New Delhi: Alstom SA of France is ready to start construction of an electric locomotive factory at Madhepura in Bihar, where it will build 800 high-power engines designed to run on Indian tracks at 120 km per hour. The project, a joint venture with Indian Railways, was awarded last year. In an interview, Alstom Manufacturing India Ltd’s managing director Bharat Salhotra shares details of the project, which he says would be a game-changer for Bihar.
What is the status of the project?
Madhepura project in Bihar was signed on 30 November and post-signatures, there were a number of precedents to be done within 90 days. These included signing share-holding agreement between Indian Railways and Alstom, forming a special purpose vehicle and incorporation of a company with 26% equity coming from Indian Railways and rest from Alstom. So, it’s almost done. In terms of land acquisition, Indian Railways has moved reasonably well and most of the land is acquired with a significant amount being disbursed. So, sometime in the month of March, we plan to have the first ground-breaking ceremony.
How many people would the project employ?
For a project like this, Alstom typically engages engineers and diploma holders. Our effort would be to recruit and train them because there aren’t many railway engineering schools today in India. Besides, we have this compulsory training provision for our recruits only after completing which they are absorbed in different sites. Today, Alstom is employing around 1,600 people in India. For the Madhepura project, we could start with employing 100-150 people and can go up to 350-400 maximum. But if we see Madhepura as an industrial cluster with this locomotive unit, the potential employment could be around 5,000 people as the area would see engineering and diploma colleges, hospital, real estate, schools and other manufacturing units coming up.
Are you going to import all the raw material?
As per the contract, we are permitted to import first five locomotives. But our intent at this point of time is to get on to the Make in India initiative as soon as possible. We may have some parts assembled from France and then being brought here, but our intent is to localize as soon as possible. We are planning to set up supply chains and suppliers so that 80-85% of electric locomotives we are making is made in India. We have started to set up our design teams and they would function with our various teams based in France to come up with a locomotive design for India.
How much of raw material would Alstom source locally and from overseas?
In the present scenario, we think 60% of the raw material would come from outside Alstom and just 40% from within. It’s a difficult question to answer because you would pick up a component, take it to Alstom, then assemble it and then send it. In terms of value-add, 60% would happen outside and rest inside.
Will this 60% come from Indian companies as quality is always an issue?
The length (duration) of the Madhepura project is so long that it would go up to 2035-36 and we will have foreign suppliers. There are already a number of foreign buyers who have set up a base in India and those who are not in India would generally find it from cost benefit analysis point of view much better to be here to be more competitive. So, even though they are foreign suppliers, they would end up setting up base in India and we would get quality products.
Till the time they don’t set up base, will you import it?
All the companies I mentioned are already here. There may be some odd companies which may need to expand their setup here to be able to provide us with requisite inputs. So, essentially may be in their case they may provide a few components from outside and manufacture them from India. In my sense, ultimately they have to set up a base in India. But I think they would be better off because they cut off custom duty cost, logistics cost. Clearly, we have three parameters which we are looking a—quality, timely delivery and third is cost. We judge our suppliers on these three.
Have you been given any tax benefits or custom duty waivers for initial few years?
Some of the input taxes can be cut against output taxes but at the end of the day, there would be some amount of taxes that we need to absorb. The Results-Framework Document (RFD) had clearly stated about what are the taxes we have to pay and exemptions for the first five years and reimbursement of duties. We were told clearly that the RFD was approved from the cabinet and there was no scope of changes. But however, we are hoping that from government of Bihar, we do get some relief from taxes. At the end of the day, this project would be a game-changer for Bihar.
How would it be a game changer for Bihar?
Madhepura doesn’t have much of an industrial presence and fundamentally, is an agrarian region of Bihar. After we set up our factory over there and our suppliers also make their presence, it would have significant impact on employment generation. I’m not saying all of the employees would come from there, but as a cluster, it would give employment to nearby areas like West Bengal, Jharkhand. We would see a significant change in the region. You know, manufacturing has very strong multiplier effect not only in the form of suppliers who come up upstream but also in terms of logistics. In the larger context, multiplier effect in case of railways is nine, that is for every rupee of an output increase in railway, you have 8-9 times increase. So, with the two big foreign direct investment (FDI) projects in Bihar, one in Madhepura and other with GE, it would give strong fillip to the Bihar economy.