The Hindu Business Line : Railways on a roll

Barely a week after the Indian Railways unveiled a policy for global firms to partner locomotive production in the country, as part of its modernising plan, offers fhave come rom the biggest rail equipment manufacturer in the world — General Electric. Others, such as Siemens, too have expressed interest and more will follow in the days ahead. That the policy announcement should elicit such a quick response is a testament to the Railways' bold initiatives and the global recognition of its willingness to look beyond its own manufacturing facilities to the world at large where technology in every aspect of the rail transport system has grown leaps and bounds over the past few years.

After decades of inward-looking measures, the Railways has followed the lead of other sectors to innovate and improve existing capacities and infrastructure. Nowhere is this more evident than in its adoption of the public-private partnership idea for new schemes involving wagon utilisation and, now, upgradation of rolling stock, particularly locomotives. The invitation to global firms could not have come at a more propitious time than now, when world over railway systems are enjoying a revival; the demand for railway equipment has been growing around 3 per cent annually. The prospect of an energy crisis affecting large parts of the world has spurred railway expansion and upgradation plans, from Chile to China. It is not entirely coincidental that GE has been the first respondent to the Indian Railways' proposal to partner loco manufacturing facilities as the American giant has major initiatives in Brazil, Kazakhstan and China for locomotives. For the Indian Railways, GE would, under a Special Purpose Vehicle (SPV), manufacture 6,000 horsepower locos. It has asked for assured demand and tax incentives.

Given the nature of the Railways' expansion plans — 55 new rail lines are planned for 2006-07 — the demand for locos will not be an issue; GE could also use India's experience in loco exports to developing countries to ensure a steady flow of orders. But to ask for tax incentives, as those enjoyed by Railway production units, is quite another matter. As a losing public utility such subsidies for the Railways were justified if only to keep rail fares low; now that it is showing profit, the tax breaks could well be removed. In any case, GE would stand to lose little if its sole buyer, the Railways, is willing to bear the cost of VAT and CST or even pass it on to the high-end users. The point is that tax incentives are not the most optimum way of spurring investments and the policymaker would do well to stay away from that temptation. A strong economy, a healthy public utility geared for growth is the best attraction for all, including prospective global investors.