Superseding a fully indigenous model, the Indian Railways is now looking to buy next-generation trains and the technology to build them from the international market.
As a recent National Capital Region Transport Corporation (NCRTC) contract has shown, foreign companies are edging out local companies from billion-dollar contracts funded by taxpayers.
The deep-rooted apathy towards local innovation is the single biggest factor in Make in India being a spectacular failure to date.
At a time when many foreign governments are restricting international bidders from participating in infrastructure projects, Indian Railways is rolling out the red carpet for them. Case in point: The NCRTC which recently awarded an INR 30,000 crores contract for the design and development of its flagship Regional Rapid Transit System (RRTS) – the country’s first – to Canadian conglomerate, Bombardier Inc. This move has come as a setback to Indian companies like Titagarh Wagons and BEML who are vying for a share of railway projects worth INR 1.59 lakh crore that are budgeted for 2019-20. While they acknowledge that they did not meet a critical performance requirement of the tender – train sets (coaches) rated for speeds of up to 160kmph – they argue that the tender goes against the government’s oft-quoted Make in India campaign. The matter has since been reported to the Ministry of Commerce which has temporarily put the project on hold.
Watch: RRTS Technology in Indian Railways
Awarding contracts on an L1 (lowest cost bidder) basis is clearly not the route taken by other countries for developing local competence in a cornerstone industrial sector such as railways. In fact, many governments are aggressively backing their companies to expand market share abroad through subsidies and tax cuts, in clear violation of World Trade Organisation (WTO) rules. In India’s case, local alternatives are systematically starved of funding and then discredited for failing to meet requirements. For its part, the NCRTC has refuted the allegations made by protestors saying Bombardier had committed to building the train sets in Gujarat under complete transfer of technology. The question, however, is: How much Intellectual Property (IP) will India gain as a result?
In a FICCI ‘Voice of Industry’ survey conducted in Jan 2020, many companies lamented the lack of sufficient order volumes to justify continued investment in the railway sector. Industry watchers and former railway officials suspect foul play. A 2017 Public Procurement Order to level the playing field for local companies in public contracts is being circumvented with the Railway Board contending that Indian companies lack the experience to execute large turnkey contracts by themselves. Contracts are also cancelled arbitrarily if no ‘qualified bidder’ can be found, squeezing cash flow for many MSMEs. The controversy around the scrapping of the landmark Train 18 design, however, tells a different story.
Sabotage, turf wars
Vande Bharat, a brand that could have vaulted Indian Railways into the ranks of the world’s biggest train manufacturers, now lies in the dust. When PM Narendra Modi flagged off the first Train 18, its maker- Chennai-based Integral Coach Factory had proved beyond a shred of doubt that India could build world-class trains with minimal input from vendors abroad. The achievement stoked a wave of desi pride the country had not witnessed since the Mangalyaan Mars mission.
However, far from the television cameras, plans were already underway to scuttle the project. The reason: A dispute over specifications and procedure. The heroes behind the project were implicated in a flimsy corruption case and a fresh global tender was launched with remarkable speed. If the project had been sufficiently nurtured it could have easily met any perceived performance shortfalls. This is perhaps one of the biggest cases in recent memory where national interest was sacrificed for petty inter-departmental rivalry without as much as a whimper from the political dispensation of the day.
For all its claims about localisation of rolling stock, Indian Railways is a tricky customer. The odds of winning a contract are decidedly against local companies that stake a lot of capital to build production facilities, only to find order quantities slashed without any compensation. This leads to gross underutilisation of their manufacturing capacity and makes bidding for future contracts unviable.
Bureaucratic apathy within the Railways has also been blamed for proprietary specifications being leaked carelessly to competitors eventually causing the proposing company’s bid to be out-priced.
There is little to no institutional support from the railways for local companies when it comes to negotiating Transfer of Technology (ToT) agreements with foreign Original Equipment Manufacturers (OEMs). This is in sharp contrast to countries like China where comprehensive technology transfer is a pre-requisite for bidding on large government contracts.
Know-how but not know-why
Though India has the fourth largest railway network in the world after the US, Russia and China, it still lags far behind in terms of technology. For example, high-speed aerodynamically-efficient trains made of aluminium are only now being trialled in India, a technology that has been in use in Europe and Japan for at least 15 years.
With indigenous efforts like Train 18 nipped in the bud, large scale import and local production under license from a foreign manufacturer is the only alternative. This is a blunder of epic proportions. Not only are outright imports up to 40% more expensive, but a co-production deal with a local Indian partner does not guarantee that the critical ‘know-why’ as distinct from ‘know-how’ of the technology will ever be transferred by the OEM. The foreign company is then well positioned for follow-on maintenance and support contracts worth billions of dollars across the trains’ lifetime. The Indian partner gains very little production expertise in the process.
Import dependant self-reliance?
Modi’s recent call for an ‘Atmanirbhar Bharat’ (self-reliant India) was predicated on Indian households and businesses buying local. It is incomprehensible why the same local companies – already faced with depleting order books on account of COVID-19 – are being kept out of contention in big-ticket contracts funded by taxpayers’ money.
Awarding contracts on a competitive basis at the cost of local jobs makes India vulnerable to supply chain disruptions and hobbles local innovation. Is the Indian Railways listening?