India’s Growing Shipbuilding Industry Says No To Excise Duty

The demand for a level playing field in the supply of steel is now coming from a different section of end–users altogether.

A section of India’s shipbuilding industry has asked the government to cut down tax on shipbuilding-grade steel produced domestically in order to remove the competitive advantage that foreign producers of steel enjoy vis-à-vis Indian steel.

According to a report in the Hindu Businessline, this lobby demanded that the excise duty of 8 percent levied on steel produced by Indian companies puts them at a disadvantage compared to foreign producers, and so, has to be thrown out ASAP.

This demand, though pending for some years now, got fresh impetus after the nation’s shipbuilding industry experienced perceptible growth, coupled with the present downturn in global economy.

India’s shipbuilding industry can be traced back into history, but in the modern era, the country was never on the top ten list of shipmakers. But in 2002, things started to change for this industry after the government had announced a subsidy scheme for private and public shipyards.

Taking advantage of that, Indian ship manufacturers, slowly but surely, started moving away from making smaller vessels to bulk carriers, and are even said to have landed large vessel orders from some leading European nations. According to one estimate, India’s shipbuilding activity is growing at a compounded rate of 8 percent annually.

But now, according to some steel producers, the excise duty has been impeding growth. Currently, high-strength shipbuilding steel — AH32/36, DH32/36 and EH32/36 — is imported duty-free at about $700 a ton from countries like China (which is the 2nd largest shipmaker in the world after South Korea), Indonesia, Germany and other European Union countries.

Indian manufacturers, on the other hand, have a capacity of five million tons annually, and India accounts for 1 percent of the world’s total shipbuilding industry.

Since most of India’s shipbuilding yards are located on the coastline, almost all of them prefer to use imported steel rather than steel manufactured in India. Not only the excise duty, but also the cost of transportation makes Indian steel that much more expensive than its imported counterpart. Incidentally, while all other forms of steel coming into India attract an import duty of 7.5 percent, shipbuilding steel grades are exempt from it.

Some feel that Indian steel companies with plants near a port could tap into the shipbuilding sector more efficiently.

Indian steelmakers say that though their cost of production of this steel grade is high compared to those made by foreign companies, all they were asking for is the cancellation of excise duty, which will make it a level playing field. Some of the big names in India in this business are L&T, ABG Shipyard and Pipavav Shipyard.

With the slowing down of Indian as well as the global economy, Indian steel companies are increasingly focusing on production of niche products like steel for ships.

By Sohrab Darabshaw