To stay afloat, defence shipyards may be allowed to borrow abroad

Nayanima Basu New Delhi | Updated on January 09, 2018

BL22_P4_SHIPYARD   -  BusinessLine

ECB may be permitted via the automatic route

In an effort to revive the deeply stressed defence shipyards and boost the shipbuilding industry, the Centre may soon allow them to bring External Commercial Borrowing (ECB) funds under the automatic route to meet their working capital requirements, including refinancing.

A report submitted by an Inter Ministerial Group (IMG), which was formed in March, has said that high cost of domestic capital and restrictions on ECBs have hurt the Indian shipbuilding industry.

Therefore, it has suggested that the shipyards be allowed to access ECB by the RBI, without prior government approval, for raising fresh working capital as well as refinancing of the outstanding working capital loans.

Eligibility criteria

The IMG has also recommended further relaxation of eligibility criteria under the Shipbuilding Financial Assistance Policy (SFAP) for the defence as well as commercial shipyards.

Under the SFAP, which was approved by the Cabinet last year, Indian shipyards will be given a subsidy of 20 per cent on the contractual price of a ship, fair price or actual payments received by the shipyard, whichever is lower. The financial assistance will be valid for a 10-year period beginning April 1, 2016, reducing by 3 percentage points every three years. The government is keen to revive the Indian private shipyard industry since it has the capability and large infrastructure to undertake building of any vessel, including vessels bigger than that 1,00,000 DWT.

Time-period for pre-shipment foreign currency credit should be extended beyond 360 days till delivery of the vessel. It also recommended that Indian private shipyard should be given Right of First Refusal for all kinds of vessels, including inland vessels.

In terms of a long-term plan, the IMG has suggested routing of surplus defence orders from Defence Public Sector Undertaking (DPSUs) to private shipyards and setting up a Maritime Development Fund (MDF) to meet the financial needs of the whole of maritime sector , including ship building sector. It also said that the government departments or agencies, including PSUs that are involved in procuring vessels of any kind should grant the ‘Right of first Refusal’ (RoFR) to Indian shipyards to enable them to match the lowest rate offered by the foreign bidder.

The IMG has also recommended an RoFR Policy for construction of inland vessels. The policy will be based on the existing RoFR policy for construction of vessels for government agencies.

Published on August 21, 2017

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