Wagon India, a joint sector company comprising government and 12 wagon makers, was floated in 1974 based on a Cabinet committee decision to check unhealthy industrial competition. The company till 1993-94 distributed the wagon orders and priced it on the recommendations of the Bureau of Industrial Costs & Prices (BICP).

For the next three years, Indian Railways placed its orders through open tender but had to backtrack, after a Rajya Sabha committee prescribed that 75 per cent of the orders should be distributed through Wagon India and the rest through open tenders.

An executive of a leading private sector wagon manufacturer said that Wagon India had lost its relevance because the pricing was no longer worked out by the BICP.

"The railway board followed Rajya Sabha's prescription but the price of the wagons is no longer worked out by the BICP. Instead, the lowest quotation of the open tender is being taken as the fixed price for the rest of the order. So what is the point in having a cartel like Wagon India," the executive told The Financial Express.

The wagon manufacturing industry is also suffering from over capacity. About two years back, the wagon industry, which till then consisted of 12 players, had a capacity of 37,635 four wheeler units (FWUs). Thereafter, two new players -- Calcutta based Besco Industries Ltd and Titagarh Industries Ltd -- entered the market and wanted to be a stake holder of Wagon India.

At present, the capacity of the industry is somewhere around 40,000 FWUs. However, in the last 10 years the highest capacity utilisation of the industry was only 67 per cent and the average is 55 per cent. In 1999-2000, Indian Railway ordered 10,000 FWUs, resulting in a capacity utilisation of only 25 per cent. The previous lowest was 24 per cent, in 1994-95, against an order of 9,000 FWUs.

The only activity of Wagon India, at present, is distribution of the order. It is worked out on three parameters. First, the licensed capacity of the unit. Second, its last ten year's average performance and the best performance preceding ten years.

Despite the bleak scenario, the two new entrants are fighting a legal battle against the existing 12 for an entrance into the cartel. Delhi high court has recently given a verdict in favour of the new players. Elaborating, JP Chowdhary, chairman and managing director of Titagarh Industries, said, "We were producers of wagon parts, which used to bought by the wagon makers.