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SOURCE: DHNS

Chief of Defence Staff Gen. Bipin Rawat recently inaugurated the new-generation Project 17A ships with advanced stealth features at the defence PSU Garden Reach Shipbuilders and Engineers (GRSE) Kolkata. While this is a laudable step, a deeper look at the country’s shipbuilding industry indicates that it is in a dismal state. Today, only 20 of the country’s 25 shipyards — big and small, private or state-owned — are functional. They are currently engaged in building most of the Indian Navy (IN)’s warships and Indian Coast Guard (ICG) vessels, besides a few commercial ships to meet the government’s requirements.

Globally, India has proved to be a failure in shipbuilding, while China, Japan and South Korea, besides some Southeast Asian nations, have taken the lead in this industry. Unlike India, these industrial nations thrive on export orders that foster shipbuilding expertise. India’s contribution to commercial shipbuilding globally is less than 1% today, which is far lower than the 3.5% achieved in 2007-12.

Today, Indian private shipyards are not competitive to win global orders for those classes of ships that match in size to their infrastructure, despite the government’s financial subsidy of nearly 16%. Further, the PSUs are content to execute available defence orders, even though they have spare capacity to produce more. Therefore, Indian ship-owners prefer to buy foreign-built commercial ships. 

Moreover, there are technical reasons that hamper the scale of production, like high import content of material/machinery, lack of design talent which requires expensive tie-ups with foreign OEMs, and lastly, stiff competition from other Asian and western shipbuilders. These industrial nations adopt more efficient automated processes in shipbuilding.

The PSUs — Hindustan Shipyard Ltd, Visakhapatnam; Mazagaon Docks Ltd, Mumbai; GRSE; Cochin Shipyard Ltd, Cochin; and Goa Shipyard Ltd, Goa — have enjoyed a ‘monopoly’ over building warships for the Navy and Coast Guard since the 1960s. Such projects have been fraught with time and cost overruns.

In 2000, the government permitted participation by private yards, following which ABG, Bharati, Pipavav, L&T, Shoft Shipyard, etc., entered the fray. They competed and won initial orders, despite the non-level playing field. It took almost two decades for the Ministry of Defence to finalise a level playing field in Defence Procurement Policy (DPP) 2020; but in the interim, many private shipyards could not sustain business, mainly due to PSUs cornering new shipbuilding projects. Today, only a few private shipyards, such as L&T and Shoft survive.

Between 2000 and 2020, the Navy added 59 vessels to its fleet; only four of them were built in private shipyards. The ICG got 163 vessels, 101 of them from private shipyards. A pattern emerged in this period that private shipyards could compete for only auxiliary/small vessels while the PSUs would get to build all bigger ships.

Today, of the 50 defence ships being built — 40 for the Navy, 10 for the ICG — 47 are with PSUs, costing Rs 1.07 lakh crore; only three ships, costing Rs 500 crore, are in private shipyards. Hopefully, this glaring disparity will go with DPP 2020.

Of defence projects being finalised for Rs 97,000 cr over the next five years, PSUs have already been given projects worth Rs 55,000 crore as per earlier policies. The remaining Rs 42,000 crore would, however, be open for competition under the PPP model, which should enable the IN and ICG to get their vessels on time and budget.

The government needs to adopt a multi-pronged strategy to enable our yards to win global orders by initially introducing “first right of refusal” by our shipyards against any import by Indian owners and by progressively increasing indigenous content through the Atmanirbhar Bharat mission. An opportunity has now arisen for it to introduce new policies for the emerging need of nearly 1,000 vessels for the Sagarmala programme‘s inland water transportation and coastal shipping. In addition, a policy needs to be evolved to task selected shipyards for a combination of both defence and commercial projects to enhance capacity utilization and efficiency of yards.

As a next step to streamline the PPP model, government now needs to explore the export market in the Indian Ocean Region for both design and construction of defence vessels. Also, the design expertise in the Navy and MoD ‘Nirdesh’ can also be put to effective use. India can become a vibrant hub for shipbuilding/ship repair in the next decade if the government provides the policy environment. This would truly make the country a maritime nation and establish meaningful ties with our maritime neighbours, which will further enhance the country’s supremacy in the Indian Ocean Region.

(The writer, a former naval technocrat, was CEO of L&T Shipbuilding, Chennai)