The Government of India has notified the Modified Guidelines for Implementation of the Shipbuilding Financial Assistance Scheme (SBFAS), marking a significant recalibration of fiscal support for India’s shipbuilding sector. Issued by the Ministry of Ports, Shipping and Waterways on 7 January 2026, the revised framework consolidates incentives, introduces clarity on eligibility, and aligns financial assistance with domestic value creation.
Objective and Coverage of the Scheme
SBFAS applies to shipbuilding contracts signed from 24 September 2025 and remains operational for approvals granted up to 31 March 2036. The scheme is applicable to all shipyards located in India and covers a wide spectrum of commercial, specialised, and green vessels, subject to defined exclusions.
Notably, shipyards that executed contracts during the overlap period between the earlier Shipbuilding Financial Assistance Policy (SBFAP) and SBFAS (earlier scheme) are permitted to choose the more beneficial regime on a contract-by-contract basis.
Financial Assistance Structure
The scheme adopts a graduated incentive model, linked to number of vessels ordered, vessel category and contract value with a rider that the delivery time lines for the vessels is between 4 to 6 years. Small normal vessels attract assistance at 15%, while large normal vessels receive 20% on value exceeding INR 100 crore (around USD 11million). Specialised vessels—including offshore units, LNG/LPG carriers, green-fuel vessels and, pursuant to the 2026 addendum, chemical tankers—qualify for enhanced assistance of up to 25% on the incremental value.
Disbursement is milestone-based, released at keel laying (30%), launching (40%), and delivery (30%), subject to security instruments and documentary compliance.
Domestic Content and Timelines
A key policy lever under SBFAS is the Domestic Content Requirement. Vessels with less than 30% domestic content are excluded, while partial or full assistance is granted on a pro-rata basis once thresholds of 30% and 40%are crossed.
Strict construction and delivery timelines are prescribed, though the scheme allows extensions in bona fide force majeure situations, subject to scrutiny by the Institutional Mechanism.
Shipbreaking Credit Note: Circular Economy Incentive
SBFAS introduces a market-oriented Shipbreaking Credit Note mechanism, granting vessel owners 40% of the fair scrap value when eligible vessels are recycled in India at HKC-compliant yards. These credits are transferable, stackable, and tradable, and may be redeemed against new shipbuilding orders, capped at 5% of the fair price of the new vessel. This feature links ship recycling, fleet renewal, and domestic shipbuilding into a single incentive loop.
The SBFSA also contemplates Shipbreaking Credit Note can be transferred or sold to any other entity who wishes to use it towards building a new Vessel in India. Transfer is effected/ executed via the online portal. For the transfer of a Shipbreaking Credit Note to another buyer such as A sale/ transfer agreement between the original holder and the new buyer, clearly stating: Shipbreaking Credit Note number, value of transfer, date of transfer, terms and conditions of transfer, signatures of both parties.
Budgetary Allocation by the Government:
The Success of the scheme depends on the budgetary allocation by the government and disposal of the funds under the SBFS under the scheme. The SBFSA recognises this. The scheme is also caveated as under:
Wherever, Approval for a Vessel has been granted by the Competent Authority, such Financial Assistance shall be released for the Vessel subject to compliance of conditions of this scheme. (b) Provided further that, in case the budget is not available for release of Financial Assistance for Vessel(s) under an eligible contract in a particular year, the same will be released on priority in the subsequent financial year on availability of budget.
Conclusion
For shipyards, the scheme places the onus them to ensure timely delivery of the vessels to take benefits of the scheme and throws the gauntlet for shipowners to place orders for multiple vessels for the shipyard to take benefit of the scheme.
The real challenge will come forth when the Shipyard is not able to take benefit of the scheme and is left with insufficient funds to complete the construction while the shipowner is left with a ship only on paper. Who will bridge the deficit in funding!!
Equally important is the scheme’s dependence on annual budgetary allocations. Where allocations fall short, disbursements are deferred to the subsequent financial year—an anomaly in a time-sensitive shipbuilding cycle. Greater clarity on the amounts actually allocated year-on-year would materially improve bankability and risk assessment for all stakeholders.
