Indian railways: Time to open up fast

Written by Ajay Dua | Updated: Jul 7 2014, 13:51pm hrs
For far too long, Indian Railways has been operated as a system in which the central government has been the rule-maker, the service provider and the ultimate adjudicator. Hitherto, there has been hardly any role in it for any one else, be it the provincial governments or private enterprise, whether domestic or foreign. As is commonly the attitude of a monopolist, on grounds of turf-protection, all past endeavours to elicit meaningful outside association have been virtually stonewalled by the rail policymakers in New Delhi who have been too sceptical about the need for it and have evolved ambivalent frameworks.

The last 67 years since 1947 have seen the rail route length grow annually by a meagre 160 km compared to 550 km per year in the 94 years preceding it (from 1853 onwards) when the first rail link was developed in India. As much as 80% of the 65,000 km network-length came about before Independence and only 20% thereafter. With cost-to-revenue ratio of persistently higher than 90%, the departmentally run rail system has, for want of investible surplus, kept its capital-spend at minimal levels and has hardly been investing in its expansion, modernisation or on making rail travel safe. Most of the heavily used rolling stock and other capital stock is being flogged year after year without its periodic replacement or upgradation for carrying over 20 million passengers and about 3 million tonnes of cargo a day.

Operational parameters, particularly safety and service, have consequently been adversely impacted. As many as 800 promised projects included in various Rail Budgets are languishing without being completed for longer than one can remember. The necessity of tripling the investment in railways, from the current $9 billion a year to 1.1% of GDP, has been emphasised by many experts and recently by the National Transport Development Policy Committee. A couple of years ago, the Kakodkar Committee had urged accepting a plan to spend about R10 lakh crore only on improving railway safety.

In this environment, the oft-mentioned need to invest in developing a diamond quadrilateral of high-speed railway network of 6,500 km, linking the four metropolitan cities at a cost of about R150-180 crore per km, and a dedicated freight corridor of almost equal length at R50-60 crore per km, prima facie, looks unconvincing. But apart from having big-ticket projects such as these, to kick-start the revival of the economy, there is no denying that amenities are needed to make railway travel faster, more convenient and ensure timely carrying of the rapidly growing volumes of cargo as the Indian economy expands and diversifies. Given the vast need of finances and managerial skills to carry the growing number of commuters and cargo by ordinary trains, the government-owned Indian Railways, however, is in no position to fund railway networks catering essentially to the relatively affluent and business connected inter-city travellers. Opening up such segments of the railway industry to private capital and enterprise is the only way forward to develop such systems and amenities for a few. Dedicated freight lines may have a more general usage but given their high capital costs, these also need to be developed by means outside the Rail Budget.

The proposal-in-works to allow private developers in the hitherto closed railway industry and permit up to 100% FDI in high-speed rail, dedicated freight corridors and connectivity projects to and fro ports, mines and industrial clusters has sound rationale. Alongside, many other facets of the entire railway infrastructure segment having commercial potential and amenable to farming out to private providers must be made the norm and unapologetically pursued as the only viable way to develop this mode of transportation. Undoubtedly, the railway mode is more energy-efficient and environmentally-benign and the least expensive compared to all others. For bringing in the private sector, there is clearly an urgent need to review the enactments such as the Railways Act, which has made its operations an entirely federal activity, and the Industrial Development and Regulation Act, 1956, which has reserved the rail related manufacturing for the public sector.

More important, however, is to recognise that policy and regulatory changes by themselves do not cause private or foreign funds to come in. The rail industry, by its very nature, is capital-intensive with a long gestation period and rarely has it come up or expanded any where in the world without explicit state support and conducive regulations. For a private consortium to build and operate a high-speed rail network from Taipei to Kao Shing, the Taiwanese government had assembled all the needed land, secured the various approvals and helped in arranging the funding. When shortly after starting operations in 2008, the developers complained that the government provided data on expected traffic was too optimistic and they were finding difficult to make ends meet, the government agreed to sympathetically consider extending the concession period.

Besides giving such assistance, the government would need to allow the private developers to fix user charges as per the play of the market, very much like in the aviation industry in India. Also, it will need to insulate the private players against the recklessness of state governments many of whom, in entirely parochial actions, had not too long ago imposed back-breaking taxes on aviation fuel consumed by aircraft landing in their states, much to the dismay of the Union government, as it resulted in foreign airlines altogether skipping Indian airports.

Even then, it is not certain if foreign equity will flow into the Indian rail infrastructure quickly. But as long as with such assurances of support, genuine queries and suggestions are evoked to develop meaningful private presence in this critical segment of infrastructure, the policymakers in India should be satisfied. Alongside, they should put in place the process to invite private developers, and make budgetary and other provisions to grant incentives and concessions, including substantial viability gap funding, for private rail networks.

The author is a former secretary in the ministry of

commerce and industry