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Maritime Development Fund (MDF) to boost Ship- Building Industry
Context:
- India’s Rs 30,000 crore Maritime Development Fund (MDF) is attracting substantial interest from both domestic and international financial institutions, a development highlighted by the recent 20th Maritime State Development Council (MSDC) meeting in Goa, which marked a significant advancement for India’s maritime sector.
- Alfred Thayer Mahan’s famous concept, “Who controls the sea controls the world,” underscores the strategic importance of maritime industry for global dominance. Control of sea routes has historically been crucial for trade, military influence, and geopolitical power.
India’s shipbuilding industry
- The fund will promote domestic shipbuilding of all types and sizes to reduce India’s dependence on foreign ships.
- India holds less than 1 percent of the global shipbuilding market, which is dominated by China, South Korea, and Japan.
- India aims to achieve 5% of the global shipbuilding market According to Maritime India Vision 2030 policy.
- In 2022, India was ranked 18 th globally in ship owning, controlling a meagre 1.4 percent of the global tonnage.
- In comparison, India’s EXIMtrade is about 11 percent of the global seaborne cargo trade,and this share is expected to rise to 30 percent by 2047.
India’s Maritime Industry
- India’s maritime sector is experiencing rapid growth. Recently, the foundation stone for India’s 13th major port, worth ₹76,220 crore, was laid at Wadhwan, Maharashtra.
- Galathea Bay in the Andaman and Nicobar Islands is set for a major port development through a ₹44,000 crore public-private partnership, with Phase I expected by 2029.
- The Sagarmala programme, approved in 2015, involves 839 projects by 2035 with a ₹5.79 trillion investment.
- So far, 262 projects costing ₹1.40 trillion have been completed, and 217 projects valued at ₹1.65 trillion are underway. These efforts involve coordination among Union ministries, state governments, major ports, and other agencies.
About Maritime Development Fund:
- The MDF will have two components – one playing an ‘enablement’ role and the other essaying a ‘commercial’ role as an alternate investment fund.
- The commercial component of the Maritime Development Fund (MDF) will secure equity funding from national and international financial institutions, institutions based in IFSC-GIFT and the The National Investment and Infrastructure Fund (NIIF).
- The ‘enablement’ role of MDF includes extending risk cover such as pre-shipment, currency risk, refund guarantee, import advance payment, buyers and vendor default risk cover etc.
- The corpus of the Maritime Development Fund (MDF) will be used to provide equity support to shipping companies, shipyards, and other maritime infrastructure for capacity expansion.
- It will also fund the Ship Owning and Leasing Entity (SOLE) and invest in companies developing alternative fuel infrastructure (like hydrogen and methanol). Additionally, it supports retrofitting and the adoption of alternative fuels by ship owners.
The Ship Owning and Leasing Entity (SOLE) is a proposed structure aimed at facilitating the acquisition and leasing of vessels. It will enable Indian companies to increase their ownership of ships while reducing the cost of leasing vessels from foreign owners. This initiative will help India build a larger, more self-reliant maritime fleet and reduce dependence on foreign shipping, in line with the Maritime Development Fund’s broader goals.
- The Maritime Development Fund (MDF) aims to provide equity support to non-banking financial companies (NBFCs), such as the state-run Sagarmala Development Company Ltd.
- The government will contribute ₹15,000 crore (49%) to the Maritime Development Fund (MDF), with the remaining 51% sourced from quasi-government entities, private equity investors, and public sector undertakings (PSUs). All 12 major Indian ports will also be active equity partners in the fund.
- It will be similar to the National Bank for Financing Infrastructure and Development (NaBFID), but will have a dedicated focus on the maritime sector.
- MDF will also support the development of cruise tourism, expand port capacity, promote coastal shipping, and develop inland waterways through public-private partnerships (PPP).
Reasons or need of MDF:
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- Sea Freight Costs: In FY20, India paid $85 billion in sea freight, with $75 billion going to foreign shipping companies, resulting in significant foreign exchange outflow.
- Decline in Indian Fleet Share: The share of overseas cargo carried by Indian-flagged vessels dropped from 40.7% in 1988 to 5.4% in 2022.
- Freight Charges: Between 2008 and 2021, reliance on foreign fleets for export-import cargo led to outbound freight charges totaling $637 billion.
- Geopolitical Risks: The importance of controlling shipping is heightened by geopolitical tensions, such as the COVID pandemic, Russia-Ukraine conflict, and Red Sea crisis.
- National Fleet: A strong national fleet is viewed as crucial for mitigating supply chain disruptions and geopolitical risks.
Funding Challenges:
- Debt financing is available but requires commercially viable projects with ensured revenue and cash flow.
- Banks have been hesitant to provide credit for shipbuilding due to historical challenges, though there is some willingness to finance emerging blue economy projects.
Major outcomes of the 20th Maritime State Development Council (MSDC):
- Announcement of a major shipbuilding park spanning multiple states to foster greater efficiency and drive innovation in shipbuilding capabilities.
- The MSDC also tackled new challenges like setting up safe havens for distressed ships and improving port security with equipment to detect radioactive materials.
- They discussed better working conditions for seafarers, including easier shore leave. Additionally, they talked about introducing a ranking system for states and ports to encourage competition and boost performance in India’s maritime sector.
MSDC’s Impact and Initiatives:
- Policy Alignment: MSDC has aligned policies such as the Indian Ports Bill and the Sagarmala programme, contributing to the growth of over 50 non-major ports, which now handle over 50% of India’s cargo.
- Role of Non-Major Ports: As major ports approach saturation, non-major ports will be vital for the future of India’s maritime sector.
- New Platforms: The National Safety in Ports Committee app was introduced on the National Single Window System to streamline maritime business, enhance efficiency, and reduce costs through real-time monitoring and improved information sharing.
- Dispute Resolution: The Indian International Maritime Dispute Resolution Centre was launched to effectively address maritime disputes, marking a significant milestone.
