Shipbuilding Financial Assistance Policy and the Shipbuilding Development Scheme

The Shipbuilding Financial Assistance Policy (SBFAP) is a Government of India scheme that gives Indian shipyards a cash support of a fixed percentage of the price of each ship they build. It helps them compete with cheaper shipyards in China, South Korea and Japan. In September 2025, it was renewed and widened into a bigger three-part package, along with a Maritime Development Fund for long-term loans and a Shipbuilding Development Scheme to build capacity and cover risks.

Why does India need it?

Shipbuilding is often called the "mother of heavy engineering" because it uses steel, engines, electronics, paints and thousands of parts, and creates many jobs. Ships also carry about 95% of India's trade by volume and about 70% by value. Yet India builds very few ships. Its share of world shipbuilding is less than 1%, and a parliamentary reply placed India 22nd in the world (based on 2014-2023 output).

Indian shipping companies buy most of their ships from abroad. This means money flows out, and in a war or crisis India could struggle to get ships.

Why are Indian shipyards weak?

Several reasons combine:

• Foreign yards, especially in China and South Korea, get large state support, cheap loans and huge orders, so their costs are lower.
• Indian yards pay higher interest on loans and face higher costs for steel and parts.
• Ships take 2 to 5 years to build. The yard spends heavily upfront, but buyers pay in stages (milestones). If a buyer delays or backs out, the yard is stuck with a half-built, often customised ship that is hard to resell.

Where did it come from? (SBFAP 2016)

The Union Cabinet approved the first SBFAP on 9 December 2015. It covered shipbuilding contracts signed between 1 April 2016 and 31 March 2026. Its main features were:

• 20% financial assistance on the contract price, the fair price or actual payments received, whichever was lower.
• The rate was to fall by 3 percentage points every three years, so yards would slowly stand on their own.
• The ship had to be delivered within three years of the contract (longer for specialised vessels).
• About ₹4,000 crore was projected over 10 years.

The 2025 package (₹69,725 crore)

On 24 September 2025, the Union Cabinet approved a much bigger, four-pillar plan: building domestic capacity, long-term financing, developing new (greenfield) and existing (brownfield) shipyards, and improving skills, along with legal and tax reforms. Its three money parts are:

• Shipbuilding Financial Assistance Scheme (₹24,736 crore): the renewed SBFAP, extended to 31 March 2036. It includes a Shipbreaking Credit Note worth ₹4,001 crore, which gives a ship owner a credit when an old ship is broken up in an Indian yard, usable against a new ship built in India.
• Maritime Development Fund (₹25,000 crore): a ₹20,000 crore Maritime Investment Fund with 49% government participation, plus a ₹5,000 crore Interest Incentivisation Fund to lower the cost of loans.
• Shipbuilding Development Scheme (₹19,989 crore): to raise domestic shipbuilding capacity to 4.5 million Gross Tonnage (GT) a year, support mega shipbuilding clusters, set up the India Ship Technology Centre under the Indian Maritime University, and provide risk coverage, including insurance support for shipbuilding projects.

A National Shipbuilding Mission oversees all these parts. The government expects the package to bring about ₹4.5 lakh crore of investment and nearly 30 lakh jobs.

How does the support work, step by step?

1. An Indian shipyard signs a contract to build a ship.
2. It applies for financial assistance and gets in-principle approval.
3. As the yard builds and delivers the ship, it receives a percentage of the price as cash support. Under the 2025 scheme, reports say the rate is 15% for normal vessels, rising to 20% on the value above ₹100 crore for larger ones, and up to 25% for specialised vessels [Unverified].
4. Under the Shipbuilding Development Scheme, the yard can also buy credit risk insurance. If the buyer delays or defaults, the insurer pays the yard, and the government helps with the premium and backs the insurer.

Other related steps

In September 2025, large ships were added to the Harmonised Master List of Infrastructure. Commercial ships of 10,000 GT or more (Indian-owned and Indian-flagged), or 1,500 GT or more if also built in India, now count as infrastructure. This lets them get long-term loans at easier terms. India's targets, under the Maritime India Vision 2030 and the Maritime Amrit Kaal Vision 2047, are to be among the top 10 shipbuilding nations by 2030 and the top 5 by 2047.

Commonly confused concepts

• SBFAP (2016) vs Shipbuilding Financial Assistance Scheme (2025): The 2016 policy gave 20% that fell over time, for contracts up to March 2026. The 2025 scheme continues the idea up to March 2036 with a bigger budget and the shipbreaking credit note.
• Maritime Development Fund vs Shipbuilding Development Scheme: The fund gives long-term money (loans and equity) to the sector. The development scheme builds capacity (clusters, technology) and covers risks like buyer default.
• Gross Tonnage (GT) vs Deadweight Tonnage (DWT): GT measures the total enclosed volume of a ship, not its weight. DWT measures how much weight (cargo, fuel, crew) a ship can carry.
• Shipbuilding vs ship repair vs shipbreaking: Building makes new ships. Repair fixes existing ones. Shipbreaking (ship recycling) cuts up old ships for steel. India is a world leader in shipbreaking, mainly at Alang in Gujarat.

Issues, criticism and the way forward

• Scale gap: China and South Korea build most of the world's ships. Catching up needs not just subsidies but large, modern yards and steady orders.
• Lower rates: Some private yards say the new rates are lower than earlier proposals, especially for small electric and green vessels.
• Missing parts industry: Many ship parts (engines, navigation systems) are imported, which reduces the local value added.
• Details still awaited: For the new insurance policies, coverage limits and claim rules will decide how useful they are.
• Way forward: Experts suggest steady domestic orders (government and PSU ships), cheaper long-term finance, a local parts ecosystem, and skilled workers.

Concepts to Know

• Gross Tonnage (GT): A measure of a ship's size based on the volume of all its enclosed spaces.
• Milestone payments: Paying a builder in parts as each stage of work is finished, like paying a house builder after the foundation, the walls and the roof.
• Premium: The fee paid to an insurance company to buy insurance cover.
• Greenfield and brownfield: Greenfield means building something new on empty land. Brownfield means expanding or upgrading an existing facility.
• Harmonised Master List of Infrastructure: The official government list of sectors that count as "infrastructure" and so get easier long-term loans.