Millennium Post

A sinking ship

Concerned authorities need to knit together a package to prop up India’s sagging shipyards

Let's talk ship-building. And some facts less-known. Historically, good old Hindustan was quite the superpower in building ships. Indian ships were fast for the time, large in size and alliteration, and dimensions unheard of. Surprising? Here's something surprising still. The phenomenon was not limited to a few months, years or decades. For nearly two centuries, Indian shipyards were a force to reckon with.

Through the 1700s, the 1800s, even the early-1900s, ship-building was an established business, a profession respected along our coastline. And we have a lot of coastlines, over 7,500 km of it. In the 1700s, a very promising India was focussed on capitalising and utilising its rich coastal and other natural resources.

The European traders (read the 'English') had arrived a century earlier—in 1608, initially for trade, and eventually to colonise India. They managed the latter after one of their military officials, Robert Clive, defeated the forces of the Nawab of Bengal, Siraj-ud-Daulah, at the Battle of Plassey in 1757. This amorous English ambition proved lethal. Through subterfuge and avarice, the English gained ground, weakened and divided Indian rulers and businesses, ultimately subjugating India to the wiles of the East India Company. Ironically, it also helped India's maritime exploration and progress, as the needs of the British Empire drove Indian ship-building to new highs.

Nearly two centuries ago, Indian shipyards built ships like HMS Hindostan and HMS Ceylon, which were instantly inducted into the Royal Navy, no less. Other historical ships made by Indian shipyards included HMS Asia (commanded by Sir Edward Codrington during the Battle of Navarino in 1827); HMS Cornwallis (onboard which the Treaty of Nanking was signed in 1842); and HMS Minden.

A special mention of HMS Minden, which was an English Royal Navy 74-gun 'Ganges Class' ship, launched on 19 June 1810, well over a 100 years before HMS Titanic took to the sea for the first and last time. The Minden was named after the German town Minden and the Battle of Minden of 1759, which saw a decisive victory of British and Prussian forces over France in the Seven Years' War. It was Jamsetjee Bomanjee Wadia of the Wadia Group who built HMS Minden in 1814. She was launched from the Duncan Docks in Bombay (now Mumbai), built of teak.

Today, the romantic days of exotic lumber, teak and other wood derivatives are over. India and the rest of the world now build ships made of steel, tungsten, carbon fibre, exotic alloys—and a lot of politics and regulation. Also over is India's standing in the global shipbuilding scheme of things. Modernised and upgraded today to global standards it is, but India's maritime industry is now but a pale shadow of its former self. The last decade has seen some of India's largest shipbuilders go out of business. And those that haven't are perilously close to doing so (See Table 1).

Notably, all of the shipyards listed above were/are based out of Gujarat. Once the pride of India's maritime history, boasting the largest shipbuilding capacity in the country and having more than 60 per cent of the Indian shipbuilding order book, Gujarat's shipyards have been decimated over the last decade. Apart from being a colossal waste of the nation's coastal business infrastructure, this has led to the loss of employment of tens of thousands of direct jobs, with larger numbers being axed in the form of contract labourers and ancillary workmen, impacting over 14 lakh livelihoods.

What has led to this wretched turn of events? Let's go backwards. Till the late 1980s, the shipbuilding industry was under License Raj, with public sector units dominating the sector. There was little or no private ship-building till the 1990s when India was forced to either embrace economic reforms or face a financial meltdown. The opening up of the economy saw the private sector assume a greater role in Indian business, including maritime activities.

Through the first decade of the new century, India's share in the global shipbuilding market began rising—clocking a high of 1.6 per cent and making the country the sixth-largest ship-building nation. Large private shipyards came into being, with investments of over Rs 30,000 crore, with others scampering to join the ranks. Between 2000 and 2010, Indian shipyards manufactured and delivered over a 1,000 ocean-eating vessels to Europe, the US and the Middle-East.

The crowning glory of this time was the creation of India's capability to build highly-complex, Next-Generation, state-of-the-art defence and auxiliary vessels for the Navy and the Coast Guard. Private shipyards also built vessels that could transport Oil & Gas, safely ferry food-grain, and make offshore drilling rigs, bulk carriers and dredgers (Table 2).

It was, as that abused adage goes, too good to last. The global economic meltdown of 2009 brought growth in most sectors of the Indian industry to a sudden and screeching halt. Ship-building was doubly hit when the subsidy provided by the Government was withdrawn around the same time. A complicated tax regime—including, over the years, minimum alternate tax, dividend distribution tax, withholding tax liability on interest paid to foreign lenders and on charter hire charges paid to foreign ship-owners—further squeezed the bottom-line of both private sectors and PSU shipyards.

Add to this the multiplicity of regulations, both domestic and international; a fast-declining share of Indian shipping tonnage in India's overseas trade; supply chain challenges; a preponderance by the authorities to award domestic orders to PSU shipyards, well over 90 per cent; a depressed Indian banking system and the trend of free imports of second-hand vessels for domestic purposes.

Ship-builders, with their backs already nailed to the wall, began keeling over like nine-pins.

However, all is not lost. The gloom and doom can be reversed. Some measures can provide buoyancy to India's sinking ship-builders, and the Government is now moving on this. It recently extended a Financial Assistance Scheme for Shipbuilding (2016-2026)—however, in the absence of new orders in a depressed global economy, this has not had an impact yet.

The Ministry of Shipping also extended a 'Right-of-First-Refusal' (RoFR) for the charter of 'Indian-Built-Ships Only' for Indian cargos, especially coal, grains, containers, crude oil, petroleum products and cars. However, due to legal impediments stemming from the Maritime Act and the Merchant Shipping Act, the Hon'ble Supreme Court had to strike down this proffered olive branch.

The Government also granted 'Infrastructure' status to the shipping industry in a bid to ease finances, but this has remained a non-starter as the stressed Indian banking sector has declined to recognise this for 'soft loans' and 'long-tenure loans'—both of which are the lifeline of the shipbuilding industry, worldwide. Finally, ship-building orders entail progressive stage payments against bank guarantees. Such provisions make it near-impossible for shipyards to obtain large bank guarantees on a long-term basis because ship-building involves long gestation periods.

For both economic and strategic reasons, India needs a strong and resurgent maritime sector. The need of the hour is for the concerned authorities to knit together a package to prop up India's sagging shipyards.

Modernising infrastructure for more in-India cargo movement (India has five major waterways spanning nearly 4,500 km), partnerships with advanced maritime countries for newer technologies and skilled manpower, creation of maritime communities which catalyse innovation and job creation are some steps that could buoy up ship-building and ancillary sectors. Finally, easier access to funds and more pliable loan repayment options could re-ignite growth.

The Government's 'Make in India' initiative promised a tremendous growth opportunity to the Indian economy, including ship-building. Truly, now is the time to make 'Make in India' work.

Views expressed are strictly personal

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