India Eyes $454M Plan to Boost Shipbreaking vs Bangladesh

Post by : Avinab Raana

Photo : X / Walter J. Lindner

India is readying a sweeping incentive plan of about Rs 40,000 crore (roughly US$454 million) to boost its shipbreaking yards and reclaim market share from Bangladesh and Pakistan. The plan, expected to roll out from 2026, aims to revive the industry, ensure environmental compliance, upgrade facilities, and make Indian yards more competitive in the global scrap ship market.

The Credit Note Scheme

At the heart of the proposal lies a “credit note” scheme. Under this, owners of end-of-life vessels who send their ships to Indian yards for dismantling would receive a credit note equalling 40 percent of the scrap value. That note could then be used within three years to buy vessels built in India. Owners could also combine several credit notes in one transaction or even sell them. This mechanism is intended to reduce cost burdens, encourage recycling in India, and promote domestic shipbuilding.

Why Bangladesh and Pakistan Became Tough Competitors

India once led in global ship recycling, especially via its massive Alang yard in Gujarat. But in recent years Bangladesh has taken a dominant share—recycling about 46 percent of the world’s end-of-life ships in 2023, while India accounted for about 33 percent. Cheap labor, proximity to major shipping routes, and favorable policies have helped Bangladesh grow. Pakistan has also been eating into India’s share. Industry watchers note that without attractive incentives India’s cost disadvantage on labor, shipping, compliance and yard upgrades make it hard to win global business.

Incentives Over A Decade: Timeline & Approval

The government plan intends to spread the incentives over ten years, beginning in 2026. Final approval by the Cabinet is expected by end of September. The long horizon is deliberate: shipbreaking is capital-intensive and sensitive to global freight and scrap trends. Ten years gives yards time to upgrade, become green certified, invest in safety infrastructure, and build capacity to handle more ships while meeting international environmental standards.

Alang and an East Coast Yard

India’s western shipbreaking site at Alang gets most of the incoming ships already. About 98 percent of Indian ship recycling business flows through Alang-Sosiya. However the plan also considers establishing a new facility on India’s east coast. Doing so would reduce dependency on a single geography, allow shipowners from the Bay of Bengal region or further east to avoid long repositioning costs, and enhance India’s geography-based competitiveness versus Bangladesh.

Boosting Environmental Standards

Alongside economic incentives, India also wants shipbreaking yards to meet stricter environmental, safety and worker welfare standards. Many yards already pursue “green certification” and Statements of Compliance under the Hong Kong International Convention. This is increasingly important because many international shipowners now prefer or require that demolished ships be recycled in yards adhering to environmental norms including hazardous waste management, safe disposal of toxic materials like asbestos, heavy metals, oil residues etc.

Reviving Alang’s Capacity & Revamping Infrastructure

The yard at Alang, Gujarat, has huge capacity 4.5 million light displacement tonnage (LDT) across many plots. But years of lower ship arrivals, rising costs, environmental compliance pressure and labor costs have led to under-utilization. Many yard plots lie idle. The proposed incentive scheme is aimed at reactivating those plots, encouraging yard owners to invest in better infrastructure, modern equipment, improved safety gear, and clean-up operations. The yard will need to handle greater volume while also protecting worker health and coast ecosystems.

Incentives Beyond Credit Notes

In addition to the 40 percent scrap-value credit note, the government is also devising other support measures: better customs/exemption on raw materials for shipbuilding, support for green yards, financial assistance for yard modernization, favourable policy on permits and clearances, etc. Earlier budget statements have included proposals to extend customs duty exemptions, enhance shipbuilding cluster schemes, and integrate ship recycling more directly into India’s naval and maritime development framework.

Economic Benefits for India

If implemented well the incentive scheme could have multiple economic benefits. First more jobs during demolition, scrap processing, refurbishment of yard infrastructure, waste management, safety compliance etc. Then steel and non-ferrous metals recovered from dismantled ships feed into Indian steel industries, reducing import dependence. Also shipowners who buy domestically built vessels using credit notes boost demand for shipbuilding, aiding yards and suppliers. Global owners may prefer Indian yards if policies make them price-competitive versus Bangladesh or other competitors.

Risks and Challenges Ahead

The plan is ambitious and faces many risks. Shipowners consider transport costs, environmental compliance costs, and turnaround times. If Indian yards cannot match speed, cost or regulatory clarity of Bangladesh, the incentives may not sway them. Also building or upgrading green certified yards costs a lot. Environmental policing and enforcement must be credible. Worker safety and toxicity control will matter. Corruption or delays in approvals may deter investment. Also global shipping trends or freight rate cycles affect when ships are retired and sent for dismantling.

Global Maritime Trends Favor Recycling Incentives

There is growing global pressure on shipping to clean up, reduce emissions and improve end-of-life ship recycling. Many Western shipowners are under regulation (or customer demand) to ensure ships are recycled in environmentally sound yards. Rising costs of scrap shipping and tighter environmental regulation globally increase the weight of compliant yards. India’s move aligns with this trend, if its incentives and policies help yards meet international expectations, more ships may choose Indian recycling yards.

Policy Framework and Government Vision

India’s Ministry of Ports, Shipping and Waterways is pushing this proposal. It fits into broader programs like the National Shipbuilding Policy, the Maritime Development Fund, and earlier ship recycling or shipbreaking credit note proposals. The Budget 2025-26 announcements already made this a priority: allowing credit notes, duty exemptions, support for infrastructure and green yards. The incentive plan is part of India’s effort to reduce dependence on foreign ship-builders, grow domestic maritime capability, support circular economy, and gain leadership in ship recycling.

What Bangladesh Will Likely Do

Bangladesh has long held the top spot in ship recycling globally. But pressures are mounting: global compliance standards, cost pressures, stricter environmental regulation, rising labor costs, and now competitor incentives from India. Bangladesh may respond by improving yard certifications, investing in green yard infrastructure, negotiating subsidy or incentive schemes at its government level, or reducing import-scrap processing cost to retain business. Competition may intensify globally for end-of-life ship orders.

Investor and Industry Reactions

Shipbreaking yards in India, especially in Alang, have welcomed news of potential incentives. Yard operators see opportunity to revive unused plots, invest in modern equipment, reduce operating costs and attract more orders. Steel mills are interested too because more scrap input means cheaper raw material input. Financial institutions may see credit business in financing upgrades. International shipowners will watch policy detail—how credit notes are implemented, how environmental certifications are audited, how export or import restrictions are handled.

Worker Welfare and Environmental Safeguards

Shipbreaking is hazardous work. Injury, pollution, toxic waste, worker safety, coastal environmental damage are ongoing concerns. India’s regulatory system will need to ensure that yards using the incentive scheme maintain safe working conditions, provide protective gear, properly manage waste, treat wastewater, reduce air and noise pollution, and comply with environmental norms. Monitoring and enforcement must be strong and transparent to ensure the industry does not undercut safety or environment in the race to win global business.

Timeline and What to Expect Now

Final cabinet approval is expected soon, likely by end September. Beginning from 2026, incentives will be phased in and spread over ten years. Shipbreaking yards will start preparing for green certification or upgrade, government will specify the rules for credit note usage and trade. Investors and shipowners will monitor details: what vessels qualify, how scrap value is calculated, how credit notes are transferable or sellable. Also, if plans for the east coast yard move ahead or not. Implementation details will determine whether India can reclaim or expand its global share.

What This Means for Global Shipowners

Shipowners disposing of end-of-life vessels will see new choices. Indian yards may become more financially attractive versus Bangladesh or Pakistan, especially if transport costs and other fees are not too high. Simply put, if credit notes reduce effective costs, Indian yards become more competitive. Owners with green compliance or corporate environmental targets may also favour yards with certification and improved safety. The market for ship recycling may shift significantly over coming years, with order flows changing.

Environmental Impact and Circular Economy Gains

Recycling ships prevents waste, reuses steel and metals, reduces reliance on mining and lowers carbon emissions from shipping of raw materials. Growing recycling inside India supports circular economy goals. Less import of scrap steel and reuse of materials can reduce the carbon footprint. Coastal areas that host shipbreaking need protection, but better environmental practices can reduce pollution. If India’s incentive scheme also mandates or supports green yards, waste management and pollution controls then environmental gain could be substantial.

A High-Risk, High-Reward Gamble

India’s Rs 40,000 crore incentive scheme for the shipbreaking industry is ambitious. It aims not just to protect yards that have languished, but to significantly upend the global competition. If India executes well it could regain leadership, build more downstream industry, support jobs, extract value from reused materials, and reinforce environmental compliance. But the plan carries risk: policy slipups, implementation delays, cost overshoots, environmental backlash or failure to match buyers’ cost expectations.

This move matters not just for Alang or Gujarat, but for India’s maritime future. If India can deliver on policy, compliance and competitiveness then the ship recycling landscape may shift for decades. For workers, yard owners, shipowners, steel industry and environmental stakeholders this is a moment of opportunity and responsibility.

Shipbreaking incentives, India ship recycling, Credit note scheme