The Hindu Business Line : Govt announces sops to buoy ship-building sector

THE Shipping Ministry has flagged off a slew of initiatives to support the floundering domestic ship-building and repair industry including a 10 per cent surcharge on the cost of repairs to deter Indian owners from undertaking repair of Indian flag ships in foreign yards.

"In order to encourage the Indian ship repair industry, a 10 per cent surcharge would be imposed on the cost of repairs of Indian flag ships if the repair is done in foreign shipyards," says the policy for maritime sector covering ports, shipping and inland water transport drafted by the Shipping Ministry.

Indian ship owners will be encouraged to use domestic facilities for ship-building, ship repairs and dry docks through fiscal incentives. As per the policy, no tax will be levied on repairs and replacement of hull, machinery and equipments for ship repair. The definition of ship repair will include all types of ship repair work without any restrictions.

The new policy seeks to promote 100 per cent foreign direct investment (FDI) in ship-building and repair activity. It would provide for long-term subsidy support of up to 20-30 years.

Domestic ship owners would be encouraged to place series orders for construction of vessels through fiscal incentives/enhanced subsidy support in order to increase competitiveness of Indian yards.

The existing ship-building subsidy scheme would be reviewed to provide subsidy for construction of all kinds of vessels subject to reasonability of price. The Government will also provide policy support to ensure availability of indigenous steel for all Indian shipyards.

"Prices of indigenous steel would be capped so as to make Indian ship-building more competitive," the policy paper said.

It proposes to bring customs and central excise for ship-building and repairs on par with export oriented units (EOU) besides keeping them out of the ambit of service tax, sales tax and Value Added Tax (VAT) as shipyards compete globally for repair and new constructions.

Investments made by domestic yards for research and development would be given 100 per cent exemption from Corporate Tax subject to a limit of 10 per cent of the annual profits. Import of capital goods for shipbuilding facilities would be exempt from customs duty for encouraging augmentation/upgradation and modernisation.

Ship-building and repair industry will be provided infrastructure status and investments would be eligible for direct tax benefits for 20 years. The Ministry has also proposed to provide duty-free import of equipments and machinery for ship-building and repairs and these activities would also be free from customs bond.

"Ship-building is a highly competitive business. Globally, it is supported by national policies and subsidies; without Government support, the growth of ship-building industry would be difficult," says the policy.

Currently, Indian yards can build ships up to the size of only 1,10,000 dead weight tonnes (dwt) which is highly inadequate as per global standards. Due to lack of mechanisation, the productivity levels of domestic yards are low.

Besides, most of the yards are incurring losses and face difficulties in raising funds for capital expenditure to facilitate improved business prospects.