into other industries. The ministry?s proposal could form part of the new shipbuilding subsidy scheme, currently being drafted by the ministry for the approval of the finance ministry and the Union cabinet.

The earlier five-year shipbuilding subsidy scheme, which ended in August 2007, was loaded in favour of export orders placed by foreign fleet owners. The old subsidy scheme offered shipbuilders an incentive equal to 30% of the value of the order for building ocean-going merchant vessels that were at least 80m in length, if they were manufactured for the domestic market. For export orders, however, ships of all types and capacities were eligible for the subsidy.

This is reflected in the order book position of Indian shipbuilders where at least 90% of the around 250 ships currently under construction at Indian yards are for foreign owners. A policy shift in favour of domestic orders would ensure that the assets remained in India apart from boosting shipping capacity. Shipbuilders have been lobbying the government for a reintroduction of the subsidy scheme.

About half of India?s shipping fleet by capacity is at least 20 years old, and needs to be replaced in five years. Shipowners say they were willing to support Indian yards in return for incentives from the government. “If a level playing field is created, why would we run around elsewhere for buying ships?” asked Grover at SCI, which plans to buy 40 new ships worth close to $2.5 billion over the next four-five years to replace old ships.

Indian shipbuilders and shipowners have been going through a tough time since September 2008 after the global liquidity crunch and the recession cut demand for trade and, in turn, for ships.