India: Shipbuilders see tailwind in govt's Rs 5,000-crore subsidy

With the government now ready to disburse Rs 5,000 crore towards outstanding subsidy, the fledging Indian shipbuilding industry is upbeat once again. The industry, going through a down cycle, is also looking forward to a fresh subsidy scheme from the next government to help it sail through choppy waters. After 17 months of dispute between the shipping ministry and finance ministry, the latter on Thursday cleared the outstanding subsidy. It is to be given to companies for confirmed orders booked before August 14, 2007, when the scheme was finally closed by the government.
While public sector yards were to be given subsidy on installment basis, the private sector got it after the delivery of the ship. "In the last one year, the order booking has almost dried up and there is a supply glut too. The industry the world over has slipped into a down cycle," said an analyst with a leading domestic brokerage, who did not wish to be named.
He said most of the country's shipbuilding companies are either experiencing a steep decline in orders or cancellation of bookings. With crude oil prices coming down to levels of $45 a barrel from a high of $147 a barrel in July, the demand for vessels has reduced. "A lot of old vessels are available at 70% less price. Therefore demand for new ships is barley any," the analyst told DNA.
In such a scenario, the domestic industry, which was booming a year ago, is struggling to survive. The Rs 5,000 crore will provide a much-needed financial cushion.
P C Kapoor, managing director, Bharati Shipyard, said, "The company is eligible to receive subsidy of about 50% to 55% of its outstanding order book of Rs 4,898.13 crore. The subsidy would help shipbuilding companies in planning for the future capex requirement and expansion and also in easing liquidity and cash flows, especially in a downturn."
S Hajara, chairman and managing director, Shipping Corp of India (SCI), said, "Before the close of the subsidy scheme in August 2007, several companies had booked orders hoping that the scheme would be extended. However, when it did not come, there was a lot of ambiguity in the industry." SCI, too, is planning a foray into shipbuilding from the end of this calendar, he said.
Dhananjay Datar, chief financial officer, ABG Shipyard, said, "The private shipbuilding industry currently has an outstanding subsidy of about Rs 250 crore.Therefore, the subsidy from the government will act as a big relief and a welcome move that the government is with the industry." The funds could also be used for future investments of these companies, he said.
A release from the Press Information Bureau said, "The government of India has decided to liquidate the Committed Liability for payment of subsidy for ongoing shipbuilding contracts entered up to August 14, 2007, the date of expiry of the subsidy scheme."