Horizon of hope

New Delhi, Oct. 7: The government is planning to revive the subsidy scheme in shipbuilding, discontinued since August 2007.

“A cabinet note on the extension of subsidy for the shipbuilding industry will be circulated this week. We will get comments, which will be sent to the highest authority for taking a decision,” the minister of shipping, road transport and highways, T.R. Baalu, said at an industry conference.

Baalu said the ministry was making efforts to streamline the fiscal structure to offset the disadvantages faced by the industry.

Till August 2007, ship-builders enjoyed a 30 per cent subsidy. The relief on the bid price was available on domestic and export orders obtained through a global tender. The shipping ministry wanted to extend the scheme by another 10 years, but the finance ministry opposed it.

The shipping ministry is now considering a subsidy of 20-25 per cent on the total value of an order. The incentives will be offered for another three years with effect from August 2007.

However, under the new scheme, the incentives will be only for export orders bagged through a global tender, officials said.

India has an order backlog of 4.5 million dead weight tonnes to be delivered by 2012-13, of which over 70 per cent is meant for exports.

Consultancy firm KPMG, in a recent report submitted to the government on the extension of subsidy, has suggested that shipbuilding should be treated as an infrastructure activity, making it eligible for incentives such as tax holidays.

According to the report, governments in Japan, Korea, China and Vietnam have supported shipbuilding, directly or indirectly.

Indian shipyards carry a minimum cost disadvantage of around 32-37 per cent on the price of a typical ship, the report said.

KPMG said the capacities of companies in Japan, South Korea and Norway — the leaders in shipbuilding — were fully stretched, leading to shipping firms looking at India and Vietnam.

According to Baalu, though India’s share in new building orders is minuscule at present, it is expected to rise sharply in the future.

Smaller yards are expected to get orders from the coastal shipping and small-craft segments. Orders will also be there for large vessels.

Baalu said the market share of Indian firms was estimated at 3 per cent by 2012, with turnover being Rs 18,000 crore.