Rajesh Menon, Maritime Expert, explains the budget initiatives like the Maritime Development Fund and shipbuilding clusters, aiming to revitalise India’s maritime sector and bridge the gap between its historical legacy and future ambitions.
India’s maritime coastline is over 7500 km along nine coastal states and union territories. It has twelve major ports under the central government and sixty-six nonmajor ports under state governments, in addition to many non-developed ports and harbors. Historically, the subcontinent was the chosen destination for trade-bound ships. Angus Maddison, the late British economist, had estimated that in the 10th century, the subcontinent controlled 30 % of the global trade. In contrast, today India’s share of the global trade is nearly above 1 percent. In addition to this heritage, 95% of the trading volume currently is through the ocean. Further, as the economy further grows this dependence on the ocean through ports and shipping infrastructure is to increase when we are moving to become the third largest economy by 2030. Accordingly, there is a mismatch between what India was, what it is today, and what it wants to be tomorrow. It is here we need a vision plan for a maritime future, and the Maritime India Vision 2030 and the Maritime Amrit Kaal Vision 2047 are two such plans for exponential growth in our maritime capacities. The vision plan, while a dream, will also sensitise us to know our weaknesses or challenges to achieving our plans.
Budgetary thrust: Aligning policies with maritime vision
The budget announcements should be read in line with these challenges as policy and decision thrusts to achieve these. For the maritime sector, the budget announcements were mainly about setting up a maritime development fund. Besides, the Shipbuilding Financial Assistance Policy will be revamped to address cost disadvantages, including credit notes for shipbreaking in Indian yards to promote the circular economy. Further, the large ships above a specified size are also proposed to be included in the infrastructure harmonised master list (HML). The Union Budget also proposes to facilitate ‘Shipbuilding Clusters’ to increase ships’ range, categories, and capacity. This will include additional infrastructure facilities, skilling, and technology to develop the entire ecosystem. Acknowledging that the shipbuilding has a long gestation period, it was proposed in the budget that the exemption of basic customs duty on raw materials, components, consumables, or parts for the manufacture and breaking of ships be extended for another ten years.
Bridging the financing gap
Any large projects need financing, which is sought as debts from banks and other financial institutions. However, in the maritime sector, finance is not as forthcoming from banks due to their prevalent risk-return structure. It means the cost of funding is high and the funding opportunity is low. When 95 % of the EXIM cargo is transported through our ports and when our economy is growing, there is a need for enhanced capacities in our maritime operation and service, which requires capital. This includes the manufacture and repair of ships, an increase in the flagging of Indian ships, etc. The maritime sector needs long-term funding, while the existing asset-liability mismatch, according to banks, enables the banks to give only short-term funding to the sector. Hence, a mechanism had to be developed that would create funding for the sector, and such funding is called the Maritime Development Fund. Here a corpus of Rs 25000 Crore is earmarked where 49 % of the corpus will be provided by the central government and the remaining raised from ports and the private sector. While the exact institutional structure and funding mechanism are yet to be finalised, the expected model is that of a corpus of funds being managed by a fund manager as an alternative investment fund where funds would be invested in maritime sector-specific projects. In case the fund performs effectively, it may attract further private investments. While the effectiveness is yet to be seen, this mechanism is a significant beginning to finance the maritime sector.
Shipbuilding: Revitalising domestic capacity
The EXIM cargo carried by foreign-flagged ships is now 95 %, meaning only 5 % of the ships are Indian-flagged. This has led to significant foreign exchange outgoings. Hence, as we grow our EXIM trade, we should have more Indian flagged ships. Moreover, as per the international conventions, any ship above 20 years needs to be repaired or dismantled, as old ships consume more fuel and cause more pollution. The majority of Indian-flagged ships are older ships. The third reason is that sustainability needs mandates that ships that can run on alternative fuels are required to reduce CFC emissions. These problems can be ameliorated only by building new ships and having a manufacturing ecosystem that enables cost-effective manufacturing of ships. Hence it is proposed in the budget to develop ship-making clusters. Like an auto cluster, these clusters will house different tiers of suppliers and original equipment manufacturers, resulting in cost-effectiveness.
Moreover, the exemption in Basic Customs Duty on raw materials, components, consumables, or parts for the manufacture and breaking of ships for another ten years will reduce the cost of production
Secondly, the government has already announced the ship finance assistance policy. This is monetary assistance provided to shipyards that have entered into contracts with firms and can deliver the vessel in 3 years up to a maximum of Rs 40 crore. The quantum of assistance is based on specified formulas derived from the applicable rates of that year multiplied by the lowest cost of manufacture. Suppose the applicable rate of that year is 20 % and the cost of the ship is Rs 50 crore, the assistance will be Rs 10 crore. This policy is proposed to be revamped to adjust to cost escalations. In the case of ship recycling, if an owner is planning to break a ship and make a new one in an Indian shipyard, and then he can be given a credit note of up to 40 % of the scrap value, which he can encash if he places an order for a ship in Indian yards. All the above initiatives in the sector are poised to give a fill up to the development of the maritime sector.
