Will diesel locomotive factory sidetrack India-US talks?

As India and the US get ready for a meeting of its two leaders, a simmering issue of constructing a diesel loco factory in India has the potential to snowball into a clash of interest in their respective political constituencies.

The proposal is with regard to building a diesel locomotive factory in Marhowrah, Bihar. A project which two American firms, GE and EMD, have been eyeing since the time the UPA-I was in power. EMD is based in Illinois, Obama’s former constituency.

The Railway Union has expressed reservations on setting up of a project with private investments. Besides, this project, if it becomes a reality, could pose a threat to the existing factory in Varanasi, Prime Minister Narendra Modi’s constituency.

Obama’s keenness for this project can be gauged from the fact that during his 2010 visit he had specifically referred to this locomotive project in the context of two American firms getting shortlisted to bid for the project.

Since then bids for the project have been called for many times for multiple reasons.

The Indian Railways network is one of the largest railway markets globally. For EMD, now a subsidiary of Caterpillar, India is a larger market than China.

“India is the one of the largest railway markets after North America,” William P Ainsworth, President and CEO, EMD, had told Business Line . Prior to that, GE’s Jeff Immelt had voiced his frustration on the pace of decision-making in India when asked about the delay in this project.

But the Railways employees union has voiced its concern. The tender conditions for new factories involve long-term assurances to buy a minimum quantity of locomotives annually and this can well impact the Railways’ existing production unit, such as the Diesel Locomotive Unit, Varanasi, which could become idle during a slowdown year.

“If there were to be idle capacity at Indian Railways’ production units, what will happen to the employees? Will the Railways and Indian Government continue to bear staff cost of such large facilities,” asked Shiv Gopal Mishra, General Secretary, All India Railwaymen’s Federation.

Interestingly, when the US President had made a reference to this project during his India visit, he had underlined the fact that two American firms were shortlisted for the project – in effect ensuring that at least one American firm would get a pie of the growing Indian Railways market.

But now, Chinese firms — CSR and CNR— have also joined the race and are competing with GE and EMD for the same tender. If Chinese players are to be shortlisted for the diesel loco bid, the American firms have to face pricing pressure from the Chinese firms.

The Chinese were also competing for an electric loco tender of the Railways with Americans and the Europeanfirms, but were disqualified.

The two tenders (diesel and electric) were valued at about ₹35,000 crore over a 10-to-11-year period, according to industry estimates. Given the high stakes involved, it would be interesting to watch the status update on this project when the two leaders meet.

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