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The policy subsequently included civil aerospace
and homeland security products in DPP 2011. However,
surprisingly the commercial ship building sector
was kept out of the ambit of offsets. This paper
brings out the need for looking at both commercial
ship building and warship building in tandem so
as to reap the enormous opportunities which can
flow out of such initiatives. Countries like South
Korea and China have become global powers in ship
building due to focused government attention,
liberal policy and investment in infrastructure
and design capability.
Commercial Ship Building
India is a major maritime country, predominantly
peninsular in nature having a coastline of 7515
Km and 1197 islands, and located strategically
on major maritime routes.
The Indian Commercial shipbuilding depends mainly
on 28 shipyards comprising 8 Public Sector (6
yards under Central and 2 under State Governments)
and 20 Private Sector shipyards. Only Cochin Shipyard
Limited (1,10,00 DWT) and Hindustan Shipyard Limited
(80,000 DWT) have the required infrastructure
and graving dock to build large vessels.
The current capacity of all the yards is 5,00,000
DWT approximately. The Indian Shipbuilding Industry,
which had only about 0.1 per cent share of the
world shipbuilding in 2002, expanded over tenfold
to claim 1 per cent share by 2007/2008 riding
on the global boom and supported by a subsidy
scheme. Shipbuilding turnover for Private and
Public Sector Shipyards excluding Defence Shipyards
has grown about 14 fold in the last nine years
from about Rs. 440 crores in 2001-2002 to an estimated
Rs. 6200 crores in 2010-2011as shown below:
Shipbuilding Turnover of Major Non-Defence Shipyards
(Rs. in Cr.)
Warship Building
Four defence shipyards viz. MDL, GRSE, GSL and
ASL are presently engaged in warship building
and repairs and refits. Indigenous Shipbuilding
accounts for nearly Rs. 8511 Crores ($1.9 billion)
during 2010-11. It constitutes nearly 60 per cent
of the Navy’s total acquisition budget.
The productivity of the Indian DPSU (Defence
Public Sector Undertakings) shipyards is, however,
much below the levels achieved by international
standards. Whereas the first tier yards like MDL
(Mazagon Dock Ltd) and CSL (Cochin Shipyard Ltd)
have a capacity to build 1.33 and 0.48 ships respectively,
the comparable international standards are 5.7.
Similarly in terms of the build-time trends,
it is almost four times more than the international
standards. For instance, a ship with displacement
tonnage of 3,500 tonnes in the US is built in
30 months with 2,50,000 man hours as against 72
months and 1.8 million man hours (Godavari class).
Also there are substantial time and cost overruns
between the contractual milestones and actuals
as under:
Time and Cost overruns
The overall shipbuilding capacity of the DPSUs
is at the best 4 ships a year. During the next
10 years, as against the annual requirement of
107 SSUs (Standard Ship Units), around 40 SSUs
are available at the DPSUs.
At the end of year 2010, the world market stood
at 261 million GT in terms of orderbook position,
77 million GT in terms of new orders and 96 million
GT in terms of completion of order. Growth of
the world market has been very erratic since 2009
in terms of the order book and new orders while
growth has been stable as far as completions are
concerned. The fluctuations in the world market
are captured in the following graph:
Source: HIS (Former Lloyd’s Register) “World
Shipbuilding Statistics” year end (Shipbuilding
Statistics: Shipbuilding Association of Japan-
March 2011)
The world market in shipbuilding is dominated
by three Asian countries, namely China, South
Korea and Japan which together account for approximately
90 per cent of the world market in terms of the
existing order book at the end of year 2010.
The emergence of these countries in the second
half of the last century is a lesson for other
countries such as India. Among the three nations,
China has seen some spectacular growth in the
industry since 1990s while South Korea usurped
Japan as the world leader in 1999.
Share in World’s Order for Shipbuilding
Lessons for lndia
The National Manufacturing Council (NMCC) in
its report to the (PMO) Prime Minister’s
Office in 2009 made the following recommendations
for developing Indian ship building Industry:
- Prepare on an urgent basis a comprehensive
plan to enhance domestic shipbuilding capabilities
and building large new shipyards.
- Adopt a Mission Mode approach for the purpose.
In this context, the examples of both Korea
and China be studied·
- A continuing mechanism be evolved to synergise
the efforts of the naval authorities under the
Ministry of Defence and the Ministry of Shipping
for meeting long term requirements of the country.
It clearly emerges that in the existing structure
governing the Indian shipbuilding sector, commercial
and warship building is inadequate to meet the
country’s burgeoning demands ahead.
Capacity expansion in the commercial sector will
have a positive spinoff for the warship construction
activity as it will allow shipyards to focus more
on the complex warship construction activity.
In that sense the policy facilitation of a level
playing field to private sector players in Shipbuilding
Procedure 2011 is really welcome.
This will include construction of additional
international standards greenfield shipyards through
private public partnership as also through foreign
JV arrangements.
Concurrently modernization/ upgradation of existing
shipyards needs to be undertaken to improve productivity
and turnover time in line with global benchmarks.
Build period is greatly improved when a series
of ships of identical design are constructed.
Series effect studies have shown that the 10th
ship require 35 per cent less work load than the
first one.
India has severe limitation in design capability
with only IIT, Kharagpur and CUSAT, Kochi and
IIT Chennai having some expertise. Vital gaps
remain in design/development areas like vulnerability,
survivability, stealth technologies, effects of
shocks/blasts on ship construction and hydrodynamics
of high spread marine vehicles and submarines.
An Indian Maritime university needs to be established
as an overarching institute to source requisite
talent, both quantitatively and qualitatively.
Funding R&D to educational and research institutions
in shipbuilding needs to be encouraged.
The Defence Production Policy 2011 is a welcome
initiative in this regard.
Fiscal Initiatives
(a) Subsidy SchemeDuring 10th Five Year Plan
(2002–2007), a subsidy scheme was introduced
where 30 per cent subsidy on bid price was available
to shipyards on domestic and export order. This
galvanized the shipbuilding by raising its global
share from 0.2 per cent in 2002 to 1.3 per cent
in 2007.
This subsidy was withdrawn by the government
in 2007 for all new orders which has resulted
in India’s share dropping to 0.01 per cent
in 2009 as depicted below:
The subsidy scheme needs to be reintroduced urgently
and redirected towards capital expenditure. It
should extend to capital equipment such as cranes
and plasma cutting machines to improve the Indian
shipyards’ productivity.
Some of the marine systems and equipment where
foreign partnership and collaboration can be considered
are:
There is also a need to kick start the private
public partnership in the shipbuilding sector
as major private shipyards like Pipavav, ABG and
Bharati and L&T often take an adversarial
posture vis-à-vis defence shipyards.
The private shipyards, despite their good facilities,
are seriously hamstrung in terms of design and
development capability and in integrating major
subsystems, where defence shipyards like MDL,
DGND, DG WESEE have a definite advantage. However,
for achieving global standards in niche technology,
construction of submarines, frigates, even shipyards
like MDL have considerable distance to catch up.
The way forward is public private partnership,
JV arrangements with reputed foreign OEMs and
design houses with 50:50 FDI participation and
bolstering our indigenous R&D capability.
Some of the areas in which offset in commercial
shipbuilding sector can be allowed are:
Conclusion
It is apparent that with proper policy facilitation,
investment in infrastructure, building design
capability and public private partnership, the
shipbuilding sector can be a major manufacturing
hub. The offset policy should not be myopic and
defence specific but should try to harness the
commonality between civil and military segments.
There is a lot of complementarity in systems
used for aerospace and shipbuilding sectors like
propulsion, weapons, avionics and sensors. Sip
and aircraft engines, or propulsion units for
missiles, are made by and large by same companies.
The offset policy should take advantage of these
commonalities and leverage India’s big ticket
acquisitions to get key technologies and improve
India’s self reliance quotient substantially.
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