Monday, December 16, 2013

Opportunities worth over Rs 20K crore available for domestic shipbuilders: ASSOCHAM

Source: ASSOCHAM


                                         Mr D.S. Rawat, secretary general of ASSOCHAM

With over 41 per cent of India’s fleet of ships in the 20 plus age group, India’s shipbuilding and ship-repair industry holds tremendous growth potential with opportunities worth over Rs 20,000 crore available in the sector, an analysis done by apex industry body ASSOCHAM has revealed.
“Ships older than 20 years require more frequent and extensive repair and maintenance, this augurs well for the Rs 7,300 crore worth India’s shipbuilding industry, however domestic shipbuilders must invest extensively in their capacities to take advantage in this regard,” according to an analysis of ‘Indian Shipping Fleet: Size, capacity and Age Composition,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and released on Dec 16.
“Majority of Indian ships are less competitive as mostly younger vessels that are less than 15 years old are preferred in international trade,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the chamber’s analysis.
The government needs to act as a facilitator and create opportunities for a healthy business climate to attract fresh investments in the shipping sector,” Mr Rawat added.
As per the ASSOCHAM analysis, India has a total of 1,122 shipping vessels in its shipping fleet and 41 per cent of these (about 466 vessels) fall in the age group of 20 years and more. Considering that average life of a shipping vessel is about 26 years, most of the existing Indian vessels need to be replaced.
Assuming that out of the 41 per cent vessels, about seven per cent (approximate rate at which India’s vessel strength has grown between 2000 and 2011) of them get replaced then this would translate into 33 ships.
An average cost of constructing a large vessel is roughly about $100 million, therefore the size of such an opportunity would amount to $3.3 billion.
“As such the domestic shipbuilders need to pull up their socks and invest in capacity enhancement in order to take advantage of this opportunity or else shipbuilders from other countries will cash in on this opportunity,” said Mr Rawat.
Further, over 23 per cent of India’s total shipping vessels (about 264 vessels) fall under the age group of five years. Of the rest, about 141 vessels are in the age group of 16-20 years, 135 vessels are 11-15 years old and about 116 vessels are in the age group of 6-10 years, highlighted the ASSOCHAM analysis.
Despite total volume of cargo moving in India’s trade expanding progressively, the share of Indian ships in carriage of country’s overseas trade declined from about 36 per cent in 1990-91 to just over eight per cent in 2009-10.
The continued slippages in share of Indian shipping in carriage of country’s overseas trade puts us in a precarious situation as bulk of our essential supplies like oil are carried on foreign flag vessels leaving our energy supplies at the risk of an abrupt stoppage in case of any eventuality,” highlighted the ASSOCHAM analysis.
“Besides, it is also causing significant drain on precious foreign exchange in terms of payment of freight charges, which could otherwise be used for other high priority imports or for building up indigenous infrastructure,” the report said.
However, the drop in share also presents an opportunity for Indian shipbuilders thereby indicating tremendous scope for growth of Indian shipping.
Though, India has one of the largest merchant shipping fleet amid developing countries but its share in terms of world total deadweight tonnage (weight a ship can safely carry) is pretty low evidently as India contributes just over one per cent to the world deadweight tonnage, according to the ASSOCHAM analysis.
From about 549 vessels in 2000 India’s shipping fleet size increased to 1,122 vessels in 2011 indicating a compounded annual growth rate (CAGR) of about seven per cent. While during this period India’s shipping capacity increased from over 69,53,000 gross register tonnage (GRT) to 1,10,61,000 GRT.

India accounts for just about one per cent of the global shipbuilding industry worth about Rs 7.3 lakh crore. China, South Korea and Japan are leading shipbuilding nations and cater to over 80 per cent of the global shipbuilding industry with China alone accounting for over 35 per cent share.

Lower costs of labour, availability of skilled workforce together with robust demand in the domestic market and a growing steel industry are certain factors that build up a strong case for shipbuilding sector in India.
Points to ponder upon:
For a well balanced and comprehensively developed domestic shipbuilding and ship repair industry, the government should provide fiscal incentives to develop strong research and development facilities, designing capabilities and set up an auxiliary base to encourage the growth of the sector.
-India needs to furbish up its ports and the whole shipping infrastructure to enhance the handling capacity and facilitate operation of larger shipments to increase its share in the global maritime business.
-The government should rope in maritime states to identify and make land available, thereby seeking their contribution for setting up a new port or a shipyard in each of these states.
-This also denotes huge scope for private sector and foreign direct investment (FDI) in the shipping industry and the maritime states can develop a composite project on the public-private partnership model.
-High input costs and rising costs of raw material, freight together with miscellaneous duties and taxes being imposed amounts to a huge price differential of about 50 per cent in building a ship in India and other countries.
-Fulfilling the requirement of skilled workforce is another significant problem being faced by Indian shipbuilders.
-The government has a key role to improve the efficiency and productivity of domestic shipbuilders to enable them to compete with their foreign counterparts.
Hence, the ASSOCHAM recommends for providing subsidy scheme, easing tax related regulations and declaring the shipbuilding a status of strategic industry.

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