Inclusion of Shipbuilding and ship repair under Harmonized list

By | January 20, 2016

Shipyards undertaking shipbuilding and ship-repair to be included under the Harmonized list of Infrastructure sectors

            The Institutional Mechanism on Infrastructure chaired by Secretary, Department of Economic Affairs has recommended inclusion of shipyards undertaking shipbuilding and ship-repair under the Harmonized list of Infrastructure Sectors. With this inclusion, the financial stress which the stand alone shipyards are experiencing will be eased substantially.  They will be able to avail flexible structuring of long term project loans, long term funding from Infrastructure Funds at lower rates of interest and longer tenure equivalent to the economic life of their assets, relaxed ECB norms, issuance of infrastructure bonds for meeting working capital requirements as well as benefits under Income Tax Act, 1961.

To promote Indian shipbuilding and ship repair industry, the Union Government has already taken the following steps recently, namely:-

(i)         Financial assistance policy for Indian shipyards was  approved by the Government of India on December 9, 2015. As per the policy, financial assistance is to be granted to shipyards equal to 20% of the lower of the “Contract Price” or the “Fair Price” (as assessed by three international valuers) of each vessel built by them for a period of at least ten years commencing from 2015-16. This rate of 20% will be reduced by 3% every three years.

(ii)        Revision of domestic eligibility criteria has been approved by the Government of India on December 9, 2015 to ensure that all the government departments or governmental agencies such as CPSUs procuring vessels for governmental purposes or for own purposes shall undertake bulk tendering for their vessel related requirements with deliveries starting from 2017-2018 and will grant a Right of First Refusal (RoFR) for Indian shipyards for such orders till 2025. From 2025 onwards, only Indian-built vessels are to be procured by them for governmental purpose or for own purpose. Similar relaxation/benefit will be applicable for repair of their vessels.

(iii)       Another item, which results in higher cost to Indian shipbuilding, is taxes and duties. With a view to counter the cost disadvantage to Indian shipyards and to promote indigenous shipbuilding industry as part of the ‘Make in India’ initiative, the Ministry of Shipping had taken up this issue for redressal with the Department of Revenue, Ministry of Finance. Ministry of Finance has exempted Customs and Central Excise Duties on inputs utilized for the purpose of manufacture of ships vide General Exemption Notification Nos. 54/2015-Customs, 55/2015–Customs, 44/2015-Central Excise and 45/2015-Central Excise, with effect from November 24, 2015.

The promotion of the shipbuilding and ship repair industry in India is important for the following reasons:-

(a)        The shipbuilding industry has the same impact as infrastructure sector due to higher multiplier effect on investment and turnover (11.6 and 4.2) and high employment potential due to multiplier effect of 6.4.

(b)        The shipbuilding industry is a strategically important industry due to its role in energy security, national defense and for developing heavy engineering industry.

Currently the Indian shipyards employ about 30,000 persons which will go up substantially once this sector is revitalized.

Source Ministry of Shipping 20-January, 2016

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