Demand for Diesel Loco is unlikely to go down; we are bullish on India’s growth story: Nalin Jain, President/Wabtec

Nalin Jain, President-Global Equipment Division, Wabtec

NEW DELHI: The demand for diesel locomotives from Wabtec’s Marhowra factory will not be hit by the current slowdown as they consume less fuel than diesel engines churned out by Indian Railways’ factories, said Nalin Jain, President-Global Equipment Division, Wabtec.

Wabtec is an $8-billion company that acquired GE Transportation. In a conversation, he said that Jain feels that “as a result of the merger, we have become a very strong player in the overall rail space.”

Where does India fit in the new entity post Wabtec-GE merger?

Wabtec has grown rapidly in the last decade or so and continues to grow. In the global rail transportation sector, in topline terms we are probably the number 1 or 2 company — with the exception of China’s CRRC Corporation Ltd. India is among the top five markets in terms of topline, number of people in the country, and opportunity that exists for Wabtec.

GE Transportation plus the legacy of Wabtec in India now has 2,700 people here, which is about 10 per cent of the global 27,000 headcount. In terms of headcount, India is the third largest country after the US and France.

One year ago (as GE Transportation), I would have said we sell locomotives to Indian Railways (IR). Now, our teams touch all rail transportation segments — metros, coaches, locomotives. In our recent global leadership call, India was highlighted as a growth market — driven by our success and growth in the transit market.

What about the team of GE that had done a lot of R&D for the locomotive?

Our entire engineering workforce of around 700 which was part of GE Transportation’s footprint in the John F Welch Technology Centre in Bengaluru — has now moved over to Wabtec. With the merger, our engineering presence has doubled to close to 1,400 people now.

How many locomotives been delivered to the Railways?

Roughly, we are at 114 locomotives. Of this, 50 were fully built and imported, mostly delivered last year. The balance have been Made in India — meaning majority of the components have been sourced from local suppliers. We are close to about 70 per cent localisation goal in value terms.

Don’t the suppliers have issues with GST?

It is a huge issue for the industry. For a locomotive, the output tax is only five per cent. But the input components that go into the locomotive attract a tax of 12-18-28 per cent. Higher tax on input and lower tax on output creates an inverted duty structure. So, we are at a situation when the inverted duty/tax structure of components that go into a locomotive are at 20-21 per cent. This leads to a 16 per cent increase in cost.

This is hurting the industry big time — not just Wabtec, but also all original equipment manufacturers. This is an issue flagged by CII. It has been recognised and acknowledged by Railways, but there is no solution yet.

Specifically for the Railways locomotive project, there is a change of law clause. To that extent, GE will get compensated, for which we are in discussions with the Railways.

But, this is a unique case where the industry faces inverted tax structure. Textiles is another sector where they have agreed to refund the trapped tax and the government should consider a similar approach or raise the output tax on locomotives to 12 per cent to neutralise the high input tax rates.

Railways has made its intent clear on migrating away from diesel to electric. Is there a discussion on where these locomotives can be converted to run on gas/LNG as well?

There is no such discussion on dual mode engines. Railways has been clear that while electrification will happen, there will still be need for diesel locomotives for contingencies and disasters, strategic reasons in border areas as well as low density routes where economics make sense.

How is it working with the new government and what are the expectations from it?

We have not seen anything drastically different, considering that it is the same government, and the same Railways Minister.

This is a bold and decisive government, with the right intent. We are hopeful that the government will now accelerate some of the initiatives that it had set out to achieve, like further impetus to manufacturing, ease of doing business and skill building. Measures like these will eventually go a long way to boost economic growth of the country. We are also optimistic that the government will find a solution for the GST issue which is hurting the industry and can impact investment in Make in India.

India is seeing a slowdown in growth, what will happen if the demand from your customer drops? As in, what will Railways do with locomotives if there is not much demand to haul cargo?

India’s GDP growth is still at 5 per cent. As long as the GDP growth story continues, I don’t see demand going down. The government is doing all that is possible to get investment.

Also, rail freight is a cyclical business. Given the impetus to increase the rail share of movement in transportation, even if it were to go up by one-two per cent, there will be demand. That’s where scale comes into play.

We are supposed to deliver only one-eleventh of Railways’ fleet. And specially when we are delivering five-eight per cent more fuel-efficient locomotives. I believe Railways will grow to about 15,000 locomotives in the next 10 years, assuming a seven per cent GDP growth.

Even if they have a demand pressure they would park or condemn the old technology locomotives which are neither efficient, nor emission compliant.