Scrapping rail locomotive deal to have serious consequences: GE

US engineering giant General Electric on Tuesday said any move by the Indian Railways to wind up the company's under-construction Marhowra diesel locomotive factory in Bihar would ''undermine the government's signature Make in India initiative and will put future foreign investment at risk''.

''If Railways moves forward with changes to the joint venture, they will undermine one of the most promising infrastructure projects in the country and put future foreign investment at risk. This will also undermine the government's signature Make in India initiative,'' the company said in an emailed statement.

As part of a $2.6 billion deal, GE has already shipped its first diesel locomotive to India, which will arrive on 10 October, as part of a contract to develop and deliver 1,000 diesel-electric locomotives, but the company's leadership is upset over reports that India's plan to accelerate its shift to 100 per cent electric locomotives could derail the accord.

India could also be on the hook for ''substantial fees associated with this project'', the company stated.

''An alteration of this contract will have serious impact on job creation and skills development and cause the government to incur substantial costs. This will also undermine government's signature 'Make in India' initiative. We expect the partnership to move forward and the company continues to fully execute towards the plan," it said.

The proposal to wind up the project was mooted in a review meeting held by Union Railway Minister Piyush Goyal on 7 September since the railways plans to become fully electrified, and GE does not manufacture electric locomotives.

The deal for supplying diesel locomotives and setting up a locomotive factory was the largest foreign direct investment in the history of the Indian Railways and also the largest deal in the 100-year history of GE in India.

In case the government decides to scrap the project, it would be liable to pay GE damages that would include compensating investment made by the company. ''The company has placed supply order of about $1 billion with its suppliers who would raise claims on GE which in turn would seek that from the government,'' an official who did not want to be named told Business Standard.

The bid was allotted to GE in November 2015. US-based Electromotive Diesel (EMD) and two Chinese firms were also in race to bag the Marhowra project.

''We are on track and actively fulfilling our contract with Indian Railways to develop and supply 1,000 fuel-efficient diesel-electric Evolution Series locomotives,'' GE said.

The project was expected to create a robust supply chain ecosystem in India, constituting 60 new local suppliers and 10 global suppliers to achieve over 70 per cent localisation.

The company has already hired 1,000 workers in the factory and maintenance shed and created 5,000 jobs and sustained in the supplier network.

According to The Economic Times, government officials said Railways would save Rs1 lakh crore of fuel and maintenance bills over a decade by phasing out diesel locomotives.

Experts said 100 per cent electrification is something no country has achieved or even targeted, because diesel engines typically provide better traction for goods trains while electric locomotives are more suitable for high-speed passenger trains, the ET report said.

Globally, diesel locomotives account for 55 per cent of engines, but for more than 90 per cent in North America and Australia. They account for 33 per cent in Europe and 43 per cent in China.