Indian Railways on Monday awarded the contract to global giants GE and Alstom for the Rs 40,000 crore project of the setting up of diesel and electric locomotive factory at Marhowra and Madhepura, respectively.

The decision puts to rest speculations that development projects for the state could take a hit following the loss of the BJP-led alliance in the Assembly polls.

This is the first major foreign direct investment (FDI) in railway projects. While it will cost Rs 2,052 crore for setting up the diesel locomotive factory at Marhowra, the electric one will cost Rs 1,293.57 crore at Madhepura. The agreements with both GE and Alstom will be signed in a month, a ministry official said.

"The railways has taken a giant leap forward in 'Make in India' by issuing the Letter of Award for setting up locomotive factories and procurement and maintenance," Railway Board member (mechanical) Hemant Kumar said.

The projects involve manufacturing of 1,000 diesel locomotives and 800 electric locomotives over the next 10 years and is worth about Rs 40,000 crore. While the basic cost of 1,000 diesel freight locos will be about Rs 14,656 crore, the rest of the sum would be for electric loco, officials said.

The setting up of locomotive factories was initiated by then railway minister Lalu Prasad in 2006 and the award of contract comes a day after the Grand Alliance won the polls. With the government allowing cent per cent FDI in railways, the setting up of the two locomotive plants in joint venture mode is crucial for the public transporter to boost infrastructure. Railways will have 26 per cent equity and also provide land while the global players will have 74 per cent equity in each plant.

GE, the lowest bidder for the Marhowra diesel locomotive factory, is expected to manufacture 1,000 locomotives over 10 years. While 100 will be imported, rest will be manufactured at Marhowra as part of the "Make in India" initiative.

There will be two types of diesel locos - 4,500 horsepower and 6,000 horsepower - manufactured by GE in Marhowra. There will be two loco sheds at Gandhidham and Bhatinda for maintenance of the modern diesel locomotives.

French major Alstom, the lowest bidder for the Madhepura electric locomotive factory, will manufacture 800 high-power electric locomotives locos in the next 10 years. It will manufacture 12,000 horsepower electric locomotives to be used for heavy haulage.

According to the contract, while five diesel locos will be imported, the rest 795 will be manufactured at Madhepura as part of the project. Maintenance of the locos will also be the responsibility of the company and for this it will set up two maintenance sheds at Nagpur and Sharanpur. Of the 1,000 diesel locomotives to be manufactured by GE, 700 will be of 4,500 horsepower and 300 of 6,000 HP.