DNA Money Edit: Quick policy shifts by rail ministry

Swift and surprise policy shifts are inimical to businesses. The rail ministry’s move to go all-electric after awarding the US-based General Electric a $2.6 billion contract in 2015 to supply 1,000 diesel locomotives, the biggest direct investment in India by a US firm, had raised concerns about the government’s ‘Make in India’ initiative and future FDI.

But now, Piyush Goyal, railway minister, has clarified the proposed diesel locomotive plant, being set up in partnership with GE in Bihar, will come up as planned. Just two years after the project was awarded to GE, the ministry was considering the possibility of exiting or winding up the diesel locomotive factory. The change of heart stemmed from the hope of discontinuing diesel locomotives in favour of 100% electrification and saving on the huge fuel and maintenance costs. Around one-third of India’s locomotives have diesel engines. Electric engines are usually used for passenger trains, while diesel engines, for freight. The ministry even suggested that GE might make electric engines instead. After it was pointed out that the cancellation of a mega contract will be expensive for the ministry, there is a reluctant retreat.

Policy initiatives without long-term planning can only create confusion among investors.