The shipbuilding domain in India seems to be circumnavigating in a cauldron of hope and precariousness. A hope that stretches to the extending of the subsidy period to shipbuilding players and precariousness due to the red tapeism involved in the government’s execution of its policies and working for the greater good of the industry.
Currently, on a broader scale, the shipbuilding activity in India is facing two major concerns. One is the subsidy issue and the other is according ‘infrastructure’ status to the industry. Explains Vikram Suryavanshi, Karvy Stock Broking, “Even though subsidies are given to the shipbuilding players, the issue that has been an obstacle in the good pace of the industry is the timely payment of subsidies.”
 
He cautions, “There is a wide opinion in the industry to stretch the subsidies period which is going to end this year (August). And players concur that the period be extended by at least five more years.” Suryavanshi further adds, “But there is palpable disinterest on the part of the government to weigh the pros and cons of this issue.” This does not bode well, with the industry considering the benefits the subsidy scheme offers.

Subsidy extension

Under the policy, 30% subsidy on the bid price would be available to shipyards on domestic orders obtained through the global tender process for the construction of sea going vessels as defined under Section 3 (41) of the Merchant Shipping Act, 1958. However, the vessel must be a merchant vessel of a minimum length of 80 metres.

For export orders obtained through the global tender process or otherwise for the construction of any type or size of vessel, 30% subsidy on the bid price or negotiated price as the case may be will be payable to the yard.

For private players the subsidy payment is made only after the delivery of the ship while the payment to the public sector yards is stage-based. Following the in-principal approval a budget is sanctioned after which the final payout is made. It is important to note that quite a few private players have actually received any subsidy till date.

However, if implemented properly, the beneficiaries of this scheme will be the leading private sector yards in the country, besides a host of other small and medium-sized builders in the private sector.

Also not to mention the offsetting a lot of taxes, making the private sector more efficient and more competitive and putting the industry at par with the rest of the world. More so, considering the fact that subsidies account for 50% of the profitability of Indian builders, if extended, it could serve as a boon for Indian shipbuilding players.

A case in point is ABG Shipyard Company. The company had a tremendous growth margin (around 51%) since 2005, thanks to the subsidies scheme and hence the discontinuation of this scheme will rebound on private players like ABG Shipyard, Bharti Shipyard. Hence, the continuation of subsidies beyond August 2007 assumes significance. The industry expects the subsidy to be extended beyond 2007 until at least 2012.

Infrastructure glitch

The other major problem the industry is facing is the infrastructure issue. The industry has been craving for infrastructure status. This is because of the inherent advantages involved in doing so. For instance, there is a clear 16% excise duty benefit on domestic purchases, 4% CST benefit. In addition, it is estimated that interest costs could be as low as 10% along with the added advantage of paying Minimum Alternate Tax (MAT) instead of the regular 33% tax rate.

It would also improve cash flows as quite a few companies have yet to receive subsidies. In terms of calculations, industry pundits recommend a shift from outright 30% subsidies to the granting “infrastructure status.” However, the failure in according infrastructure status has deprived the industry of many good things and created a plethora of issues, which call for serious consideration.

Investment paucity

Indian shipbuilding, being a capital-intensive sector, has seen lumpy investment. Considering the magnitude of orders that are involved, a substantial balance sheet size is required, in the industry, at various steps. Capital funding could lead to shipbuilders building capacities for larger ships–removing a major hurdle in shipbuilding expansion. But considering the current investment trend, which is far from constant and adequate, infrastructure will be critical in drawing-in investment opportunities. Hence the need for it.

Productivity

Indian labour is the cheapest in the world and it constitutes 15-25% of the total cost of a ship depending on the ship type. Yet, the Indian shipbuilding industry has not been able to capitalise on this key advantage. The paramount reason has been the extremely low labour productivity. This can partially be attributed to the prevalent work culture at PSU shipyards and the lack of timely investments and disorganised infrastructure.

The government’s role

Most shipbuilding countries have government support either directly or indirectly. The South Korean government has been accused of providing subsidy through better financing terms for its shipbuilders; while the US provides protection to its shipbuilding industry through legislation that stipulates the ships plying on the US coast must be manufactured by US companies; the EU provides subsidies of up to 6% of the contract value to its ships.

However, the Indian shipbuilding industry on the other hand has been taxed at levels including the source of its raw material, import duties on goods and a high tax structure. Amongst other factors, this lack of government support has contributed significantly to the low competitiveness of the industry. In addition, the traditional presence of PSU shipyard culture has added to the burden of the industry.

However, times are changing. Of late, the industry is seeing a turnaround. In a recent study, I-maritime rated the Indian shipbuilding industry’s competitiveness against other emerging shipbuilding clusters. It estimated the industry’s past fairing as uncompetitive. However, going forward, the study predicted that the competitiveness of Indian shipbuilders could increase — making India a centre for shipbuilding.

In addition, the industry’s order book is seeing a considerable change. A case in point is the offshore segment. Most of the order book has been by ships required for the offshore segment; this is especially true for the private shipyards.

Though the industry has historically been hampered initially by the apathy and laid back attitude of the government and then the long downturn in the shipping cycle, currently, Indian shipbuilding companies have been doing well for themselves. Both on the profitability as well as on ‘contributing-to-the-industry-growth,’ front.

On the valuation front, analysts prefer Bharti Shipyard to ABG Shipyard. Considering the growth and the project execution capabilities Bharti Shipyard has been exhibiting, analysts consider their stock as safe bet. There is still a ray of hope with the emergence of new, competent players in the industry.

According to Surbhi Chawla, Angel broking, “There is an estimation that the industry is going to be worth $20 billion by 2020. India’s share in terms of tapping into the offshore market is 0.4%. So there is immense potential for players to cash in on this still-to-milk domain.” This is happening in a gradual phase. About 65% of the private shipbuilders’ order books are geared towards the oil & gas sector. Globally, India has one of the largest AHTS order books and India’s prominence in the sector is due to the unfeasibility of producing niche vessels in large shipyards and the availability of skilled labour.

Companies like Bharati and ABG Shipyards are amongst the top yards in terms of the number of AHTS order book. While offshore vessels account for 8% of the world order book, they contribute close to 46% of India’s order book. Moreover, if favourable conditions prevail there will be a lot more good companies emerging who will mirror the growth of these companies. However, for this is to materialise, constant proactiveness and a ‘being-aware-and-executing-ones’-responsibilities approach from the government is tremendously needed. If this happens, the industry would be beneficial, efficient and far more self-reliant.

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According to Commodore Chris York, this is the biggest challenge for the agency of the Church that offers pastoral care to those who live off seafaring and fishing.

York, a former fighter pilot, captain and commodore in the Royal Navy, spoke with ZENIT about how the Church is promoting the human dignity of seafarers in the midst of what he called the “first truly globalized industry.”

The Apostleship of the Sea will hold its 22nd five-yearly world congress June 24-29 in Poland.

Q: What attracted you to take on a leadership role within the Catholic Church’s maritime ministry in Great Britain?

York: I think all of us have particular areas of expertise which can be used for the service of the Church, and so the chance to utilize my experiences to build up the Church’s pastoral outreach to merchant seafarers meant a great deal to me.

During my time in the Navy, I witnessed and benefited from the good work of the Stella Maris centers, which are sponsored by the Apostleship of the Sea, in many ports around the world.

I was, therefore, particularly interested to take the helm of the Apostleship of the Sea in Great Britain in 2001 when it was relaunched to meet the new challenges of a radically changed maritime industry.

Q: How should the Church respond to the particular challenges of globalization?

York: Globalization is one of the biggest issues of our day, and the international maritime industry is probably the first truly globalized industry. While there are many benefits of globalization, it also brings many challenges — particularly of a pastoral nature since the rights of individuals can all too easily be overlooked in the pursuit of profit and efficiency.

The Church’s primary response must be to affirm the human dignity of all workers — to value them for who they are, not for what they can produce. In the maritime world, the Church declares that seafarers are not commodities, but the industry’s greatest resource, and the best way to aid the smooth running of the industry is to address the human, spiritual and pastoral needs of seafarers. We call it “putting a human face on globalization”.

Q: What is the role of the Apostleship of the Sea in doing this?

York: Our trained port chaplains and ship visitors welcome seafarers to our shores as brothers and sisters, in the name of Christ and the Catholic community. By recognizing them as human beings with human needs and concerns, and by demonstrating our solidarity with them, we are making a powerful statement that people come before profit.

The Church must examine what the practical local pastoral reaction should be to these movements of people. A seafarer will spend many months at a time away from home, living an itinerant life for many years. There are, therefore, distinctive roles for the “sending” parishes of the seafarer’s home country, and for those port parishes he visits on his travels.

Seafarers live their lives through three communities. There is first their personal community of home and family; second the community at sea with fellow crew members; and third the community of the port parish which should reach out and include them when they visit. If the seafarer’s relationship with any of these communities is damaged, then it can be a cause of despair.

Helping the seafarer to maintain, establish and develop these three community relationships is the practical way in which the Apostleship of the Sea puts a human face on the effects of globalization.

Q: Do you think interest in fair trade ignores the conditions of those who transport the goods across the oceans?

York: Seafarers are what we might call the middle men of globalized trade, and the conditions they endure at sea are largely hidden from us. At the same time as promoting justice for producers in the developing world, we must be consistent and demand improved conditions for all seafarers who work to transport the goods across the oceans.

In common with all of us, they deserve respect and have the right to work in safety and security. Also, shoppers who quite rightly wish to support trade justice by buying products labeled and promoted as “fair trade” should be able to feel confident that all those involved in the production and transportation of the product are treated fairly.

The fact of the matter is that seafarers all too often suffer dangerous working conditions, denial of wages and shore leave, exploitation and intimidation. Ship owners often register their vessels under so-called flags of convenience to avoid taxes and tighter safety regulation. Many unscrupulous shipping and crew manning agents operate under a veil of secrecy, and have even been known to threaten seafarers’ families.

Q: Do you think that greater freedom of movement and trade around the world provides opportunities for evangelization?

York: Undoubtedly it does, although there are also new challenges and threats to take into account as well.

With increased movement of people, money, goods and information around the world, the mission of the Church becomes less localized, and we all have to take a more global perspective.

Providing pastoral care to the many millions of people on the move — both those who travel as part of their work, and those who are migrants or refugees — presents considerable logistical challenges, and requires new models of ministry.

However, it also makes it possible for the Church to reach out to, and make contact with, far greater numbers of people from varied cultures and situations — people who otherwise may never have had the chance to encounter the Gospel.

We in the Catholic Church must be ready for this, making sure that our global vision is matched on the ground with adequate pastoral provision to meet people where they are — walking alongside them, sharing their lives, understanding their culture and traditions and enlightening their experiences with the light of Christ.

Engaged lay people are key to this outreach. It has been an important lesson for us to learn here in Great Britain that we can recruit lay people of faith and fervor and train them for full-time ministry in the maritime world.

Q: You are now a consultor to the Pontifical Council for Migrants and Travelers. What have you learned about the contribution of the Catholic Church to world affairs, particularly in the area of migration and human rights?

York: The Catholic Church has a huge role to play in ensuring that a balanced, holistic view of the human person, which takes into account intrinsic human dignity and the spiritual dimension, prevails in intergovernmental bodies and meetings. The Holy See can achieve this, for example, by virtue of its participation in the various bodies of the United Nations, and through its diplomatic missions throughout the world.

The Church also has a powerful moral voice, based in part on the experience of its members and pastoral personnel on the ground, who share the experiences of people at the coalface, as it were, of globalization — such as seafarers.

This was very evident, for example, at the negotiations in Geneva last year concerning the new Consolidated Maritime Labor Convention which, when ratified and effectively implemented, will ensure fairer and safer working conditions for seafarers.

The International Christian Maritime Association, of which we are a part, and the Holy See helped to ensure that the convention required nations to promote pastoral and welfare services, such as those provided by the Apostleship of the Sea.

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