The shipbuilding industries? cries for resuming a subsidy scheme might go unheeded. In a move that could impact firms like Bharati Shipyard, ABG and Adani Group, the government is planning to discontinue the 30% subsidy for ship building activities.
At a time when the shipping ministry has written to the finance ministry to revive the subsidy scheme, the Planning Commission is of the view that the financial support cannot be continued when there is a boom in the international markets.
The Commission has, however, suggested a gradual phase out rather than a sudden termination of the scheme.
The finance ministry might like the Commission?s suggestion to wind up the scheme, as it fears that extension of subsidies to shipyards would cost the already cash-strapped exchequer anything between Rs 30,000-40,000 crore in the next five years. The shipping ministry?s proposal includes a 10-year extension of the scheme with reviews every five years.
Shipyards have been requesting the government to resume the scheme, which was in operation since 2002, as they were becoming less competitive following the expiry of the five-year subsidy scheme in August this year.
According to the shipyards industry, subsidies are important because shipbuilding, unlike conventional manufacturing, is not protected by tariff barriers and they have to compete with global players for both domestic and export orders.
With a booming global shipbuilding market, domestic firms are hopeful that absence of any kind of subsidy would not impact their balance sheets at the moment but fear that it would not remain the same in the long run. The government?s support and the subsequent boom in the market, saw a significant 259% rise in the turnover of the shipyards from Rs 1,017 crore to Rs 3,657 crore in the last five years.
Expecting the boom to continue for at least another five years, shipbuilders have lined up investments of up to Rs 20,000 crore.