This will support the developing ecosystem as well as investments that have gone into the metro rail segment in the country.
By Chidambaran G Iyer
Economic literature has identified urban centres as engines of economic growth. As an urban centre grows, so does the demand to move people and goods; in other words, economic growth increases the demand for urban mobility. India’s process of urbanisation is taking place at a time when the global community is moving towards green technology and reducing carbon emissions. We not only have to provide modern mobility options to our urban population, but also manage the technology transition to these green technologies. In the past couple of decades, the policy focus for mass intra-urban mobility that has helped India in its initiatives to reduce carbon emissions has been the construction and operation of metro railway systems. This form of mobility has been so popular among central and state governments that, as of February 2019, as many as 14 urban centres in the country were in various phases of metro rail construction and operation.
Metro rail projects have huge investment outlay, which, when directed properly, can maximise the multiplier effect on economic activities. The world over, metro rail projects have been used to provide a fillip to the local industry. Given the impetus to ‘Make in India’, the government has the opportunity to use these projects to push manufacturing activities in the country. In this context, the recent mandatory tender conditions and standardised norms issued by the ministry of urban development are timely. Modern metro rail has a mix of both complex and advanced technology, hence, expectedly, most of the leading firms are multinational companies.
A metro rail project has numerous subsystems, one of which is rolling stock or rail coach. In our recent study, we looked at the effect of foreign investments in the metro rail rolling stock segment. Two foreign firms had set up plants to manufacture rolling stock in the country, while a third firm was in the process of setting up one. It is well-known that, in the past few decades, commodity composition of exports from India underwent consistent changes in favour of capital and skill-intensive products. Foreign firms in the metro rail segment have used this comparative advantage to export rolling stock from India. Foreign firms in India have also exported semi-finished units, thus providing an opportunity to get into their global value chains. At the same time, there has been local capacity-building; as a local firm, after a successful technical collaboration with another foreign firm, has independently won a contract to supply rolling coaches to phase 2 of Mumbai Metro. In other words, an ecosystem to manufacture rolling stock has been successfully established in the country.
However, it has been recently reported that the global rolling stock industry is facing large overcapacity issues, leading to consolidation pressure. Key growth areas will be in urban transport, and that too in emerging markets. Given this situation and the slew of metro projects in India, many global firms are lining up to serve the Indian market. This can be seen from the fact that, for the recent expression of interest for providing rolling stock on lease basis for Line 5 of Delhi Metro Rail Corporation on December 12, 2017, as many as 11 applicants qualified for issue of request for proposal documents. Thus, there is huge interest in the Indian market.
Metro rail projects are typically funded by the government, domestic and foreign funding agencies, and public-private partnership. Among these three options of funding, we have generally opted for a combination of the first two. Most of the metro rail projects in the country have been co-financed by foreign funding agencies. The various ways of funding a project have implications on the amount of manufacturing in the country; as, recently, in one of the metro projects, for two lines, the foreign funding agency set a precondition that in all the systems for these two lines, technology of a particular nationality should be used. Given the complexity of these systems, this condition excludes most of the players from participating in the tendering process, which affects local manufacturing investments. The need of the hour is coordination between central and state governments to ensure that the funding agency that comes on-board gives a fair chance to all manufacturing companies. This will support the developing ecosystem as well as investments that have gone into the metro rail segment in the country.