Financial Daily from THE HINDU group of publications
Thursday, Sep 19, 2002
Modified subsidy policy to cover private shipyards
NEW DELHI, Sept. 18
THE Union Government is set to modify the shipbuilding subsidy policy and re-introduce it for another five years by extending the coverage to private yards also. The policy is now applicable only to the seven public sector shipbuilding yards.
However, the interest subsidy scheme is being dropped from the modified policy, which is awaiting approval from the Cabinet Committee on Economic Affairs (CCEA).
The Finance Ministry had opposed the interest subsidy scheme as well as including private yards in the ambit of the subsidy policy.
"We are interested in extending the shipbuilding subsidy policy to cover private yards also. If this can help us get contracts against international competition, why not? '', Mr M.P. Pinto, Secretary, Ministry of Shipping, told Business Line.
Ultimately, the purpose of any subsidy is to ensure greater competitiveness in the world market.
Mr Pinto said the taxpayers should not subsidise the shipbuilding industry if the competition was limited to the domestic market. "But, if we are competing with outsiders and those outsiders are being subsidised by their respective governments, then there is no level-playing field and we can't possibly expect our shipbuilders to compete with outsiders'', said Mr Pinto.
The subsidy is intended to provide a level playing field based on the assumption that shipbuilding industry the world-over is subsidised by governments through hidden or direct subsidies.
"So, if our shipyards are to be successful in international competition, we must subsidise them'', he said.
The subsidy policy introduced for a five-year period on August 14, 1997 was modified last year in the face of "poor-off take'' from the public sector yards who were driven out of business by the highly competitive Korean and Japanese yards. Mr Pinto said that the country enjoyed inherent advantages in shipbuilding like availability of cheap labour, but Indian yards lagged behind due to lack of "series orders'' for shipbuilding.
With 60 to 65 per cent of the inputs being imported, "series orders'' would have enabled builders to source inputs at costs which provided a far greater leverage and economies of scale than when ordering raw materials only for one vessel, he noted.
With many of the once-premier yards such as Cochin Shipyard Ltd, Hindustan Shipyard Ltd, Hooghly Dock & Port Engineers Ltd and Raja Bagan Dockyard of Central Inland Water Transport Corporation Ltd facing extinction due to competition from foreign yards, the Government has decided to re-introduce the policy for another five years.
It involves a 30 per cent subsidy which would be available to each export order irrespective of the type and size of the vessel and whether the order is obtained through a tendering process or otherwise.
The interest differential subsidy scheme, which was available to ship owners as part of the policy, is being scrapped. Under this scheme, shipping companies could avail of loans at a concessional rate of nine per cent to the extent of 80 per cent of the shipbuilding cost if they placed orders with Indian public sector yards. The difference between the concessional rate of interest and the normal lending rate were reimbursed by the Government.
The subsidy policy would continue to be available to public sector yards controlled by the Defence Ministry such as Mazagon Docks Ltd, Goa Shipyard Ltd and Garden Reach Shipbuilders & Engineers Ltd which are surviving on captive business from the administrative Ministry.
But, the real beneficiaries of the new subsidy policy would be ABG Shipyard and Bharati Shipyard, two leading private sector yards in the country.
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