Less than 10% of Rs 40 Billion State-aid for Shipbuilding Utilised

The financial aid applies to shipbuilding contracts signed between April 1, 2016, and March 31, 2026. According to a written response provided by Union Minister of Ports, Shipping, and Waterways Sarbananda Sonowal to the Rajya Sabha on December 10, 45 shipyards registered under the scheme, but only 19 utilised the benefits to construct 144 vessels, for which Rs 3.85 billion was released.

Under the scheme’s guidelines, formulated by the Ministry of Ports, Shipping, and Waterways and approved by the Union Cabinet in December 2015, local shipyards can receive up to Rs 400 million in state aid to build a standard ship within three years of contract signing. This assistance, valid for state-owned and private shipyards, progressively reduces over the ten-year period. The aid starts at 20 per cent for the first three years, decreasing to 17 per cent in the next three years, 14 per cent in the subsequent three years, and 11 per cent in the final year. The amount of assistance is based on the applicable rate on the contract date and the lesser of the contract price or fair price in rupees.

The initiative aimed to bolster the government’s 'Make in India' campaign by supporting domestic shipbuilders, creating a level playing field with foreign competitors, and helping Indian yards secure international orders. In August 2023, the scheme was revised to include a 30 per cent flat aid for ships powered by green fuels such as methanol, ammonia, or hydrogen fuel cells and 20 per cent for fully electric or hybrid vessels.

However, several factors have hindered the scheme’s success. Some major shipyards, including Pipavav Shipyard, ABG Shipyard, and Bharati Shipyard, succumbed to debt and underwent liquidation under India’s bankruptcy laws. For example, Reliance Naval and Engineering, which previously managed Pipavav Shipyard, was acquired by Hazel Infra through the Insolvency and Bankruptcy Code (IBC). Similarly, Chowgule and Company acquired Bharati Defence’s Mangalore yard in a private deal, while Cochin Shipyard took over Tebma Shipyards’ Udipi yard under IBC proceedings.

Additional barriers include insufficient infrastructure and a preference among shipyards for zero-risk government defence contracts, which do not qualify for the aid. Despite India’s labour cost advantage—estimated at $1,192 annually per worker compared to $10,743 in South Korea—high financing costs and dependency on imported raw materials erode competitiveness. In contrast, countries like China, benefiting from low steel prices, dominate the global shipbuilding market.