Railway Subsystems in the mobility space mirrors India’s new age manufacturing opportunity

Railway Subsystems in the mobility space mirrors India’s new age manufacturing opportunity

By Ashish Kapur CEO, Invest Shoppe

Some years ago, the Government sought to highlight India’s tourist potential by showcasing India in all its incredible avatars. The current dispensation also sought to usher in a manufacturing revolution in India through the ‘make in India’ program. Today, the new incredible India is the India which finds itself in a sweet spot economically where geopolitics, policy priorities, and increased economic aspirations have all aligned to ensure the inevitability of the manufacturing revolution which India is on the cusp of.

Current geopolitical realities, where supply chains are weaponized, prompting strategies like the by now famous China +1 strategy, have presented India with a unique opportunity. Given this backdrop, fiscal incentives and policy facilitation through schemes such as the PLI and the PMP make eminent sense.

The PLI scheme in particular has taken off and has been widely welcomed by corporate India. So far 14 sectors have been selected for PLI benefits and there are visible gains in these sectors. The stock markets seem to have also rewarded companies which have embraced the PLI as an opportunity to bolster their domestic production capabilities.

Dixon Technologies, a leading homegrown major in the EMS space, had applied for PLI grant and their stock has gained 53 pct YTD. The Amber Enterprises stock, a well-known OEM in the RAC/HVAC segment, has also gained by the exact same quantum (53 pct over the last 6 months), while Kaynes Technology India, leading end-to-end integrated electronicsmanufacturing player in India with a play in the entire spectrum of ESDM services, is a clear outlier with a staggering 219 pct YTD gain in its stock price. Clearly, the policy push by the Government of India is slowly creating a manufacturing sweet spot for India, which if smartly leveraged can enable India to ride a new manufacturing wave based substantially on domestic capacity, something akin to the IT/ITES boom in the early 90s which propelled India to the status of a software superpower.

The Government on its part understands the need to build capacity in the economy through public investments, especially at a time when private investments have been sluggish. Creating and augmenting infrastructure, especially mobility infrastructure is therefore a part of the plan. As per the union budget of 2023, the Government has allocated INR 2.41 Lakh cr to the Indian Railways, out of which a separate allocation of INR 27,482 cr has been kept aside for the dedicated freight corridors, a YoY increase of 75 pct, underlining the Government’s priorities on this front. What is really encouraging is a recent statement by the Railway Minister Shree Ashwini Vaishnav indicating that the Government intends to bring 3000 new Vande Bharat Express trains over the next 5 to 6 years. This push will create its own demand for a localized or substantially localized eco-system to support this initiative and enable homegrown companies like Amber who are well positioned to deliver world class solutions in the railway sub-systems space.

Home grown champions

Another name to reckon with in the mobility space is Titagarh Rail Systems, formerly known as Titagarh Wagons. This homegrown manufacturing major based in Kolkata started off by manufacturing steel castings for the Indian Railways but the big leap happened in 1997 when they ventured into freight wagon manufacturing. Propelled by the ‘make in India’ and the ‘Atmanirbhar Bharat’ themes, today Titagarh Rail Systems is an Indian transnational and a manufacturing major with interests across freight and passenger rail systems, component manufacturing, defence and ship building, supported by facilities in India and Italy.

Similarly, take the case of Amber Enterprises. A homegrown enterprise in the heating, ventilation and air cooling (HVAC) space, the company has come forward and leveraged various Government initiatives such as production linked incentive (PLI) scheme and has also taken to acquisitions to consolidate its market in the HVAC space in the mobility segment in India. Infact, the entry of Amber in the HVAC mobility application products space has allowed the company to adapt and cater to a diverse range of clientele and secure major projects such as RRTS, DMRC RS17, and Chennai Metro Phase 2. This has also allowed the company to innovate new products for various industries and fully leverage the ‘Make in India’ story by manufacturing critical components, indigenously.

Apart from mobility, this domestic manufacturing major is chartering its way up the value chain in railway subsystems by entering new products like doors, gangways and pantry systems.

There are many more such stories of innovation and localization across the Indian manufacturing landscape. Sidwal for example, now acquired by Amber Industries itself, is a case in point. A market leader in railway, metro, bus and defence HVAC segments, Sidwal’s continued focus on research and development has positioned it at the forefront of technical innovations and today it contributes to prestigious trains like Vande Bharat Express & Rapid Railway Transport System (RRTS) – a flagship project for HVAC mobility, Shatabdi Express, Rajdhani Express, and luxury tourist trains such as the Palace on Wheels, Deccan Odyssey, and Maharaja Express.

Building the manufacturing eco-system in India

A key impact of the PLI and the phased manufacturing program (PMP) schemes is that today, given tariff and non-tariff barriers, companies including MNCs are increasingly moving to source components from India and then moving up the value chain in that sense, from mere assembling. And that’s a welcome trend for a country which aspires to be a global manufacturing power in keeping with its status as one of the world’s leading economies. However, bottlenecks such as those on the taxation side remain. At a time when ACs in India and even HVACs for mobility are not luxuries anymore and climate change is a clear and present danger, the GST on ACs is still at the ‘sin tax’ level of 28 pct, belying both logic and impeding future growth.

For far too long, India has largely been an agrarian power and an IT superpower of sorts. It was widely believed that the manufacturing ship had sailed. But three decades after India liberalized its economy in 1991, India is well poised to ride the manufacturing ship once again. With a fast-growing middle class sitting on a per capita GDP of about $2400, an economy well poised to be among the top 3 in the world and a geopolitical inflexion point which could be smartly leveraged, this is an opportunity whose time has come.

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