In a massive boost to India’s shipbuilding industry, the Modi government has accorded the coveted ‘infrastructure’ status for large ships. Finance Minister Nirmala Sitharaman announced in her speech for budget 2025-26 on 1st February that the ships above a specified size would be included in the harmonised master list (HML) for infrastructure. The Modi government also allocated a much-needed Maritime Development Fund (MDF) to the tune of Rs 25,000 crore to unlock India’s huge potential in the maritime sector.
Prime Minister Narendra Modi hailed the Union Budget 2025 as “Janata Janardan Ka Budget” and lauded the employment-driven initiatives proposed. Highlighting the significance of giving infrastructure status to shipbuilding, PM Modi said, “With this status, large-scale ship construction in India will be encouraged, providing a fresh impetus to the ‘Atmanirbhar Bharat’ campaign. Shipbuilding is a sector that generates extensive employment.”
Prime Minister Modi explains why large ships are being given infrastructure status and how shipbuilding will be a major focus area for expansion. pic.twitter.com/e8iyhoi2Oe
— Sanjeev Sanyal (@sanjeevsanyal) February 2, 2025
Why Modi government’s boost to the shipbuilding industry is the right step at the right time?
The global shipbuilding market was estimated at $207.15 billion in 2023, rising at a 6.5% CAGR to $220.52 billion by 2024. India’s market was valued at $90 million in 2022 and is expected to grow to $8,120 million by 2033, representing a staggering 60% CAGR.
While India currently ranks 22nd in the global shipbuilding industry, India aims to enter the top 10 global rank by 2030 and become one of the top 5 countries by 2047. This ambition is a part of the Modi government’s broader visions including the Maritime India Vision 2030 and Amrit Kaal Vision 2047, intended to capture a massive share of the global shipbuilding and ship repair markets.
However, navigating its way into the list of top 5 countries in the global shipbuilding industry is not easy. The global shipbuilding industry is currently dominated by China and South Korea. In the year 2023, China built more than half of all the world’s merchant ships by gross tonnage (33 million GT) implying that the country built 51% of the world’s merchant ships that year. China is reported to dominate 62% of the world’s shipbuilding orders.
It requires a systematic and cautious approach to tackle the China challenge and in this direction, India has been exploring partnerships with South Korea and Japan. India is also working towards expanding its domestic shipbuilding capacity to curb dependence on foreign ships. It must be noted that India spends around $75 billion annually on leasing ships but controls only 2 per cent of the world’s total tonnage in shipping.
Notably, financing has been a major challenge the shipbuilding industry in India. A ship’s average life is about 25 to 30 years and yielding profits is a long-term game. The shipbuilding industry needed finance at long-term interest rates, however, the shipbuilders faced a cost disadvantage since ships were not included in the harmonised master list (HML) for infrastructure. Since ships lacked the infrastructure status, Indian shipbuilders could not secure long-term financing either from domestic or foreign sources.
Moreover, while non-banking financial companies were allowed to obtain raise funds from external commercial borrowings in infrastructure, since ships were not recognised as infrastructure, this option was also not open to shipbuilders. Notably, while shipyards were granted infrastructure status by the Modi government in 2016, ships were not granted the same status although a recommendation for the same was made way back in 2001 by the Rangarajan Commission. Besides, ships have also been excluded from the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 due to which banks have been reluctant to give loans to shipbuilders.
The Modi government, however, noticed the challenges the Indian shipbuilding industry has been facing and decided to make the much-needed policy intervention. As India already has decent infrastructure and resources to enhance its shipbuilding, the government’s renewed steps in the budget come across as a slew of the right decisions at the right time. The special focus on ships in the budget is no less than a defining moment for the Indian shipbuilding industry.
Modi government’s budget 2025-26 comes as a monumental leap forward, propelling India into global shipbuilding arena
In the budget 2025-26, Union Finance Minister Nirmala Sitharaman announced that ships of specified size would be inducted in the harmonised master list of infrastructure making them eligible for financial incentives. This will attract private investment in the shipbuilding industry and enhance fleet modernisation.
Notably, in its report submitted in February 2024, the Standing Committee on Transport, Tourism and Culture chaired by V. Vijayasai Reddy, the committee had recommended that the infrastructure status as given to shipyards should be extended to all ships and vessels. It also recommended incentivising domestic production of specialised steels and, establishing a Maritime Development Fund for access to working capital and long-term finance.
Maritime Development Fund
The Modi government announced the allocation of a Maritime Development Fund (MDF) with a corpus of Rs 25,000 crore. This fund would be utilised for long-term financing to support the country’s maritime industry, particularly ship acquisition. Up to 49% of the corpus will be contributed by the Central government while the rest of it will be mobilised from port authorities, other government entities, Central PSEs, Financial Institutions and private sector.
“For long term financing of the maritime industry, a Maritime Development Fund with a corpus of Rs 25,000 crore will be set up,” Finance Minister Nirmala Sitharaman said.
Setting Sail for Success!
— Ministry of Ports, Shipping and Waterways (@shipmin_india) February 1, 2025
The Union Govt has revamped the Financial Assistance Policy for Shipbuilding in India.
This initiative will incentivize & provide support to Indian shipyards enabling growth, employment & self-reliance in the nation's maritime industry! #Budget2025 pic.twitter.com/YFmg3UBAaT
“It aims at boosting Indian flagged ships’ share in the global cargo volume up to 20% by 2047. Further, an indigenous fleet will reduce the dependability of foreign ships, improve the Balance of Payment and secure the Strategic interests of the country. By 2030, MDF is aiming at generating up to ₹1.5 lakh crore investment in the shipping sector,” the Ministry of Ports, Shipping and Waterways said.
The budget also announced new mega shipbuilding clusters in the country. The shipbuilders will be provided direct capital support in the form of creating the breakwater along with capital dredging. Besides, this scheme also proposes a 10-year rent holiday for the land, if not provided at a nominal rate.
The Central government also informed that investment is also designed to support the creation of trunk infra like roads, utilities, and sewage treatment among others. “The proposed allocation of ₹6,100 crore aims to support India’s existing shipyards in upgrading, modernising, and automating their operations, enhancing efficiency, utilisation, and overall output,” the Ministry of Ports, Shipping and Waterways said.
In addition, a revamped shipbuilding financial assistance policy, credit note for shipbreaking in Indian yards also came as much-awaited policy decisions by the Central government.
The budget 2025-26 extended the Shipbuilding Financial Assistance Policy (SBFAP) 2.0, aimed at providing direct financial subsidies to Indian shipyards. The SBFAP initiative will help in securing orders by offsetting operational cost disadvantages, thereby strengthening the domestic shipbuilding industry. The total outlay of this scheme is Rs 18,090 crores and will offer subsidies on the contracted price or fair value for vessels built in India from 2024 to 2034.
The Shipbreaking Credit Note scheme will incentivise Ship Scrapping by issuing a Credit Note of 40% of the scrap value which can be reimbursed to buy new Made in India ships. This means that on one hand, the Shipbuilding Financial Assistance Policy (SBFAP) will provide financial incentives to Indian shipyards, the Ship-breaking Credit Note further will strengthen the domestic industry by encouraging investment and expansion.
This credit-note mechanism will facilitate the purchase of replacement vessels from Indian shipyards by ship owners which have scrapped their ships in India.
Highlighting the impact of these schemes in elevating India’s shipbuilding game, Union Minister of Ports, Shipping & Waterways Sarbananda Sonowal said, “These measures are expected to drive capital inflows, create employment opportunities, and enhance sectoral competitiveness. A renewed focus on training and human capital development will ensure a skilled workforce, equipping professionals with expertise in modern shipbuilding technologies, automation, and sustainable maritime practices. This holistic approach will not only support industry growth but also position India as a global leader in shipbuilding and maritime innovation.”
Developing human capital
Besides the infrastructure status, SBFAB and Shipbreaking Credit Note scheme, the Central government also focussed on developing trained professionals in the shipbuilding sector. In this direction, the budget allocated specific funds for training and development of human resources in order to leverage India’s position as a global leader in maritime human capital. The budget provided for Shipbuilding Capability Development Centres (SCDC) is aimed propping up platform for development of innovative ship design and engineering solutions as well as testing & evaluation of Shipping projects. An outlay of Rs 1200 crores have been earmarked for this.
Moreover, Rs 1040 crores have been allocated or providing capital and operational assistance to the existing and upcoming shipbuilding design and training centres from the private sector. To fund a scheme for Research and Development (R&D) and innovation in ship technology, the budget allocated Rs6 610 crores. These incentives are likely to generate a massive 11 lakhs of direct and indirect employment.
As the infrastructure status and the MDF will give a massive boost to shipbuilding domestically since the doors for long-term financing have finally been opened, shipbuilding and related sectors will generate lakhs of employment opportunities for Indians. Moreover, this sector is expected to witness a massive inflow of domestic and foreign investments in shipbuilding clusters which will further encourage new projects and help enhance the range, categories and capacity of ships manufactured in India. By the year 2030, the MDF is projected to generate a whopping Rs 1.3-1.5 trillion of direct and indirect investment.
With encouragement towards domestic shipbuilding, the Indian government intends to curb its dependency on foreign ship leasing which costs the country billions of dollars annually. India also aims to increase its minuscule share in the global tonnage to significantly higher numbers in line with the country’s ambition to enter the top 10 global ranks by 2030 taking a massive leap from the current 22nd rank and become one of the top countries by 2047. If the massive demand stemming from the needs of the Indian shipping market is adequately targeted by Indian shipyards, it may result in an opportunity to the extent of over USD 237 billion (INR 20 lakh crores) by 2047.
The inclusion of large ships in the infrastructure list would facilitate easier long-term and low-cost financing for shipbuilders thus adding to the Indian shipbuilding sector’s growth. Alongside an increase in the domestic manufacturing of ships, this will also support the development of port infrastructure, and modernising facilities, as well as creating new shipbuilding clusters and enhanced technology and skill development.
India is carefully working towards improving its global standing in the shipbuilding arena, by making sure that domestic shipbuilding becomes hugely lucrative for India by attracting international orders and providing massive employment opportunities to Indian youths. The country also has untapped potential in not only shipbuilding but also ship repairing and recycling industry.
As OpIndia reported earlier, the Modi government is not only focussing on improving domestic production of ships but is also collaborating with global leaders in the shipbuilding arena, particularly South Korea and Japan. The high-level delegations of India and South Korea have visited each other’s nations in recent months to explore opportunities for collaboration to help India maximise its shipbuilding capacity. South Korea’s technological advancements in the shipbuilding industry can help India bridge this gap through training, technology transfer as well as shipyard modernisation.
With the global shipbuilding slots booked in countries like China, South Korea and Japan until 2028, the Indian government sees an opportunity to emerge as a reliable alternative destination for shipbuilding. India’s strategy is not confined to constructing new ships but also expanding into ship repair and recycling given the country already has decent infrastructure.
It also important to note that even though China, South Korea and Japan are dominant players in the global shipbuilding industry with China also being a dominant player in container manufacturing, these countries are grappling with declining demographics. The situation in these countries is such that the Total Fertility Rate (TFR) has slumped below replacement levels. Despite its own challenges, India is in a better position compared to these countries, there is much scope for India’s young workforce for jobs in maritime services, construction and engineering among others.
The measures proposed in the Union Budget will enhance India’s maritime capabilities, reducing the country’s reliance on foreign shipping for energy and trade helping India mitigate geo-strategical risks and boost the country’s economy.
