India is the third largest arms importer and 10th in terms of global military expenditure.1 Capital acquisition of naval ship and platforms account for 25 percent of India’s capital acquisition budget which is around $13 bn. This is expected to grow by at least 20 percent every year. Imports constitute around 50 percent of navy’s capital allocation.

The Indian Commercial shipbuilding depends mainly on 28 shipyards comprising eight Public Sector (6 yards under Central and 2 under State Governments) and 20 Private Sector shipyards.

MOD promulgated an Offset policy in 2005 as part of DPP-2005 3 which aims at leveraging India’s big ticket acquisition by bringing in FDI, fostering JV arrangements, sub contracting products and services, boosting exports, setting up MRO facility to bolster indigenous military industry capability. The scope of offsets which was direct was extended to civil aerospace sector and homeland security products in DPP 20114.

However, the civil shipbuilding sector, has been kept out of the ambit of offset scope. This article brings out the yawning gaps in demand and supply in commercial and warship building sector, international scenario in shipbuilding, present policy framework and suggests the urgent need to include the commercial shipbuilding sector in the ambit of offsets, foster private public partnership, JV arrangements and promote investment in R&D in niche technology to bolster shipbuilding capability.

Commercial Shipbuilding

India is a major maritime country which is predominantly peninsular in nature having a coastline of 7515. Km and 1197 islands and located strategically in major maritime routes.

It is estimated that India’s requirement of natural gas will be around 391 MM SCMD by 20255 and India will have a requirement to import 84 million tonne by 2015

The Indian Commercial shipbuilding depends mainly on 28 shipyards comprising eight Public Sector (6 yards under Central and 2 under State Governments) and 20 Private Sector shipyards. Only Cochin Shipyard Limited (1,10,00 DWT) and Hindustan Shipyard Limited (80,000 DWT) have the required infrastructure and graving dock to build large vessels.

The current capacity of all the yards is 5, 00,000 DWT approximately. The Indian Shipbuilding Industry, which had only about 0.1 percent share of the world shipbuilding in 2002, expanded over tenfold to claim one percent share by 2007/2008 riding on the global boom and supported by a subsidy scheme. Shipbuilding turnover for Private and Public Sector Shipyards excluding Defence Shipyards has grown about 14 fold in the last nine years from about Rs.440 crores in 2001-2002 to an estimated Rs.6200 crores in 2010-2011.

A table showing improvements in turnover, employment generation, investments, order book and deliveries of Indian Shipyards from 2002 to 2010 is shown in Table 1 below.

India’s Requirement of Natural Gas – Capacity Gap

It is estimated that India’s requirement of natural gas will be around 391 MM SCMD by 20255 and India will have a requirement to import 84 million tonne by 2015 6. In terms of LNG vessels India will require 34 vessels by 2025 as against two LNG vessels of 1.38 lakh cubic metre capacity available with SCI.

The overall shipbuilding capacity of DPSUs is at the best four ships a year. During the next 10 years, as against annual requirement of 107 SSUs (Standard Ship Units), around 40 SSUs are available at the DPSUs.

Warship Building

The Indian Navy is committed to the concepts of Self Reliance and indigenization. There are four shipyards under the Ministry of Defence – Mazagon Docks Ltd., GRSE, Goa Shipyard Ltd. and Hindustan Shipyard Ltd. A total of 99 ships have been constructed by these yards and 32 ships have been ordered.

Mazagon Docks Ltd

Mazagon Docks Ltd. is a premier warship building yard where construction of major warships was initiated in 1966 with the Nilgiris class of frigates. Since then they have built 16 major warships including two submarines and three destroyers. It is the only shipyard equipped to build warships upto the size of a destroyers. It has also undertaken major refits and modernization of warships and submarines.

GRSE

It is the second major shipyard with a 100 year old history. It initially built relatively small lightly armed seaward defence boats, landing crafts utility, etc. and subsequently undertook construction of fleet tankers, landing ships, corvettes and frigates.

GSL

It is the third of the defence PSU shipyards and has been building FPVs, OPVs, Missile vessels, survey ships and Sail training ships.

Compared to international benchmark, the productivity of India’s defence shipyards is much below international standards. Also in terms of build time it far exceeds the international norms.

It clearly emerges from the foregoing that existing structure governing the Indian shipbuilding sector commercial and warship building is inadequate to meet the burgeoning demands ahead.

CSL

CSL, a PSU, is engaged in construction of the first indigenous aircraft carrier for Navy. It has a capacity to build ships upto 1,10,000 DWT and can build a wide variety of ships for merchant navy, ports, Island territories and commercial ships to national and international owners. It has absorbed technology to build high end offshore vessels. It has so far built 11 bulk carriers, 47 small and medium built vessels, 4 tankers besides a no. of tugs, patrol boats, launch barges, etc.

CSL has core competence for ship repair and has capacity to repair merchant ships upto 1,25,000 DWT and can repair aircraft carriers, oil rigs, merchant ships, etc. accounting for 60 percent market share in India

HSL

HSL, the fourth shipyard to come under DDP in 2009 and is engaged in repair and refit of submarines and has built OPVS in the past. It has orders for several bulk carriers (3,000 DWT) and building barges for Andaman and Nicobar administration.

Private Shipyards

Four Private shipyards engaged in construction of various types of patrolling vessels and boats are ABG Shipyards, Bharati, Pipavav, Adhani and L&T.

ABG is a modern shipyard and has delivered multiple small and medium sized vessels. A new shipyard at Dahej has come up recently with build capacity of vessels upto 300 m including VLCCs. Bharati will be able to build ships upto 170 m long. Pipavav has huge dockyards and massive cranes. L&T is in the process of setting up two international size shipyards.

International Benchmarks

The productivity of India DPSU shipyards is much below the levels achieved by international standards. Whereas first tier yards like MDL and CSL have a capacity to build 1.33 and 0.48 ships respectively, the comparable international standards are 5.7.

Similarly in terms of build time trends, it’s almost four times more than international standards. For instance, a ship with displacement tonnage of 3500 tonnes in US is built in 30 months with 2.5 lakh manhours as against 72 months and 10.8 lakh manhours (Godavari class).

Also there are substantial time and cost overruns between contractual milestones and actual as under:

Warship Building Demand & Capacity Gap

The overall shipbuilding capacity of DPSUs is at the best four ships a year. During the next 10 years, as against annual requirement of 107 SSUs (Standard Ship Units), around 40 SSUs are available at the DPSUs.

International Experience

At the end of year 2010, world market stood at 261 million GT in terms of order book position, 77 million GT in terms of new orders and 96 million GT in terms of completion of order. Growth of world market has been very erratic since 2009 in terms of order book and new orders while growth has been stable as far as completions are concerned. The fluctuations in the world market is captured in the following graph:

The world market in shipbuilding is dominated by three Asian countries namely China, South Korea and Japan which together account for approximately 90 percent of world market in terms of existing order book at the end of year 2010. The emergence of these countries in the second half of the last century is a lesson for other countries such as India. Among the three nations, China has seen some spectacular growth in the industry since 1990s while South Korea usurped Japan as the world leader in 1999.

The Road Ahead

The National Manufacturing Council (NMCC) in its report to PMO (2009) made the following recommendations for developing Indian shipbuilding Industry.

• Prepare on an urgent basis a comprehensive plan to enhance domestic ship building capabilities and building large new shipyards.
• Adopt a Mission Mode approach for the purpose. In this context, the examples of both Korea and China be studied; and
• A continuing mechanism be evolved to synergise the efforts of the naval authorities under Ministry of Defence and the Ministry of Shipping for meeting long term requirements of the country.

It clearly emerges from the foregoing that existing structure governing the Indian shipbuilding sector commercial and warship building is inadequate to meet the burgeoning demands ahead.