Shipping ministry to seek support for shipbuilders from PM-led panel

Discussion in 'Economy & Infrastructure' started by AVERAGE INDIAN, Nov 26, 2013.



    Sep 22, 2012
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    Detroit MI
    Bangalore: The shipping ministry is seeking Prime Minister Manmohan Singh’s backing to offer subsidy on interest rates to local shipbuilders, giving them access to cheaper funds and help them compete with Chinese and South Korean rivals.

    The ministry will soon send the proposal to a high-level committee on manufacturing headed by Singh, shipping secretary Vishwapati Trivedi said. The ministry will approach other ministries to finalize the plan once it is approved by the committee, Trivedi said.
    “We are looking at making available low-cost funds to shipbuilders instead of providing a lump sum as subsidy,” Trivedi said in Bangalore on 16 November. “In China, shipbuilders have access to cheap funds.”

    The Indian shipbuilding industry is adversely affected by multiple taxes and duties levied on it, shipping minister G.K. Vasan told Parliament recently. “The ministry of shipping has taken up with the departments concerned the need for grant of various direct or indirect tax incentives for the growth of shipbuilding sector.”

    Orders for local shipbuilders have dried up since September 2008 after the global liquidity crisis and the recession cut demand for trade and, in turn, for ships. A boom-time prior to that had attracted firms such as Larsen and Toubro Ltd and Pipavav Defence and Offshore Engineering Co. Ltd to build ships and led existing companies, including Cochin Shipyard Ltd, Bharati Shipyard Ltd and ABG Shipyard Ltd to expand capacity.

    While demand for commercial carriers have shrunk, shipyards are banking on naval orders to stay afloat.
    The ministry had made many unsuccessful attempts to reintroduce the subsidy scheme for shipbuilders. But, a government that is struggling with a high fiscal deficit has resisted reviving the scheme. An earlier programme ended on 14 August 2007 after a five-year run.

    The shipbuilding subsidy scheme offered shipbuilders, both state-owned and private, 30% extra on building ocean-going merchant vessels that are more than 80 metre long, if they are made for the domestic market. For export orders, however, ships of all types and capacities were eligible for the subsidy.

    This government subsidy was given to public sector yards in instalments, while private companies got it after the ship was built and delivered to the buyer.

    Indian shipyards are outbid by Chinese and Korean shipyards because of cost differences arising from lack of support for the industry in India, said a spokesperson for the Shipyards Association of India, an industry lobby. “On the other hand, foreign shipyards benefit from direct fiscal and non-fiscal support from their respective governments,” he said.

    Indian shipyards currently pay an interest of 13-14% on loans for capital expenditure and working capital compared with around 4-6% in countries such as China and South Korea.

    “This differential interest cost imposes a significant cost burden on Indian built ships,” the Shipyards Association spokesman said.
    The Export-Import Bank of China gives preferential loans to its domestic shipyards at rates as low as 2.7% which provides a huge cost advantage to Chinese shipyards, especially when a ship is financed at debt-to-equity ratios that are as high as 9:1 and the working capital requirements for building a ship can be as much as 35% of the cost of a ship, on an average, during its construction period, a second shipping ministry official said.

    “Korea, China and Japan have pursued a mix of fiscal and non-fiscal incentives for encouraging growth and development of their shipbuilding industry. Shipbuilding is a capital intensive industry with a “sell first, build later” model where buyers pay a small percentage of the price of the ship upfront. This requires shipbuilders to invest substantial capital in executing orders. Availability of loans at a low cost is a significant support provided by most shipbuilding countries to their yards,” the ministry official said.

    Shipping ministry to seek support for shipbuilders from PM-led panel - Livemint

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