By Neha Dasgupta and Tommy Wilkes
NEW DELHI (Reuters) - India's steel and rail ministries are at loggerheads over the state-run network's proposal to buy much-needed rails from overseas, a move that would undermine Prime Minister Narendra Modi's drive to build key infrastructure in India.
India's Ministry of Railways, which manages the world's fourth-largest rail network, has grappled with a spate of accidents. Modi's government wants to overhaul the country's aging tracks, but shortages of steel produced by state-run Steel Authority of India Ltd (SAIL) have slowed progress.
The clash highlights the dilemma the government faces as it tries to promote local production through the "Make in India" campaign at the same time it faces resistance from some state buyers who need to procure goods as quickly and cheaply as possible.
Indian Railways issued a tender seeking 717,000 tonnes of steel rails on Oct. 18, which was the first time the state-run railroad operator sought overseas rails. The tender could be worth an estimated 30 billion rupees ($464 million) for global steel majors such as ArcelorMittal and Thyssenkrupp (DE:TKAG).
That amount will make up SAIL's shortfall for the next two financial years.
For the financial year for 2017/18, SAIL is expected to supply 920,000 tonnes, only 65 percent of the target, according to a letter sent by Indian Railways to the Steel Ministry dated Oct. 18 and reviewed by Reuters.
In 2018/19, SAIL is expected to supply 1.3 million tonnes, falling short of 1.5 million tonnes sought by the railways, the letter showed.
"We require rails. SAIL is not able to deliver the rails. That's it," said Ashwani Lohani, the chairman of the Railway Board which manages Indian Railways for the Ministry of Railways.
He said Indian Railways had "no intention to change the tender", which is the first time the company ever sought overseas rails.
SAIL did not respond to requests for comment.
India's Ministry of Steel urged Indian Railways not to violate the "Make in India" policy that requires all infrastructure projects worth more than 500 million rupees to use locally-made steel.
In a meeting on Friday, Steel Ministry officials asked the railways to abide by procurement rules that require steel for major infrastructure projects to come from domestic producers, three people who attended the meeting said.
EXEMPTION SOUGHT
Indian Railways maintains that passenger safety justifies an exemption to the "Make in India" policy. The government could allow an exception if there are shortages or specific grades of steel are unavailable.
In a letter to Lohani from Aruna Sharma, the secretary at the Steel Ministry, dated Oct. 23 and reviewed by Reuters, the ministry urged the railways "to follow the procedure" on steel procurement, but said it would examine the need for a waiver.
In September, Modi named a new railways minister to oversee a $130 billion, five-year modernization program and to replace some of the 92,000 km of tracks operated by Indian Railways.
The railways are a lifeline for the more than 20 million mostly poorer people who use it every day. In February, the government launched a $15 billion fund dedicated to ending the rising number of train accidents caused by track defects.
India's state-owned companies such as SAIL maintain large roles in key industries and infrastructure projects, despite struggling with inefficiencies.
Reuters has previously reported that the railways this year considered ending SAIL's decades-long monopoly supplying steel.
Private firm Jindal Steel and Power, the only domestic alternative, pitched its services at the Friday meeting, the three people attending said, but railway officials raised concerns that it lacks experience building rails.
($1 = 64.71 rupees)