Unprecedented infrastructure push by the Narendra Modi government created ground for rapid growth in domestic manufacturing. The industry has yielded part of the benefits as is visible in the rush of orders to engineering companies. However, a lot of domestic value addition opportunity is also wasted as is evident in the rising import of railway wheels, ignoring repeated promises to translate demand into an opportunity to Make-in-India. The blame should go squarely on the lack of planning and delay in structural reforms. The Research Designs & Standards Organisation (RDSO) which approves railway procurement, creates more hurdles for vendors than ensuring quick supplies.
Demand Supply Gap
The government is pursuing a multi-billion-dollar makeover of Indian Railways. From the strengthening of tracks and energy transition to the introduction of semi-highspeed Vande Bharat trains – there are many facets to it. The introduction of new passenger coaches and wagons enhanced the demand for the rolling stock. However, the second largest steelmaking nation in the world with a long history in forging, did not create domestic capacity. Wheels and axles are not only imported from low-cost destinations like China or Malaysia but also from developed Europe and even the US to meet the demand-supply gap.
This is surprising considering wheel making is no rocket science. It requires forging and machining, and is a high employment-generating activity. There have been plenty of reports over the last two years, about the government’s plan to step up domestic supplies. Some say the state sector would take the lead in rolling stock manufacturing. Some promised production-linked incentives (PLI) for the sector. In the end, however, it is that same old story. “Railway may step up wheel imports as local supplies slip,” The Economic Times reported on October 5. The state-owned, Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) failed to live up to their promises. SAIL was given a lesser target this year and they are lagging to supply that. RINL’s wheel plant at Rae Bareli is an utter failure. The benefit will go mostly to the manufacturers in China.
Designed to Fail
Import is not necessarily bad. In the current context, it is helping faster implementation of railway modernisation projects. However, the question remains if the domestic procurement plan is failing by design or accident. India has seen many such failures in the past. Part of the benefits of the thermal power capacity expansion drive by the Manmohan Singh government went to Chinese gear makers. This was largely because India’s state-owned Bharat Heavy Electricals (BHEL) was slow in capacity augmentation and delivery. By the time private capacities came, the boom was over.
The Manmohan Singh government trusted a domestic content requirement (DCR) clause to ensure local procurement. The Modi government announced the 100-gigawatt solar plan in 2015 without a change in strategy. The clause was challenged by the US, and the World Trade Organisation (WTO) ruled against India in 2016. Chinese gear makers took full advantage of the situation. The government is now trying to create an ecosystem for domestic solar gear manufacturing through solar PLI.
The failure in wheel and axel manufacturing has something more than that. During colonial days, wheel manufacturing was left to the private sector. Typical of its socialist past, the responsibility went to the state sector in Independent India. Till the 1970s, SAIL (Durgapur) was practically the sole supplier of wheels, meeting barely half of the demand. The other half was imported. To fill up the gap, the Railways had set up its own Rail Wheel Factory (RWF) in Bengaluru in 1980. The following days saw RWF trying to corner maximum order and SAIL not showing much intent to add capacities.
The story took another turn in 2013 when the UPA government literally forced Vizag-based RINL to invest in a wheel factory in Sonia Gandhi’s Lok Sabha constituency Rae Bareli in Uttar Pradesh. RINL had completed setting up the Rae Bareli facility at Rs 1,680 crore in 2021 on the backdrop of a botched-up capacity expansion of its Vizag steel plant, thereby ending up in the red. As things stand today, RINL is facing working capital constraints. Both the Vizag steel plant and the wheel facility are on the block. Disinvestment is delayed due to political reasons. And, the more disinvestment is delayed, the more the production will suffer.
Leave It to The Private Sector
The government is now trying to rope in the private sector in wheel manufacturing. However, the success of any such plan would depend on deep reform in the Indian Railways and its infamous RDSO. Railways is a highly monopolistic organisation, that is far from business-friendly and has grounded many reform attempts of successive governments, including those initiated by the Modi government. Left to them, there is no escape from imports. In July 2020, the ministry of railways invited pre-qualification bids from private players to own and operate 151 modern trains in 109 pairs of routes, for 35 years. It was a grand attempt to ensure private participation in the loss-making passenger traffic. However, railways took a year to close the pre-bid. The terms were drafted in a manner that all private majors stayed away. The initiative failed.
Pratim Ranjan Bose is an independent columnist, researcher, and consultant. His Twitter handle is @pratimbose. Views are personal, and do not represent the stand of this publication.
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