Upgrading shipyards: On strengthening India’s shipbuilding infrastructure.
Incentives for shipbuilding must include long term offtake possibilities.
The recently announced package of ₹69,725 crore, to revitalise India’s shipbuilding and maritime ecosystem, is to replace the package of 2015, which is set to expire in March 2026. In the last 10 years, while lucrative defence orders had kept some shipyards busy, only half-a-dozen small merchant ships or so were built in all of India. India’s capacity to build large merchant ships remains minuscule, which the package hopes to expand to 4.5 million gross tonnage. The plan is to upgrade shipyards for cutting-edge technology and management principles, promote new yards in clusters housing factories for shipbuilding ancillaries, and support shipowners for financing newbuilds. But key questions remain over how this package will succeed as the earlier one was largely a failure.
Globally, shipbuilding has been honed into a fine art. In Korean, Japanese or even Chinese yards, component blocks of large merchant ships are prefabricated outside the actual dry dock and moved to the dry dock, using cranes of say 1,000 tonnes, where they are welded together. The yards are long enough to be assembly lines. In the past, the metric was keel-laying-to-waterborne. Today that takes just three to four months. It takes just about a year from the process of first steel to sea trials for a large merchant ship. Barring an exception or two, Indian yards are neither long enough nor have the crane capacity and space and capability to do the prefabs. Ancillaries are another bottleneck. A turnaround of about two to three years is the norm in India — or two more years of capital sunk without returns. This is a key reason for Indian shipowners not ordering new shipbuilds even if the subsidies in previous policy addressed the issue of high capex. Shipyard upgrading should address this issue. China, for instance, has thought through shipbuilding in full and set up institutions to train manpower. At this point, India will need to start small, such as ships of 500 gross tonnage and above. The bottleneck is that while terming ship newbuilds as infrastructure has brought down the cost of finance through lower interest rates and extended repayment schedules, this applies only to large vessels. Incentives to promote shipbuilding will need to include long-term offtake possibilities. Indian shipowners do not see long-term demand visibility for them to invest in newbuilds in Indian yards with cost overruns from delays. For instance, India’s green fuel production policy has seen projects to make and export green fuels through Kakinada and Kochi but without leveraging them to build green ships and do the offtake as well. Long-term shipping contracts and time charters, for imported coal from State-owned power utilities and imported crude from oil companies, will spur shipbuilding.