Inside India’s US$4.9 Billion Strategy to Build a Competitive Shipbuilding Industry

The central government has issued detailed operational guidelines for two major shipbuilding initiatives, i.e., the Shipbuilding Financial Assistance Scheme and the Shipbuilding Development Scheme. The schemes aim to scale up India’s domestic shipbuilding capacity, lower entry barriers for global players, and reposition the country as a competitive maritime manufacturing hub.

The Union Ministry of Ports, Shipping, and Waterways (MoPSW) has released operational guidelines for two key shipbuilding programs intended to expand domestic shipbuilding capabilities and enhance India’s competitiveness in the global maritime industry. The guidelines were announced on December 27, 2025.

The two initiatives, the Shipbuilding Financial Assistance Scheme (SBFAS) and the Shipbuilding Development Scheme (SbDS), have a combined financial allocation of INR 447 billion (US$4.9 billion).

According to MoPSW, the guidelines for the initiatives establish a clear, transparent, and accountable implementation framework. They set out provisions for financial incentives, infrastructure creation, technological development, and risk management measures to support the long-term growth of India’s shipbuilding sector.

SBFAS: Boosting domestic orders

SBFAS constitutes a central element of India’s shipbuilding policy architecture, aimed at consolidating domestic shipbuilding capabilities and supporting innovation across the maritime value chain. SBFAS has a budgetary outlay of INR 247.36 billion (US$2.7 billion).

Over a 10-year period, the SBFAS is expected to facilitate shipbuilding activity of approximately INR 960 billion (US$10.65 billion) while supporting employment generation across shipyards, marine equipment manufacturing, and related ancillary industries.

The scheme is structured around three key components.

Component I: Financial assistance for vessel construction

The objective of the scheme is to provide direct financial support to Indian shipyards in order to offset cost differentials, enhance price competitiveness, and encourage domestic vessel construction. The incentive is structured in three tiers:

• 15 percent financial assistance for vessels with a contract value below INR 1 billion (US$11.09 million)
• 20 percent financial assistance for vessels with a contract value above INR 1 billion (US$11.09 million)
• 25 percent financial assistance for green, hybrid, or specialized vessels

Eligibility under the scheme is subject to a minimum DVA of 30 percent, reinforcing local manufacturing, supply chain development, and the indigenization of marine equipment and components.

Financial assistance will be disbursed in a phased, milestone-linked manner, aligned with clearly defined stages of vessel construction and supported by appropriate security mechanisms. The component will remain operational until March 31, 2036.

In addition, the framework provides for incentives on series orders, aimed at promoting economies of scale, improving operational efficiency, and enabling predictable long-term production planning.

Component II: Shipbreaking credit note mechanism

This component introduces a structured linkage between ship recycling and new vessel construction, supporting a circular economy approach within the maritime sector. Ship owners scrapping vessels at Indian shipyards will receive a credit note equivalent to 40 percent of the vessel’s scrap value.

• Credit notes may be redeemed against the cost of constructing a new vessel at an Indian shipyard
• The credit notes are transferable, stackable, and valid for a period of three years, providing operational and financial flexibility

A total outlay of INR 40 billion (US$443.77 million) has been earmarked for this component.

Component III: National shipbuilding mission

The National Shipbuilding Mission serves as the institutional mechanism for coordinated planning, governance, and execution of shipbuilding initiatives under the SBFAS framework.

Key functions include:

• Strategic oversight of national shipbuilding programmes across sectors
• Fund administration, including application evaluation, claim verification, and timely disbursement
• Demand aggregation and procurement coordination to support structured and predictable order flows
• Facilitation of global partnerships to enhance technology access and domestic capability development

SbDS: Infrastructure-led capacity expansion

The SbDS, with a budgetary allocation of INR 199.89 billion (US$2.2 billion), is designed to support long-term capacity and capability creation across India’s shipbuilding ecosystem. The scheme focuses on addressing structural infrastructure gaps by enabling large-scale investments in shipbuilding facilities, technology, and skill development.

Key components of the scheme include the development of greenfield shipbuilding clusters, the expansion and modernization of existing brownfield shipyards, and the establishment of an India Ship Technology Centre under the Indian Maritime University to support research, vessel design, innovation, and workforce skill development.

In addition, the SbDS introduces a Credit Risk Coverage Framework, providing government-backed insurance for pre-shipment, post-shipment, and vendor-default risks.

Near-zero-cost land as an investment enabler

A central feature of the greenfield shipbuilding cluster framework under the SbDS is the provision of land at near-zero cost, aimed at reducing upfront capital requirements and mitigating long-gestation risks associated with large-scale shipyard development.

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Land and common maritime infrastructure will be leased to participating shipyards for a period of 60 years, with provisions for extension. While a nominal lease rental will be payable, the cost of land will be largely absorbed by the Central and State governments, substantially lowering project entry barriers.

Under the guidelines, land earmarked for each cluster will be transferred at a notional value of INR 1 (US$0.01) to a Special Purpose Vehicle (SPV) established as a joint venture between the centre and the respective state, or wholly owned by the Centre or its agencies. Where government land is not available, states may acquire land at their own cost, in addition to extending applicable industrial or maritime policy incentives.

Structure and scale of greenfield shipbuilding clusters

The scheme envisages the development of three to four shipbuilding clusters across coastal states, with a limit of one cluster per state. Each cluster will be allocated approximately 2,000 acres of land, of which around 1,000 acres will be designated for one or more shipyards, and the remaining area earmarked for ancillary industries, logistics facilities, training institutions, and supporting infrastructure.

Each cluster is planned with a manufacturing capacity of approximately 1 million to 1.2 million gross tonnage (GT). At least one Anchor Shipyard within each cluster must have a minimum design capacity of 0.5 million GT per annum, to be achieved within 10 years of commissioning. Anchor Shipyards will be required to provide a binding commitment not to divest, transfer, lease, or repurpose the facility for non-shipbuilding activities for a minimum period of 10 years, unless approved by the National Shipbuilding Mission.

According to the MoPSW estimates, establishing a greenfield shipyard with an annual capacity of 0.5 million GT would require an investment exceeding INR 150 billion (US$1.66 billion).

Role of special purpose vehicles (SPV) and private investment

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The SPV will be responsible for developing and managing common maritime infrastructure, overseeing operations and maintenance, providing access to shared maritime assets, and developing internal connectivity, including roads, rail links, and utilities. The SPV will also play a key role in attracting investments from shipyards and ancillary industries within the cluster.

Participating shipyards will invest in yard-specific infrastructure, equipment, and operational facilities on a commercial basis and will pay an agreed annual lease or concession fee to the SPV. This fee is expected to remain nominal, reflecting the government’s assumption of land costs and investment in common infrastructure.

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Industry assessment and investment sentiment in India’s shipbuilding sector

Industry stakeholders have broadly viewed the near-zero land cost framework as a significant structural incentive for both domestic and international shipbuilders. Sector experts note that the capital-intensive nature of shipbuilding, coupled with historically high land acquisition costs, has constrained large-scale investments in India. The current policy framework, when combined with shared infrastructure development and targeted financial incentives, is expected to materially enhance India’s cost competitiveness relative to established shipbuilding hubs such as China, South Korea, and Vietnam.

At the same time, industry participants highlight that the success of the framework will depend on effective and consistent execution. Key implementation priorities identified by the industry include streamlined regulatory approvals, the availability of a skilled marine workforce, improved access to financing for Tier-2 and Tier-3 suppliers, and stronger coordination between central and state authorities to ensure timely project delivery.

Strategic alignment with India’s maritime vision 2047

India’s current shipbuilding capacity is estimated at approximately 100,000 gross tonnage (GT), significantly below global benchmarks. Under its long-term maritime strategy, India aims to rank among the top 10 shipbuilding and ship-owning nations by 2030, with an ambition to reach the top five by 2047.

Achieving these objectives would require a substantial scale-up, including a seven-fold increase in ship ownership to around 100 million GT and a forty-fold expansion in annual shipbuilding capacity to approximately 4.5 million GT by 2047. The combined implementation of the SBFAS, the SbDS, and the greenfield shipbuilding cluster framework is expected to play a central role in supporting this transition by addressing structural cost barriers, expanding capacity, and strengthening ecosystem-wide capabilities.

(US$1 = INR 90.11)

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