Enter The Agony: High GST On Railway Wagons Hits Working Capital Of Private Makers; Production Suffers As A Result Indian Railways. Photo by Ramesh Pathania/Mint via Getty Images

With a high 18 per cent GST (Good and Services Tax) rate being applied to components crucial to the production of railway wagons, private companies that manufacture such wagons for the Railways, are facing a working capital crunch, as reported by The New Indian Express. Working capital is needed to meet the daily production costs of a company. It involves expenses such as labour, raw materials and interest on commercial paper etc.

Due to a shortage of working capital, the work has slowed down and is negatively impacting the delivery schedule of wagons. This, in turn, limits the ability of railways to add new lines and expand the number of trains running on tracks.

“Wagon manufacturers are the mainstay of the railways as 90 per cent of its requirement is met by the private sector. Till 1 October, Indian Railways has received only 2,717 of the 12,311 wagons that had been ordered from 10 major players in April," a Railway official told IANS.

However, the railways, unlike in the past, is not taking this lightly and has warned the wagon manufacturers that they will face a penalty of two per cent of the value of the order as laid down in the contract, if they do not put their house in order.

The high GST rates on components along with the increase in steel prices have led to this precarious situation. But efforts are underway to take up the GST issue with the Finance Ministry.

Plans are also underway to place an order for the procurement 21,758 wagons at an estimated cost of Rs 5,600 crore. This would be the largest such order for the Indian Railways.

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