Shipyards and ship building

India has a 5700 km long coastline with 12 major ports and 11 intermediate ports, but it ranks seventh in the global ship building business. Opportunities in shipping came up when industrial licensing was abolished, private companies entered the shipyard construction business, and new ports were sanctioned by many state governments. Indian shipping’s cause was also helped by the government, which had introduced in 2002 a subsidy of 30 per cent on the sale price of ships. The move was designed to help them compete in the global marketplace. As a result, Indian shipping industry’s order book grew multi-fold, from 0.3 million DWT in the 9th Plan (1997-2002) to 1.3 million DWT in the 10th Plan (2002-07).

In all, 14 companies announced newer or expansion projects worth $5 billion. Once implemented, these investments were to take India’s shipbuilding capacity up to 5 million DWT by 2012, helping it gain a global market share of 2.2 per cent. Given that these were infrastructure investments, the government allotted them land in coastal areas for free, or at very cheap prices. But then the global economy went into recession, trade declined, as did freight volumes and demand for new ships. World over, orders began to be postponed or cancelled, as many buyers could not pay for the ships they ordered.



Cochin Shipyards and Goodearth Maritime shelved their initial public offerings (IPOs). RIL’s Rs 8,000-crore plan to build a shipyard and a large-scale dredging company at Rewas, Maharashtra, stalled after the SEZ ran into land acquisition trouble. Engineering giant L&T, which operates a yard at Hazira in Gujarat, had announced plans to invest Rs 3,000 crore in a mega shipyard at Kattupalli in Tamil Nadu. A spokesman for the company says that the project is in a preliminary stage with land still to be acquired, and Rs 1,500 crore will be invested now. Mercator Lines Chairman H.K. Mittal’s “personal” venture to build two shipyards for cargo-carrying ships in Gujarat and Maharashtra for Rs 2,300 crore is yet to cross the preliminary stage. Mittal blames the delay on the crisis engulfing the shipbuilding industry: “Ships meant for exports are getting cancelled or delayed as buyers are not able to manage finance.”

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Menawhile some infrastructure and merger plans in shipping continue. ABG Shipyard has increased its open offer price for Great Offshore to Rs 520 per share from Rs 450 earlier. ABG’s holding in Great Offshore now goes up to 9%. Bharti Shipyard is another contender, with a 19% stake, and its open offer being at Rs 405. Pipavav Shipyard, in which Punj Lloyd holds 22.34%, is likely to file a red herring prospectus for its initial public offer (IPO) within a week and is looking to raise nearly Rs 600-650 crore. Pipavav Shipyard’s (PSL) Rs 2,900-crore project to create an offshore fabrication yard by end-2009 is underway. PSL is, at present, constructing a number of Panamax bulk carriers of 74,500 DWT each. Also on schedule is ABG’s Rs 1,650-crore project in Dahej.

Rural banks statistics

Even before nationalization, the proportion of bank branches in rural areas was over a fifth. After nationalization, banks started opening more branches in villages; by the end of the 1980s, 58 per cent of the branches were in villages. But then, banks somehow sickened of opening rural branches; by now the proportion of rural branches is no more than two-fifths. Why did they go off the villages? Their experience that farmers do not repay loans could have been a factor.

In 1980, a quarter of banks’ deposit accounts were rural; now the proportion is something like 8 per cent. But that does not mean that they are collecting less money in villages; the proportion of rural deposits has gone up from 3 to 8 per cent. In other words, banks are now having fewer accounts with larger balances in villages. Maybe, farmers got rich; maybe, banks discourage poor depositors.

But the change in depositors is nothing compared to the change in borrowers. In 1980, a quarter of banks’ borrowers were in villages, but the credit to them was just a 20th of the total. In other words, an average loan to a villager was one-fifth the size of the overall average. By 2008, the proportion of rural borrowers had fallen to a 40th of the total, while the credit given to them had exceeded a 10th of the total. In other words, the average rural loan was at least four times the overall average loan! Again, maybe villagers had become rich; but more likely, banks concentrated on the rich fellows in villages who ran trucks and buses or did wholesale business.

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