A report by KPMG-Assocham released at last week’s DefExpo2018 said that India needs to strategically leverage the potential of private enterprise and public entities to ensure the success of ‘Make in India’ in defence. “I totally agree,” said B Kannan, Managing Director and Chief Executive Officer, L&T Shipbuilding, which has built a huge facility at Katupalli at Ennore, mainly to manufacture ships for India’s Defence (both Navy and Coast Guard). He warned that if the present policy which puts public sector shipyards at an advantage continues, it will lead to starvation of private shipyards. That apart, considering the public sector throughput less ships will be added to our fleet and Make in India as a concept will suffer.” On the sidelines of DefExpo 2018, Kanann discussed with BusinessLine a range of issues concerning private shipyards and the need for level playing field between private and public sectors. Excerpts:

It looks like private shipyards have meagre share of total order size for Defence requirement...

Yes. In the last 10 years, nearly 90 per cent of defence ships worth around ₹1.30 lakh crore were awarded on a nomination basis to public sector shipyards. The balance 10 per cent was on competition between public and private shipyards. In the end, private shipyards were left with 4-5 per cent of the order. It is a struggle for private shipyards to get orders in India as the window open to us is very limited.

Then private shipyards should be lying idle...

L&T is capable of doing ten ships in a year but it’s doing only two to three a year. It is similar with other private shipyards. Capacity utilisation [all put together] in the private sector is just 25 per cent. While capacity utilisation in the public sector is not an issue but throughput is. Some private shipyards are losing heavily and slowly closing down. A couple of major ones are still surviving, and small ones building ships like tugs. Capacity of the shipyard is based on the ship size.

Could you give an example?

Let’s take Offshore Patrol Vehicle (typically of 2,200 tonne) as standard denomination. L&T can build ten OPVs of 18,000 to 20,000 tones in a year. It may be in the form of ten ships, four ships or one ship. Throughput should be a continuous flow of design and manufacture. There is a need for efficient use of installed capacity of Indian shipyards to meet defence requirement.

How is public sector in an advantageous situation over private sector?

For public sector, infrastructure was created by the government, and it [cost of investment] need not take that into consideration while quoting for an order. However, a private company needs to invest in infrastructure and should consider this while quoting. There is a mismatch in this parameter. How you can overcome this issue, and create a level playing field is a big issue. Regulation, policy and rules hurt private sector. If public sector companies wants more, the government is willing to give more money. That's not the case for us. That's an area where there is a gap, which has led to absence of level playing field. How do you overcome this is something that the government is looking into. Hope some solution emerges out of this.

Do you see a way out?

May be. The government will say some ships will go only to private sector, and some will be for public sector. Such demarcation can emerge taking into account the capabilities of private industry in design and production. The government is overfeeding public sector units. There are some under-nourished, less-fed private sector shipyards. We are not asking anything to be given without consideration of technical capability. Consider technical capability, and then take a judgment.

Given such a mis-match, when will your Katupalli facility make profits?

We have spent over ₹4,000 crore at Katupalli. To break even, we require order book of ₹20,000 crore on a sustained mode. This is not achievable in the immediate future. But, we know it can happen if we continue with our efforts with respect to design and technical capability.

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