The Hindu Business Line : Many cos venture into shipbuilding

The Indian shipbuilding industry, according to one estimate, is slated to grow at 30 per cent CAGR to $22 billion in 2020, from around $3.7 billion at present.

Santanu Sanyal

Reports have it that at least two shipping lines, both national-flag carriers, are planning to enter into shipbuilding in a big way. While state-owned Shipping Corporation of India (SCI) is scouting for a partner, APJ Shipping has teamed up with Bharati Shipyard, to create ship-building and ship-repairing facilities in West Bengal.

Inquiries reveal that several other firms too are planning to venture into shipbuilding activity and the list includes Pipavav Shipyard, Larsen & Toubro, Reliance Group, Adani Group, Tata Group, Tuticorin Port Trust and Mercator Lines. Others like ABG Group and Bharti Shipyard are planning major capacity expansion.

Global shipbuilding

Even public sector shipyards are not lagging behind, and the Kolkata-based Garden Reach Shipbuilders and Engineers, which is under the Ministry of Defence, has acquired the Rajabagan Dockyard of the Central Inland Water Transport Corporation, which is under the Shipping Ministry.

At present there are 13 major shipbuilding firms in the country — seven are controlled by the Central Government, two under State Governments and the remaining in the private sector. The total capacity is estimated at 3,33,000 dwt. According to one estimate, India’s share in the global shipbuilding will jump from the present 1.17 per cent to around 15 per cent by 2020.

The optimism is based on the global situation. The global order book position has more than tripled since 2000 — from 100 million dwt in 2000 to more than 390 million dwt in 2007. South Korea, China and Japan are the top three ship-building nations, accounting for nearly 90 per cent of the world order book position.

Global shipbuilding investment has reached an all-time high, from $30 billion in 2002 to $135 billion in 2006, much of which has gone into the construction of double-hull tankers, products tankers, cruise ships, bulk-carriers and container vessels.

The ship-building activity has shifted from Europe to Asia and, within Asia, from Japan to Korea initially and now from Korea to China.

According to one estimate, India too is set to emerge as a major player. The current shipbuilding boom is expected to continue for another two decades mainly in China and India — before it passes on to other countries in the region. Vietnam is also fast emerging as a strong player.

Shipping norms

The boom in shipbuilding has been fuelled by the growth in world trade and the present 7 per cent CAGR is expected to double in the next 10 years. The global shipbuilding order book swelled because of the rise in replacement demand.

According to new international shipping norms, single-hull tankers have to be phased out by 2010. This has pushed up the construction of double-hull tankers.

Also, ships that are over 25-year old have to be scrapped. Nearly 65 per cent of the world’s fleet is more than 15 years old and needs to be replaced in the next few years.

The Indian shipbuilding industry too, according to one estimate, is slated to grow at 30 per cent CAGR to $22 billion in 2020 from around $3.7 billion at present.

The non-availability of slots in the world’s major shipyards will help Indian builders secure orders. In last five years, the order-book position of Indian yards jumped by 127.35 per cent to Rs 21,800 crore, as on December 31, 2007, from Rs 816 crore in 2002.

The country’s shipping tonnage is slated to rise to 10 million GRT in 2008 and further to 20 million GRT in another five to six years from the present 9 million GRT. Also, the oil and gas sector is poised for a rapid expansion, creating new demand for specialised vessels.

Subsidy scheme

The tonnage tax, introduced by the Union Government a few years ago, has left the shipping companies with additional resources to fund expansion. Also, 100 per cent FDI is now allowed in the shipbuilding sector.

The 30 per cent subsidy scheme provided by the Government for the shipbuilding sector expired last year. The Shipping Ministry, therefore, has proposed a 20 per cent subsidy for a period of 10 years, retrospectively from August 2007.

KPMG India Pvt Ltd, in a report, has suggested that the shipbuilding be treated as an infrastructure activity, making it eligible for tax holidays.

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