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Modi and his elusive shipbuilding ambitions for India

      09/09/2019

It’s very rare for a visiting Indian Prime Minister to be taken around by the head of a country to see a shipyard during an official trip overseas.

Upon landing in capital of the Russian Far East — Vladivostok, Russian President Vladimir Putin accompanied Prime Minister Narendra Modi to see Zvezda Shipyard, which is “poised to make a huge contribution to development of Arctic shipping”, according to the twitter handle of Modi.

“During our visit, President Putin showed me cutting edge technologies at the shipyard. My visit opens up new pathways of cooperation in this important field,”, Modi said.

The Zvezda shipyard is a shipbuilding and engineering complex in the town of Bolshoy Kamen in the Russian Far East, run by state-owned United Shipbuilding Corporation (USC), the largest shipyard in Russia with 40 yards. USC’s design offices are responsible for almost all warships that are built and developed for the Russian Navy and foreign customers.

Unlike almost all his predecessors, Modi has taken a keen interest in shipbuilding.

India, though, has hardly anything to show off in shipbuilding to a visiting head of state, unlike Putin, despite having a rich maritime history with a vast coastline.

Modi’s visits to other ship yards - A year after taking over as prime minister in his first term, Modi visited the Ulsan yard of South Korea’s Hyundai Heavy Industries Co Ltd, the world’s biggest shipbuilder, during a trip to that county in May 2015, and famously proclaimed that “shipbuilding is a top priority for India”.

At the time, his government was engaged in serious parleys to help local yards enter the lucrative LNG shipbuilding sector to cater to India’s huge requirement for transporting the super cooled fuel sourced from overseas. Hyundai was one of the global shipbuilding giants that India was looking to tap for securing technology in this arena.

The plan eventually fizzled out because NITI Aayog, Modi’s think tank, felt that it was not worth the while and money (initial state-funding) to help local yards get started in the business.

To be sure, Modi and his then shipping minister Nitin Gadkari, rustled up a financial assistance scheme (a term for state subsidy) for local yards to help them compete and win orders for commercial ships in the backdrop of a prolonged downturn in the shipping industry, triggered by the collapse of Lehman Bros in 2008. The scheme will run till 2025.

But, this has not helped Indian yards win orders either, partly due to the state of global shipping.

The next best option for India yards that have build huge capacities was to enter defence shipbuilding, given India’s urgent need to modernise and expand its naval fleet. Again, this state-funded business has remained elusive for local yards, aside for small contracts, because of the time-consuming bureaucratic exercise involved in placing orders.

The financial stress - It roughly takes seven to ten years from issuance of request for information (RFIs) to contract signing for defence orders, rendering yard capacity under-utilised for a long time, forcing shipbuilders into more financial stress.

For instance, a tender for building two landing platform docks (LPDs) for the Indian Navy is yet to be awarded though the commercial bids were submitted in 2014. Meanwhile, two private sector yards – ABG Shipyard Ltd and Bharati Defence and Infrastructure Ltd – went bust, weighed down by heavy debt. One more private yard is fighting to save itself from being taken to the insolvency court under India’s new bankruptcy law.

Will Modi’s visit to the Zvezda Shipyard open-up “new pathways of cooperation” for the beleaguered local shipyards in defence shipbuilding?