Why a progressive approach to naval shipbuilding is needed

As India transitions to the Amrit Kaal, the development of its maritime economy is going to be essential. In this context, the proposal to set up a Maritime Development Fund (MDF), with a corpus of Rs25,000 crore, is a brilliant idea. This fund is envisioned as a corporate entity with a 21 per cent government stake. The rest of the money will be pooled from various sources, including foreign direct investment. The aim here is to revitalise our maritime infrastructure and rejuvenate the shipbuilding sector. Of course, much depends on the effective deployment of the fund to ease the business, to build world-class infrastructure and enhance productivity.

Shipbuilding

Shipbuilding comprises four segments―naval shipbuilding, commercial shipbuilding, specialised ships and large deep-sea fishing vessels. Smaller craft, such as small fishing boats, sailing craft, yachts and pleasure craft, are not included in ‘shipbuilding’ per se, but it is a segment with potential.

India’s share of global shipbuilding is a measly 0.06 per cent. In stark contrast, China, Korea and Japan account for more that 85 per cent of global shipbuilding. There is definitely something right that these countries are doing and India is not. After all, building world-class ships is well within our national capability. This is among the many aspects of maritime infrastructure in India that needs correction.

Naval shipbuilding

Naval shipbuilding involves constructing warships and submarines―tasks far more complex than building commercial ships. In general, warships and submarines are smaller and hence their design intricacies are complex. Their robustness, redundancy, shock resistance and damage control standards are stringent. Additionally, their safety requirements are extensive, as they must carry ammunition, operate aircraft and fight through damage in combat.

The overall technical complication is high because of the need to integrate weapons, sensors, machinery and equipment. Despite these challenges, India’s naval shipbuilding has progressed faster than its commercial counterpart, primarily due to two reasons:

1 The Navy has been ahead of its time, setting up its ship-design organisation in 1964. The Navy inducted its first indigenously built patrol craft―INS Ajay―built by Garden Reach Shipbuilders & Engineers Ltd (GRSE) in 1961. The first Indian designed and Mazagon Dock Shipbuilders Limited (MDSL)-built major warship―INS Nilgiri―was commissioned into the Navy in 1972. Since then, the Navy has not looked back, and the fledgling design organisation has transformed into a full-fledged and professionally staffed Warship Design Bureau (WDB).

2 The lack of progress in commercial shipping and other maritime infrastructure can be attributed to India’s traditional maritime blindness. Fortunately, the past two decades have seen greater awareness of the benefits of a robust maritime sector.

Public sector shipyards

Most naval ships are built in public sector shipyards. Of these, four, namely MDSL, GRSE, Goa Shipyard Ltd (GSL) and Hindustan Shipyard Ltd (HSL) are Defence Public Sector Undertakings (DPSUs) and one, Cochin Shipyard Ltd (CSL), is administered by the ministry of ports, shipping and waterways (MoPSW). Very few hulls have been built outside these yards and the experience has been less than satisfactory.

What ails naval shipbuilding?

Several impediments stand in the way of efficient naval shipbuilding. These impediments create an unfavourable environment for productivity of shipyards. Since all shipyards and the Navy are government entities, these inefficiencies are tolerated in the interest of national security. In general, this government-predominant ecosystem for shipbuilding has a reputation of being inefficient.

Single buyer, many sellers

The Navy is the only buyer since India is not yet seriously in the warship export game. Also, capacity constraints of the existing shipyards do not permit them to look seriously at exports without meeting the demands of maritime forces. So, effectively, the five public sector shipyards are the only sellers.

Seen in another perspective, the government of India is the only buyer and the government of India is the only seller, through five of its vendors. Therefore, there is a desire on the part of the government to distribute the orders equitably among its vendors. It is not that there is lack of orders. The Navy has extensive requirements, and the order books of DPSUs are filled for several years.

This sharing of the pie results in ineffective economies of scale. If seven or eight ships of the same type are to be constructed, and their production is distributed across two or three yards, none of the yards will be able to achieve the benefits of economies of scale. Further, there are likely to be variations in quality and integration among ships constructed by different shipyards.

The solution lies in nominating shipyards based on their proven track record and capacity. Assigning an entire series of seven or eight ships to one yard, and another series to a different yard would benefit both the shipyards and the Navy. For example, it is known that MDSL has expertise in building large warships, corvettes and conventional submarines. There is no sense in some other yard even competing for construction of submarines. Similarly, GRSE has rich experience in tankers, landing ships, corvettes and survey vessels.

It is heartening to observe that in some of the Navy’s newer projects, the entire line of ships has been ordered from a single shipyard.

Overriding financial considerations and undercutting competitors

The principal weakness in the government-run procurement process is overriding financial considerations. In short, the lowest bidder (L1) wins the contract. There is an added convolution in procedure. Say 10 ships are to be built and the government decides that it will give five each to two shipyards. So, it calls upon the second lowest bidder (L2) to build five at the cost of L1. In all probability, L1 would have under-quoted to obtain the contract or to maintain a healthy order-book position.

This is a triple whammy―forced losses, no economies of scale and resultant poor quality of construction by L2. If you went to buy onions and were offered rotten ones at a lower price than those of superior quality, would you buy the rotten onions? Certainly not.

An alternative to this self-defeating L1 methodology has to be found. There is enough experience in the ministry of defence and the Navy to determine if a shipyard has under-quoted. Such bids must be disqualified. A percentage variation of the benchmarked cost should be acceptable rather than going blindly for the L1 methodology. Greater weightage could be accorded to technical matters and proven yard performance.

Delays in procurement process

A common grouse of shipyards is that the procurement process―from Acceptance of Necessity (AoN) to signing of contract―is too protracted. Though timelines are laid down in the Defence Acquisition Process 2020 (DAP 20), they are often exceeded due to various reasons. As a result, costs inflate over time and shipyards find it impossible to hold the old quotations, but they often have no choice in the matter. Not just that, shipyards observe that concept and functional designs by the WDB are not available in good time, leading to delays in construction and delivery.

This is purely procedural and can be overcome by adhering to procurement process timelines. Further, the stages of procurement must be linked to the timeline for the commencement of the design process by the WDB. The linkage will ensure that the shipyard has adequate time to prepare its detailed drawings efficiently.

Standardising hull designs

Every indigenous class of ship designed by naval designers has a different hull design. The hull design is determined by the ship’s intended role, as well as the size and tonnage required to accommodate the selected machinery, equipment and crew.

Ideally, the standard fitting of major equipment should not require significant modifications to hull designs for similar roles and tonnage. However, this is not possible over long periods of time as newer technologies often force a change in machinery and equipment.

Having a few standardised hull designs will cut down on design effort, and make the shipbuilding process more efficient. The Navy could consider standardising six hull sizes based on tonnage categories―100-200 tonnes, 300-500 tonnes, 1,000-2,000 tonnes, 3,000-5,000 tonnes, and 6,000-8,000 tonnes. These hulls could easily accommodate all classes of small and large warships except tankers, amphibious ships, aircraft carriers and special purpose ships for which separate designs would be necessary.

Changing requirements

The Navy is responsible for formulating and finalising Staff Qualitative Requirements (SQRs). These SQRs are the foundations upon which the ship is eventually designed and constructed. These have to be prepared carefully and frozen at some stage so that the rest of the process can move smoothly.

The AoN for ships, which serves as the initial level of approval, is typically granted based on Outline or Preliminary Staff Requirements (OSRs or PSRs), with detailed staff requirements prepared subsequently. Finalising SQRs is a pre-requisite for undertaking the concept and functional designs at the WDB, which in turn forms the basis of detailed design and construction drawings at the shipyard.

Preparation of SQRs is a complex task with technologies and equipment becoming obsolete every few years. There are also requirements of fielding newly developed and indigenous equipment which necessitate some changes.

The solution lies in intelligent formulation of SQRs, finalising them early and completing the concept and functional designs in good time. Later, modifications could be initiated under a consultative process with all stakeholders. However, this problem is unlikely to be eliminated and allowances should be made for changes in the project cost and timeline.

Buyer nominated and buyer furnished equipment

Dissonance also arises between the Navy and the shipyards regarding Buyer Nominated Equipment and Buyer Furnished Equipment (BNE and BFE). As the names suggest, the Navy, as the buyer, either nominates vendors for sourcing specific equipment or directly procures the equipment from manufacturers to supply to the shipyard. These decisions are often driven by considerations such as R&D requirements, import needs, quality control, or inventory management.

Shipyards, however, argue that the list of nominated vendors for certain equipment is often too limited―sometimes comprising just a single source. This entails dependence on very few sources or overloading of a particular vendor with consequent time delays. They also say that the Navy overlooks several competent vendors, thereby narrowing choices.

On closer examination, it has been found that there are firms competent to manufacture and supply quality products in India which do not wish to get involved in naval shipbuilding because of tiresome testing, inspection and payment processes. Shipyards also feel that naval manufacturing standards are sometimes unrealistic whereas the Navy argues in favour of extra robustness and redundancy.

There is a need for greater dialogue between the Navy, shipyards and equipment manufacturers to enhance sources of supply for equipment, rationalise manufacturing standards, ease testing and inspection, as also make payment procedures quick, easy and totally transparent. This is one area that is susceptible to unfair practices and a strong vigilance oversight is recommended.

Dual inspections

A newly built ship and its equipment need to be inspected by competent agencies. These could be done either by the Navy, when inspections are to be undertaken as per naval engineering standards, or by competent civilian agencies such as the Indian Register of Shipping. Ships are, therefore, built either to naval standards or to class specifications. In specific cases, dual inspections are specified, which require more time and effort. Sometimes, naval and class inspection standards don’t match―creating avoidable complications.

In case dual inspections are necessary, they must be de-conflicted so that one equipment or system is not subjected to dual inspection, the requisite inspection agency clearly decided in advance and additional cost or time built into the contract.

Level-playing field: public and private enterprises

With private players such as Larsen & Toubro making an entry into naval shipbuilding, there are periodic pleas by them to be afforded a level-playing field vis-a-vis PSU shipyards. The rationale for such demands is that PSU shipyards have full government support and have their land, infrastructure and other facilities funded by the government, while private players have to fend for themselves and incur greater establishment costs.

As a counter, PSU shipyards argue that only they are subject to government strictures on procurement such as mandatory utilisation of the Government e-Marketplace and compulsory procurement of a large percentage of goods from medium, small and micro enterprises notwithstanding their capabilities, expertise or quality processes. Their inability to float global tenders unless all indigenous avenues are exhausted is another source of frustration. None of these applies to private entities, they argue.

Therefore, the government must address what constitutes a level-playing field that is in the interest of all stakeholders and beneficial to indigenous naval shipbuilding.

Conclusion

To claim that naval shipbuilding is one of India’s post-independence success stories is only partially true and a rather self-pacifying narrative. The PSU shipyards have indeed built ships over the last six decades, but collectively, India could do much better. Shipbuilding projects have―almost without exception―incurred time and cost overruns and forced quality compromises, eventually impinging upon the fighting efficiency of the Navy.

There are matters to be set right at every stage―from initial planning to final construction and delivery to the Navy. No single agency can be blamed because the malaise is systemic. Impediments are known to all who matter. Solutions are also known to all who matter. The will to make essential course corrections requires a few good people who can abandon the beaten path and take on a more progressive approach to naval shipbuilding.

Dasgupta is a former commander-in-chief of the eastern naval command.