New shipbuilding subsidy scheme on the anvil

The contentious issue of extending the subsidy given to the Indian shipbuilding industry may be resolved soon.

The Union shipping ministry is working out a scheme that will be shortly presented to the finance ministry.

Under the previous policy, which expired in August 2007, 30 per cent subsidy on the bid price was available to the shipyards on domestic and export orders obtained through a global tender. The shipping ministry favoured extending this scheme for another 10 years, but the finance ministry opposed it.

The subsidy was given to help Indian shipyards meet global competition and grow in size. Now that the Indian shipyards are receiving huge orders from global shipping companies, the finance ministry is of the opinion that continuing the shipbuilding subsidy for the next 10 years will put an additional burden on the state exchequer.

The shipping ministry is now considering a subsidy scheme at the rate of 20-25 per cent of the total value of the order received by the shipbuilding companies. The incentives will be made available to them for another three years with effect from August 2007, when the previous scheme expired.

Under the new scheme, the incentives will be limited to only export orders bagged by the domestic shipyards through a global tendering process.

The draft for the new scheme is expected to be finalised in another three weeks after which it will be presented to the finance ministry.

“We have withdrawn our earlier recommendation and are working out a new scheme that will address the concerns of both the shipbuilding sector and the finance ministry. We are planning to recommend at least 20-25 per cent subsidy for the next three years so that the domestic shipyards could get maximum benefit out of the current global shipbuilding boom,” said a senior official in the shipping ministry, adding, “We are also considering the suggestion made by the finance ministry to limit the subsidy scheme to only vessels meant for exports.”

A senior executive at Bharati Shipyard, which is yet to receive a subsidy of Rs 165 crore from the government for the vessels it delivered till March 2008, said, “It doesn’t matter if the subsidy is limited to export, since majority of our orders are meant for exports.”

India has an order backlog of 4.5 million dead weight ton to be delivered by 2012-13, out of which over 70 per cent is meant for exports.