Wheels, brakes and axles: Vande Bharat's parts makers may get a PLI horsepower

Under the proposed scheme, the government will provide output-linked incentives to companies for making products that are usually imported. The incentives may vary from 5-10%, but actual benefit will be decided after the scheme is finalized.

The first person cited above said that the PLI has been proposed for a period of three years and expected incentives may be in the region of ₹1,000-1,500 crore.

“The finance ministry will evaluate the proposal on its merit to decide the quantum of support that would be extended by the centre for rail component makers," the person said on condition of anonymity.

The scheme would support entities that manufacture rail components like wheels, axles, braking systems, track machines, transmission systems for LHB and Vande Bharat train sets, and parts required by new-generation green trains that would run on alternate fuels and hydrogen.

Queries sent to the ministries of railways and finance remained unanswered till press time.

Read this: Railways may step up investment for augmenting network in FY25 full budget

Why a PLI for railways

The initiative is expected to incentivize domestic production, reduce reliance on imports, and encourage foreign manufacturing companies to establish or expand their railway rolling stock units within India.

Top global rail systems and rolling stock manufacturers such as Alstom, Siemens, Stadler, Hitachi, and Hyundai Rotem have presence in India with their own manufacturing facilities or through joint ventures with other Indian entities. 

A PLI scheme for rail components will also help these entities to bring their vendors to set up component manufacturing facilities in India and help both their operations and that of the railway sector to grow.

“The PLI scheme is a visionary initiative poised to creating an entrepreneur-friendly ecosystem for the rail components sector in India," said Vivek Lohia, MD, Jupiter Wagons Limited, adding that such a scheme would support import substitution, export-led growth and foreign investments that would provide a supportive environment for MSMEs in the sector. 

“With sustained and targeted support from the government, we anticipate significant advancements in the rail components sector, driving India towards a self-reliant and globally competitive manufacturing landscape," said Lohia. 

According to industry estimates, India's railway equipment market was valued at about $12 billion in 2023 and is expected to record a CAGR growth of more than 4% for the next few years. 

Also read: Railways to float ₹5,000 crore tender for Kavach safety system

More than 50% of components are imported with import levels being higher for new-age trains including the latest semi-high-speed and high-speed metro and suburban trains. In signalling, the import dependence has now been reduced to just over 15%.

The background

Before covid hit, the development of a vendor base for rail components was progressing at the speed at which private sector was getting on board to make trains, including wagons, locos, metro and suburban trains. 

But the onset of covid put all those plans on hold. The Railways has now come out with a detailed study on measures to reduce imports. PLI is an important component of its strategy to attract private investment in manufacturing and reduce imports.

The strategy to reduce imports has already seen progress on the signalling side with almost 85% of the requirement being met from domestic sources. 

The level of indigenization is also high in rolling stock but various components required for it are still coming from Europe, China, Japan, etc.

In 2020, PLI schemes across 14 key sectors were introduced with an outlay of ₹1.97 trillion (over $26 billion) to enhance the country's manufacturing capabilities.

Also read: Railways plan Vande Bharat Metro trains launch for inter-city travel later this year, Kapurthala Rail Factory to build

These 14 sectors included mobile manufacturing and specified electronic components; critical key starting materials/drug intermediaries and active pharmaceutical ingredients; manufacturing of medical devices; automobiles and auto components; pharmaceuticals drugs; and specialty steel. 

PLI schemes were also announced for telecom and networking products; electronic/technology products; white goods (ACs and LEDs); food products; textile products: MMF segment and technical textiles; high-efficiency solar PV modules; advanced chemistry cell (ACC) batteries; and drones and drone components.