MoST does away with interest subsidy scheme, allows ECB

In the earlier scheme, loans at concessional rates of 9 per cent to the extent of 80 per cent of the cost of a ship were provided to shipping companies placing orders with Indian shipyards. The interest subsidy was administered by the transport ministry and funds were routed through the shipyards.

Though the interest subsidy facility was available for two years (from September, 1993 to August, 1995) not many shipping firms placed orders with Indian shipyards as they were required to share the 30 per cent subsidy — the buyer was to pay 10 per cent subsidy — with the government.

In fact, only one major company sought interest subsidy in 1995 for its bulk carrier order to the Visakhapatnam-based Hindustan Shipyard Limited (HSL). Even bofore the firm could take advantage of the facility its project ran into problems due to financial problems.

However, all the seven shipyards — Hindustan Shipyard Limited, Mazagon Dock Ltd, Cochin Shipyard Ltd, Garden Reach Shipbuilders and Engineering Ltd, Goa Shipyard Ltd, Hooghly Dock and Port Engineers Ltd and Rajabagan Dock had sought continuation of interest subsidy.

In fact, the Goa Shipyard Ltd wrote to the Ministry, saying that the Indian shipyards were facing unfair competition because they had to pay approximately 18.75 to 3.5 per cent interest on bank overdrafts for working captial for rupees and forex, respectively against 6 to 7 per cent interest paid by most maritime countries.

While Japan grants loans at the rate of 8 per cent to its ship owners for construction of vessels in Japanese shipyards, the Korean Development Bank gives 90 per cent of the vessel construction cost at the rate of 9.4 per cent. In Brazil, loans for ocean-going vessels are made available for 15 years at 6 per cent.