India: Subsidy Scheme

The Indian shipping industry is headed for rapid growth in view of the impetus in growth of the Indian economy over the last few years. This has resulted in some of Government of India’s (GOI) existing policies in the shipbuilding industry gaining prominence, an example of which is the Subsidy Scheme introduced in 2003, under which a subsidy of 30% can be availed of by an Indian shipyard, when it constructs a vessel in India upon receiving a Domestic Order on Global Tender basis or upon receiving an Export Order either on Global Tender basis or on Negotiated basis.

Subsidy would be available to the Indian shipyard on a domestic order provided that the order has been obtained by winning a Global Tender. The vessel to be constructed should be an "ocean going vessel" (as defined under The Merchant Shipping Act, 1958) with a minimum length of 80 meters. For Public Sector shipyards, subsidy is released as per stage payments agreed in the contract/tender document, while in case of private sector shipyards, subsidy is released after the delivery of the vessel to the buyer.

Subsidy would be available to the Indian shipyard on an export order provided such order has been obtained by winning a Global Tender or on Negotiated Basis. The same provisions of the global tender process in the domestic order option apply to an export order except that the global tender must be floated by a foreign entity.

In case of negotiated basis, the price arrived at between the foreign entity and Indian shipyard, is determined by the Directorate General of Shipping (DGS). For the said purpose, Three International Ship Valuers appointed by Ministry of Shipping of India, review the negotiated price and provide a valuation certificate to the GOI.

To avail of subsidy, an application seeking "in principle approval" for shipbuilding subsidy is to be made by the Shipyard to the DGS with a copy to the Secretary-Ministry of Shipping (MOS) and in case of Defence Shipyards to the Ministry of Defence (MOD). If the price is determined on tender basis, the application should be accompanied by a copy of the contract entered into between the shipyard and the buyer of the vessel.

After the approval an application for seeking the release of subsidy is to be made to the MOS and MOD in case of Defence Shipyards. It must be accompanied with the necessary documents as required by the subsidy scheme. Upon satisfaction of the conditions under the subsidy scheme, subsidy would be released.

Though the issue of shipbuilding subsidies to Indian shipyards was brought in few years back, it has now become prominent since Indian shipyards are now able to muster contracts for foreign vessels and international shipyards are full and overbooked with orders for the next 2-3 years.

Indian shipyards are now able to keep pace with shipyards globally in terms of pricing, delivery schedule, technology, scientific know-how and experience in ship construction.

In the last few years, both private yards and public sector yards have placed emphasis on being competitive and have geared to achieve this end. The Government of India is doing its best to ensure that its shipping industry matches up to its global counterparts by giving various benefits to the country’s shipyards.

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