A fork in the road for defence shipyards

Deploying a carrier battle group, the navy, according to official accounts released after the Operation was paused, “effectively bottled up Pakistani air elements along their western seaboard, denying them any operational space”, and was able to “establish uncontested control over the seas”.

INS Vikrant, India’s first indigenous aircraft carrier, formed the most visible tip of the naval spear. But the “offensive deterrent” posture the navy brought to bear was the result of years of steady accretion. Vikrant — designed by the navy’s Warship Design Bureau and built at the state-run Cochin Shipyard Ltd (CSL) — was commissioned in September 2022. Between December 2017 and January 2025, six Scorpene (Kalvari-class) diesel-electric attack submarines — built by the state-run Mazagon Dock Shipbuilders Ltd (MDL) under a transfer-of-technology arrangement with France’s Naval Group — were also commissioned.

Government figures indicate that new vessels were inducted at an average pace of one every 40 days in 2025. As of December, 51 large ships, valued at approximately ~90,000 crore, were under construction across the country.

At first glance, the overall naval shipbuilding picture appears to be a healthy one. That, in turn, raises the question of why a study is under way to assess the four shipbuilders under the control of the Ministry of Defence (MoD) — MDL, Garden Reach Shipbuilders & Engineers Ltd (GRSE), Goa Shipyard Ltd (GSL), and Hindustan Shipyard Ltd (HSL). CSL, meanwhile, comes under the Ministry of Ports, Shipping and Waterways.

The study is being conducted by management consulting firm Kearney and has been commissioned by the MoD’s Department of Defence Production (DDP) — which oversees all 16 defence public sector units (DPSUs), including the four shipyards —according to a public sector defence industry source, who spoke on condition of anonymity.

Kearney is conducting an “As-Is” study that entails a comprehensive assessment of current business processes, systems, and workflows, according to a defence consultant familiar with the matter, who also spoke on condition of anonymity. “Benchmarking against global practices will be conducted, gaps identified, and a roadmap presented,” the consultant added.

Emailed queries to the DDP and Kearney seeking clarification on the study’s scope, duration, and purpose remained unanswered.

However, it comes amid a notable shift in the balance of global naval power: China’s navy has more ships than the United States’. In 2021, the Pentagon’s annual China military report estimated that the People’s Liberation Army Navy (PLAN) had emerged as the largest naval force in terms of number of vessels, “with an overall battle force of approximately 355 ships and submarines, including approximately more than 145 major surface combatants”. The report also cautioned that the PLAN’s overall battle force was expected to expand to 460 ships by 2030.

An analysis of data from the International Institute for Strategic Studies’ (IISS) The Military Balance 2025 shows that China fields five times as many major surface combatants as India. The report estimates that the Indian Navy comprises 264 vessels, including 29 principal surface combatants — two conventional aircraft carriers, 12 destroyers, and 15 frigates — and 18 submarines, made up of two nuclear-powered ballistic-missile submarines and 16 conventional attack submarines.

With 64 vessels, the Pakistan Navy is a little over four times smaller than the Indian Navy and operates around two-fifths as many principal surface combatants.

“Indian private sector shipyards have gone through a period of insolvencies and prolonged stress and are, as yet, not positioned to produce large warships. Given the country’s security and economic priorities, it is therefore crucial that public-sector shipyards accelerate the speed at which they build and repair naval vessels,” said Admiral R Hari Kumar (retired), former chief of the naval staff.

The navy has been taking steps to reinforce India’s role as a “preferred security partner and first responder” in the Indian Ocean Region (IOR). This push, however, comes at a time when China has significantly expanded its economic and military footprint in the region.

A May 2025 publication by the IISS highlights that, since first actively deploying vessels to the Indian Ocean in 2008, China has significantly expanded its activities in the region. “… Given that China has deployed almost every component of a carrier strike group (CSG) to the IOR, the next logical step would be to deploy an aircraft carrier followed by a CSG,” the publication cautioned.

China has begun building its fourth aircraft carrier, with satellite imagery indicating that it could potentially be nuclear-powered, the global open-source intelligence company Janes reported in December 2025.

Meanwhile, Indian Navy sources indicated that its third carrier —  the second indigenous one — will only be ready for deployment around the time the Russian-origin INS Vikramaditya is nearing the end of its operational life, effectively limiting the navy to a two-carrier force for the foreseeable future. Upgraded shipbuilding capacity has also been cited as a key requirement for building a vessel more advanced than the Vikrant.

Against this backdrop, the shipbuilding capability gap between India and China assumes greater salience. China’s annual shipbuilding capacity, according to official estimates, is more than 40 times that of India, at around 65 million deadweight tonnes (DWT) compared with 1.62 million DWT.

“We are a builder’s navy, and significant indigenisation has been achieved through sustained investment of time and resources in ship design and close collaboration with shipyards. The organisational culture at defence shipyards now needs to evolve to keep pace,” said Kumar.

INS Vikrant was commissioned during his tenure as chief of naval staff, and he used the occasion to set 2047 as the target-year for full naval self-reliance.

Taking this momentum forward and achieving the 2047 target, however, will require not only increased shipbuilding capacity at defence shipyards, but also structural changes to ensure it is effectively utilised, argued two public sector defence sources on condition of anonymity.

Set against the Kearney study, one of the sources argued for consolidating public sector shipyards into a single national shipbuilding entity. “Such a unified enterprise would boost India’s warship-building capacity,” the source said, adding that consolidation would also allow the government to more strategically allocate projects across shipyards.

The second public sector source argued that CSL should also be brought into such a framework. “MDL, GRSE, GSL, HSL, and CSL should be consolidated while still preserving their operational independence. A bold restructuring is required to meet the country’s Maritime Amrit Kaal Vision 2047 objective of ranking among the world’s top five shipbuilders by 2047,” the source said, adding that this could be achieved by the government establishing a holding company through an Act of Parliament or an executive decision.

“The current fragmentation — with four yards under the MoD and CSL under the Ministry of Ports, Shipping and Waterways — hinders efficiency, strains finances, and impedes the ability to rapidly build warships,” argued the source.

Both sources said that consolidation would help bring together research, design, and production more effectively. They added that it would also allow work to be shared more efficiently and costs to be better controlled. “A single unified enterprise would be able to buy inputs at scale, cut out overlapping work, and deal with the Indian Navy, suppliers, and international customers through a single, coordinated interface,” one of them explained.

Under such a model, the holding company would bring together the shipyards as operational subsidiaries, while centralising functions such as procurement, research and development oversight, strategic planning, capital allocation, and export promotion.

At the same time, individual shipyards would continue to function as semi-autonomous units, retaining responsibility for project execution, workforce management, and engagement with local suppliers. Yard leadership would be held accountable based on cost, quality, and delivery timelines.

One of the sources said that international experience highlighted the advantages of consolidation, pointing to China’s 2019 decision to merge its state-owned shipyards. That move created the world’s largest shipbuilder, accounting for 17 per cent of global market share, and was expected to reduce operating costs by roughly 10 per cent. The source added that “unified national shipbuilding champions” have helped drive naval export success, pointing to Italy’s Fincantieri and France’s Naval Group as examples.

In India, heavy reliance on defence shipbuilding, coupled with the absence of substantive commercial orders, has produced a monopsonistic market structure, with the navy effectively functioning as the sole buyer.

“When the buyer’s negotiating power decisively exceeds that of sellers, the space for balanced competition shrinks. If you analyse advanced nations, it is clear that monopsony makes consolidation inevitable,” said Commander Gautam Nanda (retired), partner (business consulting) at EY.

Nanda pointed to the UK and the US as illustrative cases. In the UK, BAE Systems emerged as a single consolidated entity after two decades of mergers and acquisitions and now operates under a long-term agreement with the government for all defence shipbuilding needs. In the US, several shipyards have closed down, with the surviving yards consolidating under two major companies — General Dynamics and Huntington Ingalls — and surface combatant and submarine construction divided between them, while production lines are kept active through deliberate government allocation of work. “Rather than allowing an inefficient competitive landscape to persist, these countries opted for consolidation to preserve strategic control and prevent the erosion of skilled labour and infrastructure,” he said.

Notably, India’s public sector defence shipbuilders have long benefited from government allocation of work, known as procurement through nomination — a decades-old practice under which a government-owned company is granted upfront approval for an acquisition and awarded the contract without competitive bidding.

In 2025, designated as the ‘year of reforms’, however, the MoD reiterated its nearly decade-old commitment to phasing out nomination-based procurement. This has spurred concern among the DPSU shipyards.

Ultimately, Nanda said that Indian defence shipyards already function, in effect, as a consolidated shipbuilding resource. On this basis, he said the government could facilitate consolidation of the shipbuilding industry in a regulated and systematic manner to balance monopsony and prevent any scope for monopolistic pricing. “The government can set up an empowered authority to facilitate this consolidation,” he said, adding that since up to 65 per cent of a ship’s value is derived from a largely free-market ancillary shipbuilding ecosystem, ensuring competitive price discovery should not pose a challenge.

The two public sector sources cited earlier said that if the proposed merger is executed by 2027, the holding company should attain financial sustainability by the mid-2030s and be positioned to launch an aggressive export push thereafter.

However, there is disagreement, and the case is far from settled. A former defence official, familiar with a separate shipyard-related study conducted in the recent past, said that the case for consolidating DPSU shipyards remains unconvincing, particularly amid growing pressure to end nomination-based procurement and foster greater competition. “Some years ago, the Boston Consulting Group (BCG) also undertook a study on warship construction. It examined multiple options, including consolidation, listing shipyards, and even divestment or privatisation. None of this translated into action or structural change,” the former official said. This person added that fundamental questions regarding the logic and intent of those recommendations were not addressed to the satisfaction of the MoD leadership at the time.

“Ending nominations and consolidation are inherently contradictory impulses,” the former official said.

The official also pointed to the distinct specialisations of the four shipyards — for instance, MDL’s expertise in submarines and larger warships — to argue that a merger at this stage would be ill-timed, particularly when each yard is either already demonstrating or beginning to demonstrate financial stability. “HSL has only recently turned profitable, while GRSE and GSL have both tasted export success.”

MDL and GRSE, both listed, recorded uninterrupted profitability from FY20 to FY25, with MDL showing sharply rising profits over the period and GRSE’s profits strengthening markedly after FY21. GSL remained profitable throughout FY20–FY24. HSL, meanwhile, reported a loss in FY21, but has posted consistent profits since FY22.

Rather than consolidation, the official said the focus should be on expanding capacity through the construction of additional dockyards and a significant augmentation of infrastructure at existing facilities wherever feasible, especially at MDL.

Steps are already under way in that direction. MDL owns 40 acres at Nhava in Navi Mumbai, where it plans to develop a greenfield shipyard in phases. Once the Nhava facility is fully developed, MDL expects its capacity to more than double to 200,000 DWT.

While comfortable with the idea of consolidation in principle, Kumar adopted a more balanced approach: “Merging shipyards for increasing efficiency and synergy would be fine; however, it must be kept in mind that a monopoly is not allowed to be formed. Such a situation, even in the public sector, would be detrimental to the navy’s modernisation plans,” he said, adding that India should have at least two large, capable shipyards, each focused on producing different classes of ships, submarines, and unmanned vessels.

As of March 2025, orders for only two multi-purpose vessels and three cadet training ships had been placed with a private shipbuilder — Larsen & Toubro. Past efforts by the navy to source ships from private shipyards have yielded poor outcomes, with three such yards going under in the past decade. Even as private players attempt to regroup, this leaves public sector shipyards, for now, as the only viable option for meeting the requirements of the navy and the nation.

Those requirements are substantial. India has a coastline stretching over 11,000 kilometres and an exclusive economic zone of 2.37 million square kilometres. Moreover, around 90 per cent of India’s trade is conducted via sea routes.

In September, the Centre announced shipbuilding and maritime reform schemes worth ~69,725 crore. These include a ~19,989-crore Shipbuilding Development Scheme, intended, among other objectives, to provide capital for the creation of greenfield shipbuilding clusters and the expansion of brownfield capacity. MDL is particularly keen on developing one such greenfield cluster and on expanding into commercial shipbuilding. Whether the country’s planned capacity expansion will also spill over into naval shipbuilding remains to be seen.

At least two other studies on naval shipbuilding have been undertaken in the past, and this third report arrives at a moment of mounting challenges to India’s naval ambitions. It remains unclear what the study will recommend, though the consultant cited earlier said it would be free to make bold suggestions, provided they are well justified. Regardless of the outcome, before choosing between consolidation and the continuation of the existing environment, policymakers will have to consider the ‘weight of their action’.