Policy flip-flops risk harming ‘Make in India’ drive

NEW DELHI: Surprise policy shifts, such as an apparent U-turn over a locomotive deal with General Electric, risk undermining Prime Minister Narendra Modi´s flagship ´Make in India´ initiative, which aims to create millions of jobs and boost growth, industry executives say.

GE won a $2.6 billion contract in 2015 to supply 1,000 diesel locomotives - the biggest direct investment in India by a U.S. firm and the first deal awarded to a foreign firm after India allowed 100 percent foreign investment in its railways - part of efforts to overhaul its creaking, colonial-era infrastructure.

But the railways ministry said last week it wouldn´t need diesel after all - hoping to save on fuel and maintenance costs - and suggested GE might want to make electric engines instead.

Electric engines are usually used for passenger trains, while diesel is used for freight. Around 25-30 percent of India´s locomotives are diesel-engined. The policy shift could cost New Delhi in compensation - GE is already building a factory for the diesel locos - but executives and investors say it is also an important test for a government that needs foreign investment to create jobs and reboot growth ahead of a 2019 general election.

"The GE case is very important symbolically because they have been among the earliest and most committed investors," said Amitabh Dubey, a political analyst at research firm Trusted Sources.

"People will be watching to see how this plays out, particularly because the railway contracts were initiatives that the government pushed consciously and worked very hard to get these people in.

To then turn around two years later and change your strategy will bother a lot of people," he said. GE has already shipped its first diesel locomotive to India and is completing a factory in the state of Bihar.

It has created around 1,000 jobs at the plant and a maintenance shed, and 5,000 jobs in the supplier network. In a statement, the U.S. firm said the government´s change would put future foreign investment at risk. "An alteration of this contract will have serious impact on job creation and skills development, and cause the government to incur substantial costs," it said. "This will also undermine government´s signature ´Make in India´ initiative."