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Shipbuilding

India requires a vibrant and strong shipbuilding industry for economic as well as strategic reasons. For a country that is predominantly peninsular in nature with a coastline of 7517 km and 1197 islands. Indias shipbuilding capabilities have not kept pace with its economic development, market demand and human resource potential.

Ship repair is generally considered as an evergreen industry, both globally as well as domestically. Ship being a floating structure requires regular inspection and maintenance of equipment and machinery for smooth and safe functioning during the ocean voyages and also during cargo handling operations at Ports. Ships are al so generally governed by scheduled periodic repairs for which the Classification Society and other Statutory Bodies have formulated guidelines for periodic survey such as; Special Hull and Machinery surveys every five years, Drydocking at two and half years and Hull and Machinery annual survey every year. Hence ship repair yards generally have continuous and consistent flow of business which makes ship repair revenue generation more predictable as opposed to shipbuilding or shipping, which is often prone to pulls and pressures of market forces and cyclic change.

The Indian Shipbuilding Industry is mainly concentrated on 27 shipyards comprising of 8 Public Sector Shipyards (6 yards under Central and 2 under State Government) and 19 private sector yards. This industry has yet to grow to its full potential and is limited by size and capacity constraints. However, despite numerous constraints, the shipbuilding industry is growing rapidly and is the focus of great interest on how it is going to shape up, whereas, the ship repair industry is almost stagnant and very much less visible with only 3-4 yards engaged in any meaningful ship repair activity.

The Indian shipbuilding industry has since long being dogged by low capacity, poor productivity and lack of modernisation. Due to high labour cost and lack of competitive edge there has been a gradual shift of shipbuilding from Europe to Asia. South Korea entered shipbuilding market in the late 1970s to create the biggest shipbuilding industry in the world in just 20 years. China has followed suite in the late 1980s and created the third largest shipbuilding industry in a shorter time frame. Korea (36%), Japan (24%) and China (17%) command almost 77% of world shipbuilding market totalling around Rs 200 billion.

Indian shipbuilding industry has gained name in the recent past due to piling up of large number of new building orders be it for mercantile marine or Navy. The delivery schedule has not picked at the same pace as the new building contracts were signed. One of the major reasons for the delayed delivery has been the delay in the arrival of equipment and machinery from the foreign suppliers. Other major reason for the delayed delivery is that the shipyards took more orders than what they could easily execute with the existing infrastructure. which failed to match with orders bagged. Other factors which attributed to delays include clearance from government, local protests/ labour issues and poor planning.

The nodal responsibility of the entire Shipbuilding and Ship repair Industry vests with the Ministry of Shipping. Maritime Transport is a critical infrastructure for the social and economic development of a country. It influences the pace, structure and pattern of development. The Department of Shipping encompasses within its fold shipping and ports sectors which include shipbuilding and ship-repair, major ports, national waterways, and inland water transport. Department of Shipping has been entrusted with the responsibility to formulate policies and programmes on these subjects and their implementation.

India has a long coast line extending over 3000 miles having access to sea on the three sides. Added to this, India's geopolitical position in the Indian ocean naturally makes heavier demands on the naval fleet in future. Defence of the merchant fleet, off-shore resources including fishing and oil supply lines and the long coast, demand that the country expand its naval fleet for better command and control of the seas on all its three sides.

India had a glorious maritime tradition going back to 2,500 BC when the ships of the Indus Valley Civilization traded with the civilizations of the Persian Gulf. Through centuries India built ships in large numbers which enabled her people to develop commercial and cultural contacts with Red Sea, Egypt, South East Asian countries and beyond. India was one of the largest ship building countries in the world. Indian shipbuilding was centered along the Western Coast in Kalyan, Bhivandi and Mumbai, in South India at Narsapurpeta (near Masulipatnam) and in Bengal at Chittagong and Hooghly. The "modern era" began with the building of a dry dock at Bombay about 1750; a second was erected in Calcutta about 1780. During the 19th century, the industry was in a period of expansion and prosperity. The Wadias alone built more than 350 ships - during 1735-1863 170 war vessels for the East India Company, 34 man-of-war defence vessels for the British Navy, and 87 merchant vessels for private firms.

With the loss of independence and with the advent of iron built steam ships, Indian shipbuilding received a serious setback which led to a long spell of halting phase. Since the beginning of the 20th century, it had been on a declining scale and presently, rated capacity of country's shipbuilding yards is minuscule vis--vis world's capacity. Indian shipyards remained largely insulated from the boom in shipping and shipbuilding.

The required shipping tonnage - both merchant and naval - can be either acquired from foreign countries or built in India. Building up of ships in foreign yards presents many problems. The role played so far by the Indian shipbuilding industry in the expansion of shipping tonnage is really modest. By 1990 its contribution had not exceeded 10% of total Indian tonnage. It cannot be otherwise since only the Hindustan Shipyard, Visakhapatnam was producing on a regular basis medium sized ocean-going vessels. The Mazagon Dock at Bombay and Garden Reach Workshops at Calcutta until the late 1980s were concentrating on ship repairing and on the construction of harbor craft and other small vessels required by the Indian Navy.

Indian YardInternational Partners
GSL Schelde Naval Shipbuilding
Netherlands' Maritime Research Institute (MARIN)
Haskoning Nederland BV
Raytheon Anschutz GmbH
MDL ARMARIS
CSL Fincantieri
GRSEGNG

By 2008 India had about 30 public and private sector shipbuilding yards. As of 2006 there were 9 Public Sector and 19 Private sector yards, with 20 Docks and 40 Slipways. There have been no new yards in 25 years, though as of 2006 two world class shipyards were in development under government support, along with 7 new private shipyards and major capacity enhancement by other yards. This investment is estimated to be up to $3 billion.

Major private shipyards include ABG Shipyard, Adani, and Bharati Shipyard while large public sector yards include, Cochin Shipyard, Goa Shipyard, Hindustan Shipyard, and Mazgaon Dock. Historically the Indian shipbuilding business has been dominated by inefficient PSU shipyards. Their high cost structure, poor delivery and low quality standards made it difficult for India to capitalise on its low cost labor advantage.

The year 2002 served as a water-shed for Indian shipbuilding industry. In that year, the Government of India introduced a subsidy scheme for both public and private sector shipyards. The subsidy was targeted at addressing the distortions of the domestic economic environment which impact domestic shipbuilders adversely as well as addressing the impact of direct and indirect support provided to the shipyards in other countries. With global shipbuilding witnessing an upward trend, the Indian shipbuilding industry has been able to take advantage of this Government support to establish its presence in global shipbuilding.

According to the Indian Government, the order-book of Indian shipyards grew from $333 million in 2002 to $2,058 billion by 2006. Orders for Cargo Ships Small & Medium grew from Rs 52 Crs to Rs 3350 Crs, orders for Container vessels grew from Rs 18 Crs to Rs 3330 Crs, while orders for Naval and CG Ships grew from Rs 22 Crs to Rs 1225 Crs. According to 'i-maritime', an Indian shipping consulting firm, the order-book of Indian shipyards grew from Rs 15 bn in 2002 to Rs 137 bn by September 2006.

However, after the turn of the century private shipbuilders enbabled India to emerge as a key player in the offshore segment of shipbuilding. Though India is an insignificant player in the global shipbuilding business, it has gained a strong foothold in the niche offshore segment. Led by private shipyards - ABG and Bharati - India has surpassed Norway in terms of order-book for OSVs (offshore supply vessels). The Indian shipbuilding business entered the growth trajectory with an order-book witnessing a nine-fold increase in just four years.

Traditionally Singapore and Norway have led the offshore segment. However, India emerged as one of the leading players in the OSV market, led by private shipyards. The success of the Indian shipbuilding industry was due to availability of low cost skilled labor. India compares favourably with other shipbuilding nations on the labor costs. OSVs typically require higher degree of technological skill-set than conventional vessels like tankers, bulk carriers and container vessels. Though the cost of labor in China is lower than India, the focus of Chinese shipyards remains large conventional vessels. Moreover, large shipyards in China make it unfeasible to produce OSVs.

With a focus in the offshore segment, the Indian private shipyard prospects depend primarily on exploration and production (E&P) spending by the oil companies. Worldwide, the E&P spending has generally been strong, driven by depleting oil reserves and high oil prices. Indian shipbuilders are set to benefit from the huge replacement demand which is expected to come over the next few years. Globally, 73% of the Anchor Handling Tug Supply Vessel (AHTSV) fleet and 62% of the Platform Supply Vessel (PSV) fleet is more than twenty years old as majority of them were acquired during the oil boom witnessed in 1970s. But the current order book for offshore vessels (AHTS and PSV) forms only 10% of the current fleet, thereby indicating significant potential for Indian private shipyards.

Indian shipyards have witnessed a signficant accretion in order-book, and timely execution and delivery would be the key for growth. Delayed and substandard deliveries can have a detrimental impact on the long-term prospects of the domestic industry as goodwill is built over a number of years. The substantial fall in crude oil price in late 2008 is another area of concern, since this would lead to a cut in E&P spending by oil majors. As a result, the demand for offshore vessels was reduced.

In April 2016 the government granted infrastructure status to the shipyard industry, a move that will help the sectoral players get long-term financing at cheaper rates. A Gazette notification issued by Department of Economic Affairs in the Ministry of Finance issued an "updated Harmonized Master List of Infrastructure." The move will benefit private shipyards of L&T, Reliance Defence and Engineering Shipyard and ABG Shipyard. The status was expected to give a boost to government's 'Make in India' initiative as cheaper finance will help Indian shipbuilders overcome, to a large extent, cost disadvantage on building ships. With this, the shipyard industry will be able to avail flexible structuring of long-term project loans, long-term funding from infra funds at lower interest rates and longer tenure equivalent to the economic life of their assets, relaxed ECB norms, issuance of infrastructure bonds, etc ..

In a significant development in the indigenous shipbuilding, on 01 July 2019 Ministry of Defence issued four shipbuilding Requests for Proposal (RFP) amounting to Rs 15,000 crore for the acquisition of various ships and craft for the Navy and the Coast Guard. While the RFP for 06 nos Next Generation Missile Vessels (NGMVs) has been issued to seven shipyards, RFPs for 08 nos Fast Patrol Vessels (FPVs) and 12 nos Air Cushion Vehicles (ACVs) and 08 nos Missile-cum-Ammunition Barges have been issued to shortlisted Indian shipyards. The RFP for ACVs also includes the initial requirement for 06 nosACVs of the Indian Army.

In order to make the process of qualifying the shipyards for the issue of RFPs for shipbuilding projects of various ships and craft of the Navy and the Coast Guard more objective and to encourage participation by a larger number of Indian shipyards, an exercise was undertaken by the Ministry along with Indian Navy and Coast Guard. This led to rationalisation of guidelines for capacity assessment of shipyards that have been promulgated recently. Rationalisation and promulgation of financial selection criteria have paved the way for issue of RFPs for a large number of shipbuilding projects that have been pending. Further, in a significant move to encourage smaller shipyards, participation in the projects with the anticipated annual outflow of less than Rs 75 crore has been restricted to smaller shipyards having an average annual turnover less than Rs 500 crore.



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