The Hindu Business Line : Delayed decision on ship-building subsidy

A decision on the extension of shipbuilding subsidy is likely to be delayed with the Finance Ministry seeking further clarifications on the impact of the subsidy. The Ministry of Shipping, Road Transport and Highways has pitched for the extension of shipbuilding subsidy, albeit at lower levels than those prevailing earlier.

Till mid-August last year, the ship manufacturing sector used to receive 30 per cent subsidy under the shipbuilding subsidy scheme. Supported by the subsidy scheme, the turnover of Indian shipyards increased from Rs 1,017 crore to Rs 3,657 crore in the 2002-2007 period.

MINISTRY PROPOSAL

The Shipping Ministry has already floated a Cabinet note seeking 20 per cent subsidy levels for the ship-building sector. The Ministry had proposed continuation of the subsidy for ten years, with review after five years.

In the earlier subsidy regime, for ships manufactured for the domestic market, the subsidy was restricted to ocean-going merchant vessels over 80 metres in length. However, if ships were manufactured for exports, all types of vessels were eligible for the subsidy, provided the Indian firms won orders by meeting certain norms, such as a global competitive bidding process.

Backed by the boom in shipping sector, private shipyards such as ABG and Bharati have lined up significant investment plans. While ABG plans to invest Rs 1,400 crore, Bharati Shipyard has recently said it would set up a new shipbuilding yard at Usgaon near Dabhol port in Maharashtra, at an estimated cost of Rs 600 crore.

INVESTMENT PLANS

Other firms also have large plans—with Larsen and Toubro planning a shipyard cum port on the Eastern coast in Tamil Nadu with Rs 2,000-crore investment and Pipavav Shipyard aiming to raise funds through an initial public offer for part-financing the construction of a Rs 2,888 crore shipyard complex at Pipavav.

Despite the boom, Indian ship-makers have sought extension of the subsidy, pointing out that shipbuilders in Europe, China and Korea receive several fiscal benefits that makes the Indian shipyards sector uncompetitive. According to a KPMG study, Indian shipyards face a price disadvantage of about 51 per cent and 41 per cent compared with those in China and Korea.

For instance, 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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