Modi reforms crucial to Siemens India plans

Siemens is preparing to build two new rail infrastructure factories in India but cautioned that further investment increases are conditional on the delivery of wider economic reforms by Prime Minister Narendra Modi.

The German engineering group's stance underlines the wait-and-see approach taken by many large foreign businesses in the country.

Sunil Mathur, India chief executive, said he expected Siemens to enjoy a boost in growth linked to higher government spending in the rail and energy infrastructure sectors, but said the group would wait for reforms in other areas to start "hitting the ground" before increasing the roughly €2bn it has invested in India over the past five years.

Mr Modi on Tuesday completed a high-profile debut trip to Germany to visit the Hannover Messe, the world's biggest industrial fair, when he tried to persuade global industrial groups to view India as a new base for industrial manufacturing and exports in Asia.

But while global companies such as Siemens have warmly welcomed Mr Modi's new "Make In India"drive to create a larger, Chinese-style manufacturing sector, few have matched their enthusiasm with specific promises of higher investment.

"It depends on how soon will the reforms start hitting the ground, and which part of the economy will reforms start moving faster than in others," Mr Mathur told the FT in an interview, given in the week before Mr Modi's departure for Germany.

Siemens, which earned global revenues of €72bn last year, is one of India's oldest foreign investors, beginning with on the Indo-European telegraph line between London and Calcutta in 1867.

The group operates 23 factories through its listed Indian subsidiary, producing high-tech equipment in sectors ranging from energy and transport to healthcare. Revenues were Rs120bn ($1.9bn) last year, making India the group's sixth largest market by volume.

Hopes that foreign businesses in India would scale up investment following Mr Modi's election victory last year have largely failed to materialise, with capital spending showing only modest recent signs of recovery after a near-collapse since 2012.

For Siemens, rail infrastructure was the "first priority" for future investment, Mr Mathur said, given rapid projected growth in India's rail network and the group's expertise in areas such as high-speed trains and urban transit.

"We see the railways coming up with major plans, the first tenders have come out..... there is a large tender for 1,600 locomotives, this is probably one of the largest tenders in the world," he said.

"With this tender . . . we have already started planning our next two factories," he added, although he declined to give specific figures for planned capital spending.

Energy transmission and "smart grid" systems are another possible investment, he said, as India improves its creaking electricity system.

Mr Modi has outlined grandiose visions in other areas, from investing $100bn in renewable energy to building 100 new "smart" cities and bringing power to the roughly 300m Indians who lack reliable access to electricity

However, Mr Mathur said he would wait to judge progress on these promises, before committing to specific investments.

Siemens also plans to increase local manufacturing capacity to reduce reliance on expensive imports, while aiming to turn India into a regional manufacturing hub by increasing exports, which now make up only 10 per cent of volumes.

"We will continue to localise and add capacities . . . [and] to add factories as we see a business case emerging," Mr Mathur said. "I am investing in exactly the same areas that the government is choosing the grow."

Five facts about Siemens in India

1) Siemens began operations in India in 1867, when founder Werner von Siemens, an inventor and industrialist, oversaw the laying of the first telegraph cable between London and Calcutta.

2) Europe's largest engineering company by revenue employs 19,000 workers in India, part of a global workforce of 350,000.

3) Siemens operates 23 industrial facilities in India, having set up its debut manufacturing facility making industrial motors in 1966.

4) The German group's main business lines include power equipment, industrial automation, rail and healthcare, earning.

5) In 2011, parent group Siemens AG invested €1bn to increase its stake in the company's Indian listed subsidiary from 55 per cent to 75 per cent.

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