Why shipbuilding needs a sea change to fulfil India's 2047 dreams

India paid $109 billion in sea freight to foreign operators in 2021-22, and last year stood vulnerable to international price volatility and impact of sanctions on Russia during the geopolitical crise

Nearly a decade after losing key historical sites of the Indus Valley civilisation to Pakistan in the Partition, the Archaeological Survey of India (ASI), with the famed and later debated work of its former director S R Rao, found in its excavation in Gujarat that the people of Lothal had constructed the world’s oldest known dock around 4,000 years ago — in the Harappan era.

 

Maritime historians argue that ancient India possessed advanced shipbuilding, berthing, and repair capabilities — among the most notable being the stitched shipbuilding method, where ships were constructed by stitching together planks made of teak with cords, ropes, or coconut fibre, rather than the prevailing method of using nails. This offered flexibility and durability, making the ships less susceptible to damage from shoals and sandbars. A culture of building ships on India’s 7,500-kilometre coastline for both military and trade purposes ensued through the middle ages.

 

Ordinarily, such a legacy would beget a globally renowned and modern shipbuilding industry today. In contrast, India represents 0.06 per cent of global shipbuilding, with a mere 5 per cent maritime control over its own tonnage.

 

“Today, India, at the cusp of becoming the world's third largest economy, is in the awkward position where we really have only 1,500-odd large ships and 1.4 billion people are served by only 500-odd overseas ships, in terms of Indian-owned vessels… It is an economic cost and a geostrategic risk,” Sanjeev Sanyal, member of the Economic Advisory Council to the Prime Minister, had said in November 2024.

 

India paid $109 billion in sea freight to foreign operators in 2021-22, and last year stood vulnerable to international price volatility and impact of sanctions on Russia during the recent geopolitical crises of Russia-Ukraine and Israel-Palestine. Industry estimates say most of India's shipbuilding capabilities and financial interests lie in defence vessels, with large players such as Cochin Shipyard, Hindustan Shipyard, and Larsen & Toubro developing them.

 

In 2023, the shipping ministry unveiled Maritime Amrit Kaal Vision 2047, where it estimated a Rs 80 trillion investment over the next quarter of a century to make India a maritime power. Of these, around Rs 54 trillion is expected to be spent on developing indigenous shipbuilding and shipping capabilities, where it aims to be among the top five nations by 2047.

 

The Central government has lately turned its focus to creating domestic commercial maritime capacity ranging across shipping, shipbuilding, maritime finance, and marine insurance, with Finance Minister Nirmala Sitharaman announcing measures for the industry in the July 2024 Union budget. In November, Shipping Minister Sarbananda Sonowal told Business Standard in an interview that South Korea’s biggest shipbuilders, such as HD Hyundai Heavy Industries and Samsung Heavy Industries, had shown interest in building ships in India. Both India’s government delegations and a delegation from Hanwha Ocean have exchanged visits, with the Korean builders meeting Shipping Secretary T K Ramachandran earlier this month.

 

The idea of an alternate ship supplier for the world has also gained momentum recently with top shipyards having waiting periods as long as seven years for vessel delivery. International experts believe India has a sizable opportunity to build smaller vessels, with the three goliaths of shipbuilding chiefly focused on large ships. However, India’s 2047 aims may be too tall an order, experts say, and need an increase in annual shipbuilding output by 157 times to 11.3 million gross tonnes. 

 

Capacity and demand

 

“Barring a few yards, no player can even develop a large vessel of more than 10,000 deadweight tonnes (DWT). Capacity has to be created at present yards to attract serious ocean transporters, and that would just be the start,” said a senior industry executive.

 

The Centre has been looking to create shipbuilding clusters across coastal states with private sector participation. According to the ministry, along with global majors mentioned, Swan Energy, which recently took over the Pipavav Shipyard, has shown interest and is in talks with global players to build large ships. Similarly, Chowgule Shipyard and SHOFT Shipyard have shown interest in shipbuilding and repair clusters. India’s largest infrastructure conglomerate, Adani Group, is planning to enter shipbuilding as part of its Mundra Port expansion plans.

 

However, some wonder if this capacity will meet sufficient demand.

 

“South Korea, Japan, and China succeeded because their primary demand came from long-term contracts that were given to their own shipping companies. In India, our contracts are three years at the most. Large cargo owners give delivery periods as low as three months,” said a senior industry executive.

 

Led by China with a 53 per cent market share, the three countries mentioned above account for a combined 93 per cent of global shipbuilding.

 

“The cargo owner isn’t wrong, because their remit is to ensure efficient and quick transportation. But these orders can't be fulfilled by shipping companies through newly built vessels. So ship owners buy second-hand vessels from foreign markets at costs much lower than a new India-built vessel,” the industry executive added.

 

India’s current fleet is outdated and aging. Data shows that every third ship in the Indian fleet is more than 20 years old, and every fourth ship is 16-20 years old and only about 3 per cent of the ships are five years old or younger. In contrast, 22 per cent of vessels in developed nations are less than five years old, and some developing nations have 18 per cent of their fleet made up of new vessels. 

 

“India needs a substantial increase in maritime trade. Yet, the country also needs to replace over 70 per cent of its fleet due to global green initiatives and the fact that many of its ships are aged more than the prescribed norms,” said Jagannarayan Padmanabhan, senior director and global head transport, logistics & mobility at Crisil Intelligence.

 

In July 2024, the Centre proposed demand generation measures in a closed-doors meeting with the industry. These include making it mandatory for coastal vessels to be built in India starting 2030, requiring government agencies to fulfil shipping requirements only through Indian-built ships, and a shipbreaking credit note scheme similar to the vehicle scrappage scheme for cars, where 40 per cent of the scrap value of a vessel recycled at an Indian facility is reimbursed through a credit note redeemable against the purchase of a new vessel in India.

 

In troubled financial waters

 

Over the last decade, the sector has requested the Central government to make shipbuilding commercially attractive, with access to low-cost finance being among the key demands.

 

“Shipbuilding requires high working capital, which amounts to 35 to 40 per cent of the cost of the ship during the period the ship is built. This is due to management of inventory of spare parts, which are typically imported. In India, interest rates for such loans are 10 to 10.5 per cent, which are far higher compared to major shipbuilding countries. Planning innovative financing solutions can benefit the sector,” industry association FICCI said in a report with Crisil on January 22.

 

The Central government is now likely to include ships in the harmonised master list of infrastructure sectors — this status allows developers to access infrastructure lending at easier terms with enhanced limits, access to larger amounts, and longer tenure of funds.

 

“The government is looking at a multi-pronged push in the form of the Maritime Development Fund and the NBFC approval for Sagarmala Development Corporation. These two, in unison, can ensure that low-cost finances are available from maritime-dedicated financial institutions, and the situation of shipyards is not repeated,” a senior government official said.

 

The Sagarmala financier would be supported by the Rs 30,000 crore Maritime Development Fund, for which the government has reached out to patient capital investors to become equity partners. This would be coupled with a new version of the shipbuilding financial assistance policy, 

 

under which the government will offer larger and sustained subsidies with additional incentives for building green vessels, the official said.

 

Tax and tariff

 

“With no ancillary industries available in the vicinity, shipbuilders  have to import steel, machinery, generators, and other components. There is no harm in importing, but the policy needs to ensure that tariffs do not become an obstacle to these imports,” said another senior executive.

 

The government is considering policy changes such as tax breaks on ship components and repair services, customs duty exemptions for import of ship components, reviewing tax deducted at source for income earned by seafarers, and interest subvention on capital expenditure incurred by shipyards, according to the official quoted above.

 

Sector participants have welcomed the recent announcements and policy initiatives, but strike a note of caution.

 

“If the Centre does not come through with a sustained support for the nascent industry, not just in the form of subsidies but also in fostering the creation of an ecosystem, but continues to opt for measures like mandating indigenous ships, there will be a supply dearth followed by an indiscriminate import of vessels,” a private sector executive said.  

 

Domestic shipyards are hopeful of a conducive policy environment.

 

“We can expect continued growth in shipyards, with more investments in modernising facilities and expanding capacity to meet the increasing global demand for ships. We foresee a stronger focus on green technologies, such as hybrid and energy-efficient propulsion systems as the industry works to meet environmental goals and reduce carbon footprints,” said Vivek Merchant, Director, Swan Defence and Heavy Industries.