India’s position in global shipbuilding and ownership is weak, despite its economic growth. As it moves toward becoming the world’s third-largest economy, strengthening the domestic shipbuilding industry is crucial for both economic growth and strategic security.

Current State of India’s Shipbuilding and Shipping Industry

• Ship Ownership: As of December 2023, India owns only 1,526 ships with a capacity of 13.75 million gross tonnage, contributing just 1.2% of the global share in ship ownership.
• International Trade Fleet: Out of India’s owned ships, only 487 vessels are used for overseas trade, highlighting the limited involvement in global maritime transport.
• Flagging Issue: Only 0.77% of global ships are registered under the Indian flag, with most vessels being flagged in countries like Liberia, Panama, and the Marshall Islands.
  • These jurisdictions offer significant financial advantages, such as tax exemptions or lower tax rates on shipping companies, making them attractive for vessel owners 
• Shipbuilding Market Share: India holds a mere 0.07% of the global market share in shipbuilding, in stark contrast to China (46.6%), South Korea (29.2%), and Japan (17.2%), which dominate the industry.

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Implications of India’s Shipping Industry Challenges

• Increased Foreign Outflow: India’s reliance on foreign-owned and flagged ships for 95% of its international cargo results in substantial foreign exchange outflows. 
  • In 2022-23, India spent approximately $75 billion on sea freight, which is projected to exceed $100 billion soon. 
• Geostrategic Risks:  In times of political or economic disruptions, India’s trade could be vulnerable, as access to foreign ships and global shipping lanes could be restricted, compromising India’s trade security and maritime interests.
• Trade Dependency: India’s reliance on foreign nations for shipping weakens supply chain resilience, exposing the country to risks like freight price volatility, disruptions, and geopolitical tensions that could affect service availability.

Constraints Faced by India’s Shipping Sector

• Neglect of Ships in Strategic Discussions: While much focus is placed on port logistics and efficiency, ships, which are equally crucial for both economic and strategic reasons, have been largely overlooked. 
• Financial Constraints:
  • Limited Financing Options: Due to the capital-intensive nature of the industry, shipbuilders need access to long-term loans at competitive interest rates, which is not readily available.
  • SARFAESI Act Exclusion: Under Section 31(d) of the SARFAESI Act, ships are excluded from being classified as assets that can be mortgaged, which further discourages banks from offering loans, as vessels cannot be used as collateral for loans.
• Exclusion from Infrastructure List: Ships are not classified as infrastructure, meaning shipbuilders cannot access long-term financing from domestic and foreign sources, such as the National Infrastructure Investment Fund, or raise money from external commercial borrowings for ships.
• Continental Mindset: India’s development focus has traditionally been land-based, with less emphasis on maritime security and shipping. This continental perspective limits the country’s strategic vision when it comes to ocean trade and security.

India’s Potential to Become a Shipbuilding Powerhouse

• India possesses the essential components for a robust shipbuilding industry, such as the capability to build nuclear submarines and aircraft carriers, and a skilled workforce.
• India is also a leading supplier of seafarers, ranking third globally, and could leverage its young demographic to support this physically demanding industry.
• The declining demographies of China, Japan, and South Korea provide opportunities for India’s young workers to capture a larger market share.

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Steps Needed for India’s Shipbuilding Growth

• Add Ships to the Infrastructure List:
  • The harmonised list of infrastructure must evolve to include ships, enabling shipbuilders to access the long-term funding needed for growth as recommended by Rangarajan Commission.
  • Inclusion would also lower interest rates and provide long-term financial support for the industry.
• Amend the SARFAESI Act:
  • Ships should be made eligible for securitisation under the SARFAESI Act to make them mortgagable assets, allowing for better financing options.
• Developing Domestic Protection Entity:
  • Establish a protection and indemnity entity for Indian ships, providing risk management solutions and encouraging more ship ownership within India.

Conclusion

To become a global leader in shipbuilding and shipping, India must address key challenges such as financing, infrastructure status, and legal reforms. With its capabilities and resources, India can strategically position itself in the shipbuilding industry, enhancing both its economic standing and maritime security.

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