India’s Maritime Agenda 2020: Cruising Through Make In ...internationalcentregoa.com/web/wp-content/uploads/2016/06/India... · India’s Maritime Agenda 2020: Cruising Through

BITS PilaniK K Birla Goa Campus

Dr. R. P PradhanAssociate Professor

India’s Maritime Agenda 2020: Cruising Through Make In India Promises

Goa Maritime DialoguesThe International Centre, Goa

8th June 2016

BITS Pilani, K K Birla Goa Campus

India’s Maritime Profile Brief

Other Advantages

7500km Coast Line 12 major & 60 operational

non-major ports Around 1,122 ships 722 coastal and 349

overseas ships. A dozen shipping PSUs 02 - Navratnas 07 Miniratna Category- I

31 Major shipping Companies

India ranks 18th in the world of shipping economy & 7th in Asia

Shipping Gross Tonnage (GT) of 15.5 million

World Market share of 1.45%

Vibrant Private Sector

Top 9 companies account for nearly 70% of the total fleet by DWT


Approximately US$10 billion budgetary allocation now

For waterways, port expansion and India’s maritime efficiency is earmarked for investment in the coming years.

Labour Cost India has an edge over other countries in

terms of labour costs.

Highest Demographic Dividend India Labour Cost per annum –$1,192 South Korea - $10,743 Singapore - $21,317 China – 50% of Korea & Japan

Source: International Chamber of Shippinghttp://www.ics-shipping.org/

http://www.ics-shipping.org/


Objective!

Do we have a case of India’s maritime economy to be the next big ticket sector of opportunity.

Is Make In India a Vehicle?

What is the Goal?

& Where is the Road Map?

Theoretical Frame Work

Absolute & Comparative Advantage Model

National Competitive Advantage Model

Factor Endowment

IPLC

All are Free Market Economy Approaches based on resource & efficiency doctrine.


450 Pages /Divided into 4 Parts

1. Introduction2. Ports3. Shipping4. Agenda for the Decade (432-

441pp)

Ministry of Shipping Link: http://shipping.nic.in/showfile.php?lid=261

http://shipping.nic.in/showfile.php?lid=261


India’s Maritime Decade2010 - 2020

Maritime Agenda 2020

Altogether 54 Agenda Items to be achieved

Agenda Highlights

Govt. of India Maritime Agenda

proposes Rs.4.43 lakh crore investment

Rs.1.2 lakh crore of investments proposed

for the shipping industry.


Perceived advantages of leading shipbuilders during their initial

period of growth1850s-1880sGreat Britain

1950s-1970sJapan

1970s onwardsSouth Korea

1990s Onwards

China

Demand Factors

Shipping Market Booming Booming

Volatile

Increased & Temporary Decline now

Shipbuilding Market

Increasing Increasing Declining Temporarily

Economic Liberalization

Market Focus Domestic Initially Domestic Export Market Domestic/ Export

Supply Factors

Relative Labour Cost High Low Low Low

Labour Unions Limited Repressed Repressed Repressed

Technology Domestic Foreign Foreign Domestic/Foreign

Resources Iron & Coal Steel Steel Steel

State Support Limited(Indirect) Yes Yes Yes

Source: Author’s Compilation from Lars C. Bruno & Stig Tenold, 2012; SmartComp Research Report No 3, October 2013 et al.


Production 1975 -1990 Performance & Strategic Change

MeasuresCountries 1975 1990 Change Strategic Measures

Denmark 969 407 -58% Tax concessions, owners’ orders

France 1,149 63 -95% Massive subsidies, bankruptcies,specialization

Germany 2,499 874 -65% Restructuring, mergers, state owners, naval orders

The Netherlands 1,028 184 -82% Massive subsidies, the RSV- scandal

Norway 1,052 88 -92% Offshore focus, subsidies, specialization

Spain 1,593 367 -76% Restructuring, nationalization, naval orders

Sweden 2,188 27 -99% Subsidies, nationalization, full withdrawal

United Kingdom 1,169 127 -89% Nationalization, privatization, naval orders

Japan 16,991 6,661 - 61% Rationalization, cross-subsidization

South Korea 410 3,440 +740% Capacity increase, state supportWorld 34,203 15,995 -53%

Source: Lars C. Bruno & Stig Tenold 2012


four factors that enabled South Korea to become an important provider of new shipbuilding sector ---

1. Govt. support,

2. low labour costs & labour Repression

3. Access to int.& domestic funds

4. Assistance in technology transfer.

European Decline

Nationalization Rationalization Subsidization Specialization


South Korea attempted to promote the shipbuilding sector before the 1970s.

Shipbuilding Promotion Law from 1958 first step.

1967 Shipbuilding Promotion Law increased the scope of the 1958 law

Nixon Doctrine 1969 & withdrawal of US Troops in 1971

3rd & 4th Korean 5 Year Plan 1972-76 & 1977-81 Stipulated specific target goals

South Korean Specific Measures

Development of Planned Shipbuilding Program & clear guidelines to the Sector.

Commencement of domestic production of shipping components

Much of the finance of the sector to come from the National Investment Fund & foreign loans.

Increased focus on replacing the imports of ships with South Korean built ships

Govt. guarantees for foreign loans/ Series of Capital Incentives & Tax Holidays etc.


China Shipping Industry Profile

More than 2000 Shipbuilding Companies & over 40 Million Jobs

Around 10% GDP Contribution

Projected 15% GDP by 2030

Production Value of EU602 billion

Meeting Domestic Needs of Sea Transport & Exporting vessels to 169 Countries.

80% of the gross output of Chinese shipyards is devoted to export customers

Primary focus :Commercial vessels, and most 6,000-and-under TEU Container Ships / Bulk CargoCarriers, Crude Oil Tankers & high valueand sophisticated vessels

04 types of firms in China’s shipbuilding industry:

1. large state-owned enterprises (SOEs)2. Joint ventures,3. Small private-owned enterprises, 4. Military shipyards Source:(Collins & Grubb 2008; Yang & Zhu 2011).

First three : 78% of the export sales comes from SOEs / JVCs over 16% / 5% small private-owned enterprises Source: (OECE-WP6 2008


Maritime Economy, Infrastructure & Capacity Building Segment

Question: What it takes to build a ship?


Three

Segments

Approach

Maritime Trade

Maritime Agenda 2020

To create, build & sustain the maritime infrastructural needs of the Country for the next decade & beyond.

Maritime Capacity Building & Economy


Make In India –Huge Domestic Market

OrdersWe already have 49

new ships and submarines on order

45 of them at Indian shipyards

India has

132 warships

14 Submarines

80 Aircraft

122 helicopters

14 UAVs

The Navy's acquisition projects/plans in pipeline -----------

Rs 3,00,000 crore over the next 15 years

Greater Indigenization Action Plan for

India ?



RankShipbuilding

Country CGT (No. of Vessels)Market Share

1 China PR 40,016,390 (1,910) 42.61%2 South Korea 27,607,460 (752) 29.40%3 Japan 16,189,521 (670) 17.24%4 Philippines 1,886,622 (65) 2.01%5 Italy 1,413,557 (17) 1.51%6 Germany 1,208,942 (8) 1.29%7 Brazil 929,048 (45) 0.99%8 Taiwan 814,942 (29) 0.87%9 Romania 787,523 (26) 0.84%

10 Vietnam 620,466 (33) 0.66%

Top 10 Shipbuilding Nations By Order book (excluding offshore) in CGT Terms

12 major and 60 operational non-major ports (5 New

Major Ports by 2020)

Around 1,122 ships.

Indigenization

Shipping Gross Tonnage (GT) of 15.5 million (Proposing to double by 2025).

India ranks 18th in the world of shipping economy and 7th in Asia.


Rank Shipbuilder Name CGTMarket Share

1 Hyundai Heavy, HHI 7,708,196 8.21%

2 Daewoo, DSME 6,734,203 7.17%

3 Samsung 4,192,288 4.46%

4 Imabari 4,093,772 4.36%

5 Hyundai Mipo, HMD 3,075,362 3.27%

6 Japan Marine United, JMU 2,945,824 3.14%

7 Shanghai Waigaoqiao, SWS 2,215,916 2.36%

8 Yangzijiang Shipbuilding 2,128,789 2.27%

9 STX Offshore & Shipbuilding 2,019,774 2.15%

10 Sungdong Shipbuilding 1,895,937 2.02%

Top 20 Shipbuilders

by Present Order book (excluding offshore) in CGT Terms

11 Hudong-Zhonghua 1,738,291 1.85%

12 New Times, NTS 1,719,052 1.83%

13 Dalian Shipbuilding, DSIC 1,694,937 1.80%

14 Fincantieri 1,369,601 1.46%

15 Jiangsu Hantong 1,345,046 1.43%

16 HHIC-Phil 1,303,439 1.39%

17 Chengxi Shipyard 1,298,319 1.38%

18 Namura Shipyard 1,290,737 1.37%

19 NACKS 1,219,894 1.30%

20 Meyer Werft 1,208,942 1.29%

India Does not figure as a serious player

India’s Market share 1.45%.

Hyundai Shipping Corporation alone has 6 times more market share than whole of India’s---



Shipping Economy:

How do we Compare

India’s Comparative Profile in the Sector

Country DWT (Mil) Ships Trade Share

Japan 173.2 3720 4.78

Greece 169.4 3064

Germany 104.9 3522 8.22

India 15.5 1184 1.45Source: EXIM Bank Occasional Paper No.142,2010

Comparative Productivity Analysis

Country Completion

DWT

Employees Person /DWT

Productivity

Japan 23.2 80,000 290

S. Korea 23 71,800 320

China 8.8 1,58,000 56

India 0.6 78,000 50Source: Compiled from UNCTAD Review of Maritime Transport

Report 2011


India Japan Korea

Lab

ou

rP

rod

uct

ivit

yU

S$ /

Em

plo

yed

Shipbuilding Sector Productivity

50,000

1,00,000

1,50,000

2,00,000

Source: UNIDO

Competitive Productivity Disadvantage & Labour Cost Advantage

11,134

1,51,487

1,22,994

Labour Cost India has an edge over other

countries in terms of labourcosts.

Labour Cost per annum

India– $1,192 South Korea - $10,743 Singapore - $21,317 China – 50% of Korea & Japan


Skill India Dilemma!

India currently faces a severe shortage of well-trained, skilled workers.

Estimated that only 2.3% workforce in India have undergone formal skill training.

Compared to 68% in UK 75% in Germany

52% in USA 80% in Japan

96% in South Korea

The National Mission for Skill Development

Seeks to provide the institutional capacity to train a minimum of 300 million skilled people by the year 2022.

Size of India’s Labour Market is far less & asymmetric & gravitated toAgri-Sector.

However, deliberate non availability of clean & credible data prohibits comparative research & Govt’sperformance Assessment.


Comparative EXPORT COST Analysis ( US$ PER CONTAINER)

YEAR CHINA HONG

KONG

SINGAPORE MALAYSIA U.S.A. S.KOREA GERMANY SPAIN INDIA

2005 390 425 416 432 960 780 740 1000 864

2006

390 525 416 432 960 780 740 1000 864

2007

390 525 416 432 960 745 740 1000 820

2008

460 625 456 450 990 767 822 1121 945

2009

500 625 456 450 1050 742 872 1221 945

2010

500 625 456 450 1050 790 872 1221 1055

2011

500 575 456 450 1050 680 872 1221 1095

2012

580 575 456 435 1090 665 872 1261 1120

SOURCE: WORLD BANK, 2012 ;databank.worlbank.org

Why are we so expensive?


Integrated Maritime Governance

& Prospect


Challenge 3

India allows 100% FDI in the shipping sector since 1997.

However, 09 shipping companies have moved out of India to Singapore, Mauritius & Dubai in the past 7 years.

Only 01 foreign owner, Malaysia based AET,2009, currently operates here

No significant FDI has come in.

Policy & Ground Reality

Mismatch

Companies Exited-

MSPL / Mercator Lines/ SKS Transnational/ GreatshipIndia / Garware Offshore / & few others have exited the Indian market.


Maritime FDI Investors in India???

06 Major international shipping investors are investing since 2002-

Huge capital outflow for India to expand shipping efficiency.

1. AP Moller Maersk (Denmark);

2. PSA Singapore; 3. Dubai Ports World (UAE); 4. Jan Del Nul NV (Belgium); 5. Hyundai Engineering &

Construction Company Limited (South Korea)

6. Royal Boskalis WestministerNV (Netherlands)


Challenge 3

While growing opportunities are visible, the sector shall need serious overhaul-

1. Age old ships;

2. Port & infrastructure modernization,

3. Organizational & Productivity Optimization;

4. Global competition;

5. Tax regime rationalization &

6. Possibly privatization to create efficient climate for larger market share.

Above all, Serious Govt. Intervention &

Facilitation to promote the Sector

needed.


Comprehensive Maritime Governance seems to be an option.

Currently 23 Govt. of India Depts. Handle various gamut of Maritime affairs i.e. nearly half of Govt. Depts.

There have been lack of Grand Vision & serious lack of assimilation.

Result, lot of cross purpose work without road map.

Maritime Sector Research; Skill Building, Maritime Job creation; global competitiveness analysis are yet to happen specific to the sector.

Comprehensive Maritime Governance &

Research- Possible Answer

Propose to look for Comprehensive Maritime Governance options

It is a New Area & needs to be explored.

Our Project “Agenda 2020: India’s Maritime Infrastructure, Governance & Naval Diplomacy”


Thank You


Singapore Shipping Industry Profile

11th largest owned fleet in the world connected to more than 600 ports

in over 120 countries (UNCTAD, 2011) .

32 million DWT from 1,021 vessels.59% of this DWT is Singapore flagged.

Contributes 7% of Singapore’s GDP

Employs more than 150,000 people

7,000 companies.

Port of Singapore one of the busiest in the world receiving 128,000 vessels (2011)

70% of the global market share of Floating Production Storage Offloading (FPSO) vessel conversion.

70% of the world market share for jack-up rig building,

20% of the world ship repair market share


Singapore, MPA has introduced financial, manpower

development and R & D schemes. SMEs especially benefit

by capitalizing on the assistance schemes.

Approved International Shipping Enterprise (AIS)

scheme – offers shipping companies tax exemption

on qualifying shipping income for 10 years.

Approved Shipping Logistics (ASL) scheme – offers

shipping companies a concessionary tax rate of not

less than 10% on incremental income derived from

providing freight and logistics services.

Incentives for shipping companies

Singapore


Maritime Finance Incentive (MFI) scheme – offers shipping companies that finance maritime vessels and sea containers tax concessions for up to 10 years on their qualifying leasing income.

Maritime Cluster Fund – offers scholarship schemes, course fee subsidies and attachment programmes for the development of manpower, local training infrastructure and capabilities within the maritime industry.

Maritime Seed Fund (MSF) – offers financial assistance to start-ups or growing maritime companies that strive to introduce innovative products and services in the industry.


Hong Kong / Other Prominent Shipping Industry

Profile

8th largest owned fleet in the world (UNCTAD, 2011)

712vessels & 37 Million DWT.

65% of this is Hong Kong flagged & 506 Companies

Employing over 14,000 people.

HK$ 107 billion income earned by owners, operators & brokers in 2010

Country DWT(Mil) Ships Trade Share

Japan 173.2 3720 4.78

Greece 169.4 3064

Germany 104.9 3522 8.22

India 15.5 1122 1.45

India - 18th position in the world with 1.45% share & 7th

position amongst Asian countries


Indian Shipping Industry Profile

India is ranked 18th in the world with a shipping Gross Tonnage (GT) of 15.5 million.

A fleet strength of 1,122 ships 2012.

722 coastal and 349 overseas ships.

Indian shipping industry consists of around 31 major shipping companies

The top 9 companies account for nearly 70% of the total fleet by Dead Weight Tons

Shipping Corporation of India (SCI), the largest public sector enterprise in the country.

Mumbai is the largest port and handles 50% of all of Indian export coming mainly from the Northern and Central India.

Several private ports outside the scope of Major Ports Act have emerged in recent years.


Shipping Industry Future Projection

The Maritime Agenda 2020

Capacity of the port sector is envisaged to be 2,301.63 MT to meet the overall projected traffic of 1,758.26 MT by 2016-17,(12th Plan document Projection)

To create a port capacity of around 3,200 MT to handle the expected traffic of about 2,500 MT by 2020

To bring ports at par with best performance/capacity international ports.

To increase the tonnage under the Indian flag & Indian control and share of Indian ships in our EXIM trade.

Promote coastal shipping to help in decongest roads & environment friendly


India's shipping industry has seen as many as 09

companies move out of the country to Singapore &

Mauritius over the past five years, say sources in the

industry- Cite serious structural problems"

The shipping sector in India has allowed 100% FDI since 1997.

However, only 01 foreign owner, Malaysia based AET,2009, currently operates here

Companies Exited-

MSPL / Mercator Lines/ SKS Transnational/ Greatship India / Garware Offshore / & few others have exited the Indian market.


Indian shipping firms pay 03 times more tax than their counterparts in

Singapore.

100% FDI is nearly immaterial if shipping sector if structural changes such

as taxation and labour laws are amended.

No worthwhile foreign investment has taken place due to the high taxes

and rigid regulations like manning norms in India

Perspective

Indian shipping is presently subjected to 12 direct / indirect taxes over and above the tonnage tax that add to its costs thereby

increasing the effective tax rate of around 2% under the tonnage regime to around 9%.


Such exodus, especially amongst SMEs is being seen

as a perfect case study for the Indian govt. & business

sector discordination.

For example- Ships are operated by seafarers & India

supplies the 2nd largest number after Philippines.

Indian seafarers do not work on Indian-flagged vessels

because they have to pay taxes like any other Indian

national, while if they work for a foreign-flagged vessel,

they are exempted from paying taxes. This is a major

anomaly.

Documents

India’s Maritime Agenda 2020: Cruising Through Make In ...internationalcentregoa.com/web/wp-content/uploads/2016/06/India... · India’s Maritime Agenda 2020: Cruising Through