Bangalore, September 27, 2006, Ravi Sharma (The Hindu)

The State Government is understood to be considering a request by Bharat Earth Movers Ltd. (BEML) for a tax waiver on metro coaches, which will make it feasible for the Bangalore-headquartered defence public sector enterprise to bag the Rs. 2,000-crore metro coach order from the Delhi Metro Rail Corporation (DMRC).

Confident

BEML chairman and managing director V.R.S. Natarajan told The Hindu that he was sure that the order, which was for Phase II of the DMRC's operations to be completed by 2010 in time for the Commonwealth Games, "would not go out of BEML's hands."

The Government will lose over Rs. 240 crore if it waives tax for BEML on what is basically a works contract job.

More jobs

However, the long-term payoff for Karnataka in general and Bangalore and BEML in particular is in terms of more jobs and making Bangalore a centre of excellence for metro coaches.

Further, sales tax realisation from the purchase of material inputs (basic raw materials constitute 70 per cent of a coach's costs) far outweigh the immediate loss of sales tax.

Foreign player

It could also result in the State looking to a foreign player to supply and service coaches for its own prestigious Bangalore Metro project, which has just got off the drawing board.

The DMRC order had recently slipped out of BEML's hands because of the cost escalation of its metro coaches thanks to the Government's value added tax of 12.5 per cent on works contracts.

"Taxes levied by the State Government push up the cost of each of our metro coaches by around Rs. 60 to Rs. 70 lakh. We are hoping that the State Government will give us a tax exemption since without an order the Government stands to gain nothing including tax revenue," explained Mr. Natarajan.

Waiver

He said that if the Government gave them a sales tax waiver, BEML would try to convince the DMRC "to come back (to BEML), restore status quo ante and do justice to us."

He also stressed that even in the event of the DMRC insisting on a global tender, BEML's metro coach technology partner, the South Korean company Rotem, would not be allowed to participative in the tender.

"How can they? They have given BEML the technology for this territory (India)."

Mr. Natarajan said it would be difficult for multinational players to manufacture, supply and service metro coaches without an Indian manufacturing partner.

"The freight costs itself would be too high," he said.