It is reported that Indian shipping ministry is trying to get 10 years extension of the shipbuilding subsidy with a periodical review after 5 years.

With the Indian shipbuilding industry with an order book of about INR 15,000 crore now expected to grow at a compounded annual growth rate of 30%, the finance ministry fears that it may have to dole out about INR 35,000 to INR 40,000 crore as subsidy over the next 8 to 10 years of deliveries if the current subsidy norms were to continue.

The Indian shipbuilders feel that finance ministry’s fears are unfounded. Shipbuilding firms point out that given the current level of taxes and duties on inputs for shipbuilding like steel sheets, the industry would return almost 50% of the subsidy benefits to the government in the initial few years and would return more than the subsidy in subsequent years. They said that “Other manufacturing industries like automobile are protected by the Government by imposing duties and tariffs. However, any company can buy a ship from any country and bring it to India. Given the direct and indirect fiscal benefits extended to shipping firms internationally, Indian shipbuilding firms do not enjoy a level playing field. As of now, costs of building a ship in India are 36% to 37% higher compared to internationally attractive destinations.”

In the absence of the exact extent of benefits from the subsidy in terms of attracting investments, job creation, the ship manufacturing firms have commissioned KPMG to study cost structure of shipbuilding and submit a report. It would also work out the investment required per million tonne of capacity creation and give a comparison of the benefits that European, Japanese, Korean and Chinese shipbuilders enjoy.

At present, the government provides a shipbuilding subsidy of 30% subject to certain conditions that would end on August 14th 2007. Government subsidy accrues to the shipbuilders only when the ships are delivered and orders for the next 5 years would extend for much beyond 5 years.