While recent policy pronouncements bode well for the Indian shipbuilding industry, more is required to ensure its smooth sailing in highly competitive international waters, say Jagannarayan Padmanabhan and Parul Singhal Garg.

India’s Maritime Amrit Kaal Vision 2047 aims to strengthen the country’s shipbuilding industry as part of a larger goal of transition to a manufacturing-led economy. By encouraging the building of vessels for coastal, inland and global trade, the government is looking to reduce dependency on foreign ships and enhance self-reliance in maritime transport.However, there is much work to be done to ensure smooth sailing.

Currently, India ranks 20th in global shipbuilding. For perspective, China, South Korea and Japan together account for 85 per cent share of the annual shipbuilding output, while our share is 0.05 per cent. Ship repair also has strong potential, considering nearly 10 per cent of global trade passes within 300 nautical miles of India’s coastline. Here, too, China, the Middle East and Singapore have cornered the global market, whereas India’s share is less than 1 per cent. The minuscule share, however, is not due to a lack of necessary know-how or capability. The country has demonstrated strong shipbuilding skills, with several shipyards delivering high-quality ships. The malaise runs deeper.

Shipbuilders in India have been treading water due to several issues, including a lack of demand as Indian shipowners prefer foreign-built ships, which are often cheaper and come with better financing options. Additionally, Indian shipbuilders rely heavily on foreign components such as propellers, diesel generators, control systems, and designs, leading to a significant import dependency. The sector does not fully benefit from the financial incentives given to the infrastructure sector in India, and the high cost of capital is another major challenge. Financing is not ship-order-based but balance sheet-based, which limits the ability to secure multiple orders. Shipbuilding also requires 35-40 per cent of a ship’s cost upfront, but the industry faces difficulties in securing soft loans, bank guarantees, and insurance. 

Furthermore, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, ships are not considered assets for mortgage and as collateral for securing bank loans. The SARFAESI law allows financial institutions to auction loan defaulters’ properties. The high cost of vessel financing 

is another hurdle, with Indian shipowners paying 16 per cent interest compared with Libor +100 bps for foreign owners. The loan tenure for Indian ship financing is also shorter, at 6-7 years, compared with 10-12 years for foreign competitors. Lastly, the per-day loan servicing cost for Indian shipowners is higher than that of their peers.

Propel shipbuilding, reap benefits!

Promoting shipbuilding in the country will enhance the use of India-made and India-flagged ships in cargo operations, thereby increasing the country’s self-reliance in energy security and national defence. The expansion of shipbuilding capacity in India will boost foreign reserves, too, by lowering foreign exchange outgo. In 2023, 95 per cent of the country’s international cargo was transported by foreign vessels, which had led to a forex outflow of $75 billion, with the amount expected to exceed $100 billion soon.

Shipbuilding has a strong manufacturing component, with a unique feature of nearly 65 per cent value addition from other industries, such as steel, electronics, engineering, and port infrastructure. And that also makes it an employment multiplier. By developing capabilities to global standards through R&D and innovation, as well as raising the indigenous content in shipbuilding equipment and machinery, the sector can also become a critical component of the government’s Make in India push. For its part, the government has clearly outlined its goals for the sector — to be among the top ten globally in shipbuilding under the Maritime India Vision 2030 and the top five under its Viksit Bharat 2047 vision.

Budget 2025-26: Setting the stage

The Maritime Development Fund (MDF) is set to bolster shipbuilding and ship repair in the country. With a corpus of `250 billion, the fund will have the government contributing a 49 per cent share, while the remainder will be sourced from ports and private sector investments. The key objectives of the fund include providing low-cost and long-term finance facilities for fleet acquisition by shipping companies, the development of shipyards, and the establishment of ancillaries and training centres. It also aims to support growth through financing via equity, debt, and venture capital for R&D, technology upgrades, development of designs and engineering know-how, and covering planning and promotional expenses. Additionally, the fund will offer long-term credit to extend benefits to customers, such as long-term loans for market development. In cases of distress, the fund could take over vessels under stress and turn around loans declared non-performing by banks.

Furthermore, the government has extended the basic customs duty exemption on raw materials, components, consumables, or parts used in ship manufacturing for another ten years from April 1, 2025, a key industry demand to maintain global competitiveness. Shipowners will also benefit from the revamping of the Shipbuilding Financial Assistance Policy 2.0, which includes the issuance of credit notes for shipbreaking or scrapping in India for 40 per cent of the scrap value, which can be reimbursed to buy new ‘Made in India’ ships. This policy will encourage shipowners to undertake shipbreaking and subsequently purchase India-built ships, thus stimulating the domestic shipbuilding industry.

How winners ticked the right boxes

The shipbuilding industries in China, South Korea and Japan have been boosted by strong government support, subsidies and favourable financing. All have also ensured domestic demand, invested in technology, developed shipbuilding clusters and localised the supply chain to reduce costs. Also, many shipyards in China are government-owned through state-owned enterprises, giving them access to state funding, low-interest loans, and guaranteed domestic and military orders. There are privately owned shipyards, too, that receive considerable government support.

South Korea’s major shipyards are privately owned but are financially government-supported through refund guarantees, insurance cover from commercial banks or development banks, and favourable industrial policies. This also allows for innovation and competition. Similar to South Korea, Japan’s major shipyards are privately owned but receive government support through subsidies (including for R&D), tax incentives and low-interest loans. Further, each country has built its shipbuilding dominance on the back of associated strengths – South Korea on technology (use of AI and building of unmanned and smart ships), China on scale and cost (mass production), and Japan on quality and specialisation (high-tech fuel-efficient ships).

Learn from leaders, leverage domestic advantage

To increase domestic demand, it is essential to mandate domestic cargo movement on India-built ships and ensure that state-owned enterprises place orders with domestic shipyards. Identifying niche segments such as specialised mid-sized ships and green-fuelled ships can help focus efforts, with plans to expand to other segments in a phased manner. Developing integrated shipbuilding clusters with ancillary industries in proximity for design, construction, and maintenance, connected to the shoreline, with ample land for manufacturing ship parts and fabrication, will minimise import dependence.

Promoting skill development is crucial for filling technological gaps through technology transfer from advanced shipbuilding countries, followed by capacity-building of engineers and designers. A comprehensive strategy to develop a skilled workforce for the shipbuilding industry through vocational and specialised training programmes and international collaborations is needed. Additionally, incentivising shipyards to offer apprenticeship programmes and practical training opportunities will help cultivate a competent workforce. Implementing policies and providing financing through MDF is expected to provide low-cost long-term loans, bank guarantees based on ship orders, support for R&D and technology upgrades, and distress support. 

A production-linked incentive scheme for manufacturing critical components for the shipbuilding industry, the inclusion of ships in the harmonised list of infrastructure for easier access to long-term funding, and amending the SARFAESI Act to allow ships to be considered mortgageable assets will also enhance financing options. The Shipbuilding Financial Assistance Policy 2.0, which offers direct subsidies for standard, specialised, and green or technologically advanced vessels, is also anticipated.

Improving ease of doing business is vital, with measures such as implementing single-window clearance at central and state levels and licences for setting up integrated shipbuilding clusters, including shipyards, ancillary units, and supporting services and utilities. Establishing central centres of excellence for marine design and engineering, providing assistance with common digital tools for ship design in India, and creating common testing infrastructure and facilities will further support the industry. Additionally, standardising designs and components to minimise the range of equipment, parts, interfaces, and documentation will enhance this support. There’s no missing the home advantage –India should focus on catering to domestic demand before aiming for global opportunities. This strategy can mirror India’s space journey, which started with local-built rockets launching domestic satellites and evolved into launching foreign satellites. Similarly, the manufacturing of the Maruti 800 in 1983 marked a turning point for the Indian small car industry, eventually making India the world’s fourth-largest producer of light vehicles.

About the author:

Jagannarayan Padmanabhan, Senior Director and Global Head, Consulting-Transport, Mobility and Logistics, Crisil Infrastructure Advisory and Parul Singhal Garg, Lead Infrastructure Specialist Consulting-Transport, Mobility and Logistics at CRISIL Intelligence.

The Global Big 3: Strategies in Shipbuilding

China

• Financial support from state-owned banks and EXIM bank for preferential rate of interest (2-5 per cent) with long-term maturity
• Export tax rebates on vessels exported from China
• Subsidy of RMB1,500/gross tonne to replace old vessels with greener ones
• Capital support for existing companies in the form of debt-equity swaps to reduce debt and interest obligations
• Discouraging import of foreign ships through high tariffs (8 per cent) and VAT (17 per cent)
• Made in China programme to build high-end vessels
• Development of export-oriented economic zones for the promotion of clusters, with incentives for equipment and component manufacturers
• Technical cooperation between Chinese yards and foreign shipbuilders
• Providing line of credit to foreign shipping companies through 
• EXIM bank for purchase from local shipyards.

South Korea

• Export credit agencies provided shipbuilding financing through two state-owned export credit agencies – K-Sure and EXIM Bank of Korea
• State-run corporations offer financial guarantees for up to 80% of loans under shipping modernisation programmes
• Capital support for domestic shipping companies – reimbursement of up to 60 per cent of cost of new vessels
• Bailout support during crisis
• Large industrial clusters for allied industries, such as Ulsan Industrial Complex
• Promotion of technical cooperation and assistance from abroad
• Set up several organisations for shipbuilding-related research and innovation
• Workforce training through exchange and in-house programmes

Japan

• R&D grants up to 33 per cent for “future ships”
• Shipyards are entitled to a 40 per cent special depreciation and a 4 per cent deduction on capital investments
• Export credit insurance given by state agencies to buyers
• Domestic shipowners are given home credit by the Development Bank of Japan (DBJ)
• Low-cost finance provided for projects by DBJ
• Support for the development of green technology-based engines  (green hydrogen) via fully-funded design and development by Government of Japan
• Skill development centres in port cities like Imabari, Nagasaki, and Yokohama provide training in shipbuilding
• Export credit offered by Japan Bank for International Cooperation

Source: CRISIL Intelligence Knowledge Database