Arguing that soaring costs and adverse tax structure have severely reduced the competitiveness of Indian shipyard sector, the shipping ministry has sought the approval of a Committee of Secretaries (CoS) on extending a financial subsidy to struggling shipyards.
It has also pitched for exempting the sector from the purview of service tax and according infrastructure status to it.
In a recent note to the CoS headed by cabinet secretary Ajit Seth, the shipping ministry pointed out that currently the maritime trade in India remains largely dependent on foreign vessels given the domestic capacity constraints and nations like China, Japan and South Korea have stolen the march by hugely developing their domestic shipyard industry.
On the contrary, Indian shipyards are highly import-dependent and pay customs duty of up to 35 per cent and are forced to create inventories at higher costs.
Moreover, the high lending costs within the country as compared to East Asian nations coupled with adverse structure and high insurance costs have immensely reduced the competitiveness of domestic shipbuilding industry.
The government did introduce a subsidy scheme between 2002 to 2007, following which the industry witnessed unprecedented growth. This resulted in new orders rising from 0.01 Draught Weight Tonnage (DwT) to 3.4 Million DwT besides leading to upscaling the level of indigenisation to 16.2 per cent.
But the withdrawal of the subsidy scheme in 2007 saw this dip sharply to 5.1 per cent only by 2010.
“The current scenario wherein capital goods used in shipbuilding are tariff protected while the import of ships itself bear no such protection creates an inverse duty structure for the entire shipbuilding industry,” the ministry observed in its note.
Based on the projects, the ministry’s subsidy proposal entails and expenditure of Rs 7243 crore for initial five years from 2012-13 to 2017-18.
Further due to delivery of vessels for orders obtained in the last few years, the subsidy scheme may spill beyond this period for another nearly three years.
The shipping ministry told the CoS that since shipbuilding and ship repair are non-tariff protected, even for domestic orders shipyards have to compete with global players, who are able to service Indian ships without having to pay any tax.