Next day, the IIM-B international immersion programme began with a question. With 95 per cent of Indian export-import taking place via the sea route, why is the share of vessels made in India only 0.4 per cent?
It is the solution to this problem that lies at the core of Make in India, and which was critical to Narendra Modi’s visit to Korea.
Parth Sharma, the chairman for Defence and Shipbuilding at the Indian Chamber of Commerce in Korea and a senior vice president at the Kangnam Group, lead the discussion on this issue, highlighting the strengths and weaknesses of both countries, and areas where India and Korea could mutually reinforce each other.
Challenges
The challenges on both sides at present are significant. Indian ports are bursting with capacity and we desperately need to develop new ports, modernise and expand existing ones. It takes as much as 14 days to clear cargo at JNPT (Jawaharlal Nehru Port, Mumbai), the largest port in India.
Our shipbuilding industry too is very slow in churning out ships, most of which are naval. The drafts (depths) at most of our existing ports are shallow, making it hard to accommodate larger vessels.
South Korea on the other hand, is facing a recession in its industry. Renowned for manufacturing cheaper and high-tech ships, it is now facing a two-way competition from China (for cheaper ships) and Japan (for high tech ships). Even though the country has tried to partner with other countries such as China, they are faced with several IPR issues which adversely affect their competitiveness.
India has the demand and the capability to rapidly develop its shipbuilding sector and South Korea has the tech. Hence, they work together profitably and to mutual benefit.
However, there are a few problems which need to be addressed first.
The problem and the solution
One peculiar situation in the Indian shipbuilding industry is its skew towards the naval side. As much as 95 per cent of ships built in India are for naval requirements, whereas 95 per cent of Korean ships are built for commercial requirements. Which is why several key South Korean players shy away from the Indian market.
Another factor that could affect such a partnership is the L1 bidding process. Korean ships are better in technology, but still lose out to French and Italian contractors.
The most important problem however, is the absence of critical component manufacturers in India. Shipbuilding companies typically work in clusters with manufacturers supplying critical components like engines, centrifugal pumps, and HVAC (Heating Ventilation and Air Conditioning) systems. Almost 65 per cent of the cost of manufacturing a ship comes from the cost of component, most of which are absent in India. Hence, developing our shipbuilding capabilities means developing all these industries simultaneously.
Changing situation
The situation on ground however, seems to be changing with proactive policies of the government. The ‘Sagarmala Project’ aims at a port-led growth strategy and Korean companies are expected to play a big part in it.
Currently, the Indian government has vessel orders worth $20 billion under construction, with orders worth $42 billion in the pipeline. Our shipbuilding industry offers an IRR (Internal Rate of Return) of 25 per cent and this, coupled with the other incentives offered under the ‘Make in India’ project, should provide sufficient incentive for Korean shipbuilders to manufacture in India.
Make in India is a work in progress but we have come a long way and are poised towards a long term sustainable growth strategy.