The Hindu Business Line : Shipbuilders press for subsidy revival to stay in race

Mumbai, Nov. 18 Despite the boom in the global shipbuilding market, Indian shipyards face the threat of becoming less competitive following the expiry of the five-year Government subsidy scheme about two months ago.

The shipyards have asked the Government to resume the subsidy scheme, as shipbuilding, unlike conventional manufacturing, is not protected by tariff barriers and they have to compete with global players for both domestic and export orders. “Initially, the Government was not willing to even talk about it, but our subsequent meetings with senior officials in the Finance and Shipping Ministries have drawn a positive response. They have understood the importance of the subsidy scheme,” Mr V. Kumar, Managing Director of Bharati Shipyard and Secretary of the Shipbuilders Association of India, told Business Line.

No immediate impact

Sources say that the end of subsidies may not have an immediate impact on the balance sheets of the shipyards as the global market continues to be hot as also the prices of new ships.

The Government had introduced the 30 per cent subsidy scheme for private sector shipyards in 2002, as the industry had no protection in the form of tariff barriers. Aided by the Government support and the subsequent boom in the market, the turnover of the shipyards increased from Rs 1,017 crore to Rs 3,657 crore in the last five years, a 259-per cent increase.

Investment plans

With trends indicating that the boom may continue for another five to seven years, shipbuilders have lined up investments of Rs 18,500 crore. L&T and Pipavav shipyards head the list with planned investments of Rs 3,000 crore each, followed by Good Earth Marine with Rs 2,000 crore and ABG, Bharati and Adani Group with Rs 1,500 crore each.

KPMG study

A study undertaken by KPMG has shown that the Indian yards face a price disadvantage of about 51 per cent and 41 per cent compared with those in China and Korea. These disadvantages are on account of different taxes, interest on working capital and capital expenditure and bulk purchase discounts on purchase of inputs.

The KPMG study has pointed out that the receipts to the Government in the form of taxes will exceed the amount of subsidy from the year 2014 if the scheme were to be extended by another 10 years. With the projected industry turnover of Rs 5,283 crore for 2008, the subsidy would be Rs 1,590 crore and tax receipts to the Government Rs 1,380 crore.

But by 2014, the situation will change, with the subsidy likely to be Rs 9,450 crore (on a projected turnover of Rs 31,476 crore), while the Government earnings via tax receipts are likely to touch Rs 9,460 crore. And by 2017, the subsidy bill is estimated to go up to Rs 24,510 crore (turnover Rs 81,583 crore), while Government earnings may touch Rs 25,880 crore, the study has calculated.

The industry has listed out the support being given to the Korean, Chinese and European yards by their respective governments.

For example, the Chinese yards get export buyers’ credit at 2.7 per cent, subsidy on inland sailing ships, customs duty rebate on imported inputs and exemption from enterprise income tax equivalent to corporate tax.

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