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Correspondent

21 August 2024 at 10:20:16 am

Fuel Shock

The latest increase in petrol and diesel prices — the fourth hike in just 11 days — underlines how vulnerable India remains to geopolitical turmoil and its own unfinished reforms in the energy sector. Brent crude surged again after fresh American military strikes in southern Iran deepened fears of the renewal of the Iran conflict on a higher scale. Markets are now gripped by uncertainty as hopes of a negotiated settlement continue to fade. For a country like India, which imports more than 80...

Fuel Shock

The latest increase in petrol and diesel prices — the fourth hike in just 11 days — underlines how vulnerable India remains to geopolitical turmoil and its own unfinished reforms in the energy sector. Brent crude surged again after fresh American military strikes in southern Iran deepened fears of the renewal of the Iran conflict on a higher scale. Markets are now gripped by uncertainty as hopes of a negotiated settlement continue to fade. For a country like India, which imports more than 80 percent of its crude oil requirements, every geopolitical tremor in the Gulf quickly translates into pain at the fuel pump. Since May 15, petrol and diesel prices have risen cumulatively by nearly Rs. 7.5 per litre. In Hyderabad and Thiruvananthapuram, petrol has crossed Rs. 115 a litre. Mumbai, Kolkata, Bengaluru and Chennai are all witnessing sharp increases. Even Delhi, traditionally cushioned by relatively lower taxes, has seen petrol move beyond Rs. 102 per litre. This marks a significant shift after nearly four years of relative stability in retail fuel prices. For long periods, state-run oil marketing companies absorbed the burden of elevated crude prices, shrinking refining margins and a weakening rupee. Political considerations, particularly around elections, often delayed price revisions. The Rs. 2 per litre reduction announced ahead of the 2024 national elections was a reminder that fuel pricing in India has never been entirely divorced from politics. But oil companies cannot indefinitely absorb mounting losses, especially when global crude prices remain elevated. The Centre has already cut excise duties, with Finance Minister Nirmala Sitharaman estimating the revenue sacrifice at nearly Rs. 1 lakh crore. That fiscal cushion has now largely been exhausted. The spotlight is therefore shifting towards states. VAT on fuel remains one of the most lucrative revenue streams for state governments, with some states imposing levies exceeding 30 percent through taxes and cess components. This explains why states such as Telangana, Kerala and West Bengal continue to record some of the highest retail fuel prices in the country. The Centre is now subtly nudging states to reduce VAT rates to soften the blow on consumers. Yet states are reluctant. Their dependence on fuel taxes is structural, not incidental. Apart from excise on liquor, few revenue sources offer such steady and politically manageable returns. Bringing petrol and diesel under the GST framework continues to face bipartisan resistance from states fearful of losing fiscal autonomy. Rising fuel prices do not remain confined to petrol stations. They seep into every layer of the economy as transportation costs rise, food inflation accelerates and household budgets shrink. Small businesses, already coping with weak consumption and high borrowing costs, are facing renewed pressure. India’s recurring vulnerability to crude oil shocks exposes the limits of its energy security architecture. Expansion of strategic petroleum reserves and greater investment in renewable energy can no longer remain aspirational talking points. They must become urgent national priorities.

Indian Shipbuilding A Must Win Marathon

Shipbuilding

With a coastline of 7500 KM, it is hard to imagine, that for the first 20 years (1947-1967) India had no ‘shipping ministry’. In 1967 a Shipping ministry “coupled” with ROAD transport was established. Since then, this ministry has been on a name changing ride, not once, not twice but six times. In 2009 the “ROAD Transport and Highways” was de-coupled and ‘Shipping’ ministry was formed. Turning point came in 2015 with a clear maritime vision for 2030 and 2047. Ministry was re-christened, aptly to Ministry of “Ports, Shipping and Waterways” in 2020.


Why is Shipbuilding important for a country?

a. A Shipyard becomes an opportunity hub and like a queen bee requires the support of an industrial colony to manufacture machinery and equipment.

b. National Shipyards support fleet renewal needs of the Navy.

c. Contributes to national GDP, increases inflow of FOREX.


Korea shipbuilding is 8% of GDP. Japan’s automobile industry is 2.9% of GDP. India’s shipbuilding a meagre 0.000578% of GDP. In context, India’s pharmaceutical industry, ranked third largest in the world is 1.72% of India’s GDP.


International Shipbuilding Market

The market is estimated to reach around USD 200 billion by 2029, growing at a CAGR of 4.84%. While India is at bottom with 0.07% of world share, behind Philippines 1.5% and Vietnam 1%, however on the positive side, India has done well in taking care of its defence needs, with 37 of 39 Naval ships being built in India yards. Rear Admiral S Shrikhande researching on maritime as a Fellow at Wollongong University, Australia, says “Shipbuilding in India needs both, serious incentivisation and dogged determination and not harping on being a big ship breaking country. That Garden Reach shipyard has a $54 million order for merchant ships from a German owner, is a good sign.”


Were Shipyards of 20th century in Flight mode?

Prominent shipyards in India were built in the colonial period. Mazagon Dock 1774, Garden reach 1884, Hindustan shipyard 1941 to cater to British navy and merchant fleet needs. Cochin shipyard 1972, Adani Katupalli 2013, Reliance Naval and Engineering, Rajula Gujarat 1997 and others have limited capacity, hence a lot more work to do. Capt. Subhangshu Dutt (Singapore) a mariner and now a shipowner, says “GOI should hold hands in any collaboration till the marriage with the foreign entity is reasonably stable. He also suggests that “new shipbuilding sites should be given to existing successful shipyards since they have decades of experience and talent. Consortium of 3 or more parties may also be good idea”.


Shipbuilding GOLD

As per SPLASH report the demand for LCO2 carriers could reach 2,500 ships by 2050. As per other estimates, 40% of global fleet of ships could have wind propulsion by 2050. A surge in such vessels is due to an unparallel waves of decarbonization in the shipping industry. Demand for ships with ‘carbon neutral’ badges, such as Dual fuel, Wind assisted, Nuclear fuel ships, Hydrogen powered ships, Liquified CO2 (LCO2) carrier, is outstripping supply. A must in the ‘bucket list’ of every Shipyard. Pinning down a standard ROI in shipbuilding is not easy, but experts suggest it could range from 4% to 15% for the high demand ‘carbon neutral’ ships. While an LNG new build vessel could cost US$ 250 million upwards.


International collaboration

On China’s shipbuilding success story, Manoj Pandalanghat (Singapore) a mariner and ship owner believes that “China has around 50 active Shipyards. Each have a few large dry docks. In each dock two or more large vessels are built simultaneously. Thus, a single yard is able to roll out 2/3 vessels/month, 36 vessels/year and 50 shipyards roll out 1800 vessels/year”.


China could be a jaldi-5, but India needs a sturdy Mount Fiji. Besides technology, Japanese bring the most important hand baggage of soft-skills and culture, essential for success from keel laying to delivery. Maruti’s is a standing example.


Food for thought for New Delhi

a. Expertise: Hire Naval Architects and shipbuilding experts with current international experience.

b. Government assistance: Land, Financial support, subsidies and timebound clearances.

c. Monitoring: PMO should monitor the first 5 to 10 years till Shipbuilding takes-off on this long-haul flight to destination 2047.


India’s Shipbuilding is expected to grow to $237 billion by year 2047. On a back of the envelope calculations this works out to about 4% of India’s 2047 projected GDP of $ 5 trillion. While cars are driven on roads, however the Ministry of roads and transport has little to do with “Automobile manufacturing”. On a similar note, ‘Shipbuilding’ as an industry has little to do with Ports, Shipping and Waterways, thus it may be worthwhile to consider a separate ‘Ship-building’ wing in the Ministry of Ports, Shipping and Waterways headed by a dynamic cabinet rank minister. Since 2047 targets are stiff and an uphill task, so in all probabilities, the officials in Ministry of Ports, Shipping and Waterways are likely to push beneath the carpet, delays and failures of Shipbuilding with sweet success stories of “Ports, Shipping and Waterways” and if this does happen then India will not only miss the Shipbuilding bus of 21st century but a lot more from a national security and strategic perspective.


(The author is a Shipping and Marine consultant. Member Singapore Shipping Association and empaneled with IMO as a specialist consultant. Views personal.)

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