Deregulation gets big contracts rolling
Alstom of France is to produce locomotives for intercity lines run by Indian Railways. (Courtesy of Alstom)
NEW DELHI -- The Indian government's efforts to open key industries to outside investment are starting to get results.
India has signed a string of major railway deals of late. On Dec.
12, Prime Minister Narendra Modi and his Japanese counterpart, Shinzo
Abe, agreed that India would adopt Japanese bullet train technology for a
planned high-speed line between Mumbai and Ahmedabad. As New Delhi
looks to upgrade the nation's dilapidated rail network, it has also
handed out 345.6 billion rupees ($5.17 billion) worth of contracts to
General Electric of the U.S. and Alstom of France.
GE recently struck a deal to supply 1,000 diesel locomotives to
state-owned Indian Railways. Alstom, meanwhile, is to provide 800
electric locomotives. Both companies are to build plants in eastern
India and provide maintenance services.
GE will supply the
diesel trains, valued at 146.5 billion rupees, over the next 11 years,
while Alstom will provide the electric ones for 199 billion rupees over
the same period. Deliveries are expected to start in 2018.
The American company will also spend $200 million to build a plant in
Marhowra, a town close to Patna, the capital of the state of Bihar. The
facility will produce 4,500 horsepower and 6,000 horsepower
diesel-electric freight locomotives.
Alstom will shell out
200 million euros ($217 million) to build a factory in Madhepura,
northeast of Patna, where it will manufacture 12,000 horsepower electric
locomotives. The French company also secured a 200 million euro
contract to supply signaling, telecommunications and electrification
systems for a freight railway line -- a 343km stretch of the East
Corridor line, to be completed by 2019.
Neither GE nor Alstom
has announced its sales figures for India. But once they start
delivering the trains, those numbers stand to multiply.
Slicing red tape
The
government of Prime Minister Narendra Modi, who took office in May
2014, eased restrictions on foreign investment in the defense industry
that August. This included raising the upper limit on inbound direct
investment to 49%, from 26%, in cases where the Foreign Investment
Promotion Board gives approval in advance.
The government
opened some segments of the railway business as well. A November 2014
ordinance allowed 100% foreign interests in the manufacturing of
locomotives and rail cars and the construction of railway lines for
freight transport, scrapping a ban on such investment.
Procedures for foreign investors in the rail sector have also been simplified, from a system requiring prior approval by the FIPB to an automatic approval system.
From November 2014 to September 2015, foreign direct investment in the Indian railway sector came to only about 1 billion rupees. But the GE and Alstom deals will drive up the amount of foreign capital flowing into the field.
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