Modi's Make in India suffers as railway, steel ministries at loggerheads

The railway and steel ministries are at loggerheads over a Rs 20-bn global tender for rails as part of the national transporter's accelerated track replacement programme

Prime Minister Narendra Modi's Make in India policy suffered a jolt in December following disagreements between two key government departments – steel and railway – over the procurement of rails through a Rs 20 billion global tender.  

Many blue-blooded international majors participated in the bidding — Sumitomo Corporation, Angang Group International, Voestalpine Schienen, East Metals, CRM Hong Kong, British Steel France Rail, Atlantic Steel, and Jindal Steel & Power (JSPL).

The significance of this global tender is that it marked a major shift for the first time in three decades. Before that, rail procurement was a virtual monopoly of the state-owned Steel Authority of India (SAIL).

No surprise, then, that the global tender evoked stiff opposition from the steel ministry and words of caution from the Prime Minister's Office (PMO) for moving away from the "Make in India" initiative.

On December 10, days before the bidding opened, the PMO asked all departments to give priority and save the interest of domestic manufacturers. "It is very disturbing that the broad message has not been appreciated by various departments," Modi's Principal Secretary Nripendra Misra said in the letter.

The Railways had floated the tender for international procurement of rails on October 18. However, according to the provisions of the domestically manufactured iron and steel policy (DMI&SP) for government procurement, the Railways had to seek a waiver or exemption from the Standing Committee, because of which the national transporter approached the committee on the same day. The committee grudgingly extended a one-time waiver but observed: "The basic objective of DMI&SP policy is strengthening 'Make in India'. The global tender of MoR is against the very spirit of this."

So why did the Railways go ahead with the tender despite strong internal opposition?

The answer lies in the accelerated programme of safety-enhancing track renewal ever since Piyush Goyal took charge of the portfolio. An internal target aims to reduce the number of derailments by 50 per cent in the next two years. To improve safety, in the next couple of years, the Railways will be replacing at least 8,000 km of old tracks, putting in an investment of Rs 100 billion.

The accelerated programme is part of a rapid modernisation drive, after a series of track mishaps. The ministry has a plan for investments worth Rs 8.5 trillion in the next five years, of which Rs 1.2 trillion has been earmarked for safety.

"We urgently require rails as the average track renewal target is being increased from around 2,500 km to 4,000 km in the next two years. For 2017-18 and 2018-19, our requirement was 1.4 million tonnes and 1.7 million tonnes, respectively. SAIL could not supply this much, so we had to go ahead with the global tender," said a Railways official on condition of anonymity.

The steel ministry was of the view that the global tender was unnecessary because SAIL has assured supply of 950,000 tonnes and JSPL has the capability to supply 200,000 tonnes between December 2017 to March 2018. Indeed, even the standing committee's one-time waiver to the tender was given on condition that 20 per cent of quantity procurement (developmental order) is sourced from domestic producers to boost Make in India.

A standing committee note said that there are advantages of procuring from domestic manufacturers as both SAIL and JSPL will be able to supply long rails, which do away with the requirement for more weld joints. JSPL, which has an annual capacity of 750,000 tonnes, had said that they will be able to supply up to 600,000 tonnes to the Railways within 21 days once the order is placed. Under the Make in India policy, once a domestic manufacturer satisfies a given criteria, the order must go to the local company.

Though the initial tender was for 717,000 tonnes; this was reduced to 487,000 tonnes after SAIL and JSPL's assurances.

The speed at which the Railways is increasing safety works was evident from Goyal's statement the week before last: "The Railways completed a record 476 km track renewal in the month of December alone, which is the highest in its history compared to a monthly average of around 240 km. It expects to touch 3,500 km of track renewal in 2017-18."

Interestingly, in a letter to the steel secretary on December 18, BV P Awasthi, executive director, Track of the Railway Board, said rail involves a complex manufacturing process and technology and should not be treated at par with routine steel products. "Despite having long experience of SAIL, it is still having rejection of the order of 15 per cent. Thus keeping in view of the safety implications involved, it is necessary that the vendor has to be an established manufacturer," he said in the letter. 

SAIL's Bhilai Steel Plant (BSP) is the only unit from which the Railways is currently procuring tracks, both for laying new lines as well as for track replacements. On an average, the plant supplies about 700,000-800,000 tonnes of rail to the national transporter.

When asked about the rejection of SAIL orders, another official said that the annual supply of 950,000 tonnes assured for the current financial year also accounts for rejections.

"We are trying to do what consecutive governments did not do for years. If these measures are not increased, it will damage the long-term credibility of Railways and life of its tracks," said an official.