The Hindu : Andhra Pradesh / Visakhapatnam News : Shipyards sore over Centre's policy

Online edition of India's National Newspaper
Friday, Sep 10, 2004

Andhra Pradesh

Andhra Pradesh - Visakhapatnam

Shipyards sore over Centre's policy

By Santosh Patnaik

VISAKHAPATNAM: The draft shipping and maritime policy unveiled by the United Progressive Alliance (UPA) Government has failed to boost the sagging morale of native shipyards as it is not specific on rationalising various taxes imposed on them.

The proposal to allow the establishment of two `international-sized' shipyards has raised several eyebrows, though plans to encourage modernisation of the existing yards have been lauded. The proposal to open to gates to foreign direct investment (FDI) in shipbuilding and ship-repair - a strategic industry - is also questionable and is bound to rake up controversy.

Ship-repair units

While welcoming the idea of levying 10 per cent surcharge on ship-repairs being undertaken abroad by Indian ship-owners, the industry feels there is no point in allowing new ship-repair units adjacent to ports when public sector shipyards in Visakhapatnam and Kochi have gained expertise in repairs due to declining orders for shipbuilding.

At a time when domestic shipbuilding units are unable to face the onslaught of a globalised economy, the Centre insists that the builders pay 10 per cent service tax on ship-repair orders.

"If we are forced to pay, we have to pass it on to clients, which will dissuade prospective clients from placing orders on Indian yards," pointed out a senior official from Hindustan Shipyard Limited.

The Indian yards get two to three per cent margin on ship-repairs. If they shell down 10 per cent of their receipts, it is feared that they might have to shut down their operations. Incidentally, China, which is emerging fast as the world leader in this line, is offering replacement charges of just one dollar for a single kilogram of steel for its ship-repairs.

The ship-repair turnover in the country by all shipyards, including HSL, CSL and Mazagon Docks, is in the range of Rs. 500 crores to Rs. 600 crores a year.

Double taxation

One of the main reasons for the ill-health of the shipbuilding industry is double taxation. The builders have to pay 12 per cent excise duty and four per cent sales tax. The double taxation - to be paid both at the time of buying steel and other equipment and fitting them on the ship - is crippling the industry.

In fact, one-third of the cost of shipbuilding lies in the purchase of steel. Industry circles hope that the Centre will do something to bail out the shipyards.

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