Competition in the metro rail engineering and construction sector is intense and the only way to be price competitive is to manufacture locally but the anomalies in GST are taking that advantage away from local manufacturers, Alain Spohr, managing director of Alstom India & South Asia, told ET in an exclusive interaction.
On Monday AlstomNSE -0.69 % India officially received an order worth €315 million (Rupees 26.5 billion) to supply 248 metro cars for Mumbai Metro Line 3 from Mumbai Metro Rail Corporation. It is the biggest urban rolling stock order for the company in India and it sees huge opportunity in the sector, given the government’s thrust on infrastructure and smart cities.
“In the last 12 months, the tendering activity has been exceptionally dynamic. As we come close to Union elections, we will enter code of conduct, then depending on the outcome of the election, it may take time to step up ordering again. I see small slowdown in first half of 2019, but we happy we have been successful in the recent tendering,” Spohr said.
The government has pushed metro rail projects and companies, both local and international have been eyeing the opportunity, making the market highly competitive.
“Our experience of being in other sectors tells us that the only way to be in India in the long run is to manufacture locally,” Spohr said. His company would be building the metro cars in its unit near Chennai and would start delivery by 2020, and complete it by 2022.
Alstom India would also bid for the upcoming bids, in Mumbai and other towns, Spohr said that there is a concern that in these bids foreign manufacturers may have a price advantage.
“GST on rolling stock has an anomaly, there is no balance between the incoming and the outgoing GST . We need the authorities to correct it and have spoken to the government. We get positive comment but we need to see the outcome. It may be a key element in the next rounds of bidding for Mumbai metro as foreign companies manufacturing in Korea and China will be at an advantage compared to Indian companies,” Spohr said.
GST input credit rates are higher than the output GST on rolling stock. As a result, there is a surplus GST that is non-refundable and has to be factored in as cost, which accounts for 7 per cent of sales price.
“What is still a bit of an issue is we need faster decision making and faster process from the time of floating a project to developing a project. If this could be done then it will help in being more efficient,” Spohr said.
Alstom India has also emerged lowest bidder for communicationbased train control systems and signaling system for the Mumbai Metro Line 3.
Currently, 50 per cent of its business is from urban transport and rolling stock while 25 per cent is from signaling and balance 25 per cent from infrastructure projects.