Shipbuilding is our maritime sector’s ‘missed opportunity’. It needs its own ministry

by Admiral Arun Prakash (Retd)

The 2019-20 annual report of the Ministry of Shipping has a surprising admission: “While the importance of roads and railways in the economy is undeniable, there is also a greater need to encourage the maritime sector to enable it to achieve its full potential.” This uncharacteristic ‘mea culpa’, is justified by the fact that this 123-page report touches, fleetingly, upon the topic of shipbuilding, in just three pages; an indication of how little the connotations of the ‘maritime sector’ are understood in the Modi government.

A strong shipbuilding industry, a large merchant navy, efficient ports, an ocean-going fishing fleet and the ability to exploit seabed resources are critical for a nation’s sea power. India’s failure to bring focus on the shipbuilding element of its maritime sector represents a huge missed opportunity in two ways. A thriving shipbuilding industry, apart from boosting the nation’s ocean-based ‘blue economy,’ could have helped attain PM Modi’s Atmanirbhar Bharat goals. It could have skilled our youth and created job opportunities by the thousands through a complex of ancillaries. At the same time, it would have also established a sound industrial base – currently missing – for the growing Indian Navy.

China’s Build-Up of Maritime Power

China’s build-up of maritime power, unprecedented in history, is underpinned by the world’s largest shipbuilding industry. Having designated shipbuilding a ‘strategic industry,’ China lent it strong support via tax benefits, loans and subsidies. According to the 2019 UNCTAD Review of Maritime Transport, 40% of the world’s merchant shipping is Chinese-built while Japan and South Korea share 25% each. China’s emphasis on ‘civil-military integration’ has ensured that the modern infrastructure and skilled manpower of its civil shipyards directly benefit the PLA Navy’s warship and submarine-building programmes. This is the culmination of China’s decades-long strategy to build national ‘maritime power’ in a holistic manner.

Today, while China, along with Japan and South Korea, accounts for almost 90 per cent of world shipbuilding capacity, the output of Indian shipyards adds up to a minuscule 0.045 per cent. Even domestically, only 10 per cent of Indian-flagged ships are built in our shipyards because of higher costs, lengthy delivery periods and indifferent quality. The dramatic success of our Asian neighbours only serves to highlight the absence of a ‘maritime vision’ in India. This is manifest in our failure to leverage early advantages and demographic assets and create a dynamic and competitive shipbuilding and ship-repair industry.

The first Indian shipbuilding enterprise, Scindia Shipyard, was founded in 1941, by the visionary entrepreneur, Walchand Hirachand. Today, India’s private shipbuilding industry is in a state of decline and relies heavily on government contracts. Of India’s 28 shipyards, six are public sector undertakings (PSUs), two are owned by state governments, and the remaining 20 are in the private sector. Not counted here is a government-owned shipyard that builds nuclear submarines in partnership with a private-sector company.

Statistics show that nearly 90 per cent of government orders, consisting of warships and submarines for the Indian Navy and patrol vessels for the Coast Guard, are placed on the public-sector shipyards, whose order books always remain full. For reasons mentioned earlier, few shipping companies wish to order merchant ships on private Indian yards. The clear monopoly of PSUs over government contracts has ensured their well-being while depriving the private shipbuilding industry of orders as well as warship-building experience. The factors that have perpetuated this uneven playing field are symptomatic of a deeper malaise.

Shipbuilding Sector In Doldrums

A snapshot of India’s private shipbuilding sector shows that apart from mismanagement, most ship-builders are debt-ridden or function at break-even levels with hardly any of them generating profits. The three most recent and prominent casualties have been the Western India, Bharati and ABG shipyards, which have either declared bankruptcy or been ordered to liquidate themselves by the National Company Law Tribunal. India’s biggest dry-dock, capable of accommodating an aircraft carrier, was purchased by Reliance Naval and Engineering Limited in 2015. However, within five years, the shipyard has gone bankrupt and is up for sale with a debt of Rs. 9,000 crore.

This bleak picture speaks as much of venality and myopia in the private sector as of the government’s lack of a long-term vision for the maritime sector. Notwithstanding some good performers in the private sector, a few major factors have contributed to the woes of this vital industry. Prime amongst these is the government’s total indifference towards shipbuilding, when a well-thought-out scheme of subsidies, tax benefits or a ‘shipbuilding fund,’ could have made the industry competitive and attracted domestic and foreign orders. Second, it has failed to ensure a level playing field since most government orders are given to public sector shipyards by nomination. To cap it all, the absence of a complex of shipbuilding ancillary industries has imposed a further barrier on private shipyards.

Lessons From Asian Neighbours

While India can take many useful lessons from the initiative and innovation demonstrated by its smaller Asian neighbours, like South Korea, Vietnam, and the Philippines, it must draw up its own roadmap of reforms required to pull the shipbuilding industry out of its current state of stasis. To start with, the government needs to make a clear distinction between ‘shipping,’ and ‘shipbuilding.’ While shipping refers to affairs related to the merchant marine, ports and navigation, shipbuilding encompasses a whole ecosystem that deals with hull-fabrication, propulsion-machinery, electric power-generation, control-systems and electronics. One of the reasons why shipbuilding has suffered neglect is that, since Independence, it has remained subsumed within the Ministry/Department of Shipping, which itself has often been shunted between Ministries of Transport and Aviation, Surface Transport and Road Transport and Highways.

It is time to acknowledge shipbuilding as a “strategic industry,” with a vital role to play in the nation’s security as well as industrialisation and job creation, and to accord it the status of a full-fledged department or ministry. Concurrently, a strategy and road-map for shipbuilding need to be drawn up, independent of the Sagarmala Project, which has remained focused on ports. The private sector must be considered as much of a national asset and stakeholder in shipbuilding as the public sector. Its contribution will only bolster our maritime prowess.