Defence Industry

India's Offset Policy in the Shipbuilding Sector
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Issue Vol. 26.4 Oct-Dec 2011 | Date : 10 Feb , 2012

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, 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.

Capacity expansion in the commercial sector will have a positive spin off for the warship construction activity as it will allow shipyard to focus more on complex warship construction activity. In that sense the policy facilitation of level playing field to private sector players in Shipbuilding Procedure 20117 is really welcom.

During 10th Five Year Plan, (2002 ““ 2007) a subsidy scheme was introduced where 30 percent subsidy on bid price was available to shipyard on domestic and export order. This galvianized the shipbuilding by raising global share from 0.2 percent in 2002 to 1.3 percent in 2007.

Infrastructure Initiatives

This will include construction of additional international standard greenfield shipyards through private public partnership as also through foreign JV arrangements.

Concurrently modernization/upgradation of existing shipyards needs to be undertaken to improve productivity and turnover time in line with global benchmarks.

Build period is greatly improved when a series of ships of identical design are constructed. Series effect studies have shown that 10th ship require 35 percent less work load than the first one.

Design and R&D Initiatives

We have severe limitation in design capability with only IIT, Kharagpur and CUSAT, Kochi and IIT Chennai having some expertise.

However, vital gap remains in design/development areas like vulnerability survivability, stealth technology, effect of shocks/blasts on ship construction and hydrodynamics of high spared marine vehicles and submarines.

The need for increasing FDI to 50 percent in the warship building sector and 100 percent in civil shipbuilding, recognizing shipbuilding as an infrastructure sector of the economy have been highlighted.

Established as an overarching institute to source requisite talent, both quantitatively and qualitatively.

Funding R&D to educational and research institutions in shipbuilding need to be encouraged. Defence Production Policy (2011)8 is a welcome initiative in this regard.

Fiscal Initiatives

  • Subsidy Scheme

During 10th Five Year Plan, (2002 – 2007) a subsidy scheme was introduced where 30 percent subsidy on bid price was available to shipyard on domestic and export order. This galvianized the shipbuilding by raising global share from 0.2 percent in 2002 to 1.3 percent in 2007.


This subsidy was withdrawn by govt. in 2007 for all new orders which has resulted in India’s share dropping to 0.01 percent in 2009 as depicted below:


The subsidy scheme needs to be reintroduced urgently and redirected towards capital expenditure. It should extend to capital equipment such as cranes, plasma cutting machine to improve our shipyard’s productivity.

  • Infrastructure Status and FDI Policy

It is quite ironic that shipbuilding is not in the purview of infrastructure in India’s development lexicon. It is high time its strategic importance in global competitiveness is recognized. As a key policy FDI to the extent of 100 percent be allowed in civil shipbuilding sector. Such liberal FDI had catalytic impact in the power and telecom sector as given below:

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Prof (Dr) SN Misra

was previously Joint Secretary (Aerospace), Ministry of Defence, Government of India.

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