Column: Railways on a different track

Written by Subhomoy Bhattacharjee | Updated: Feb 14 2014, 04:28am hrs
The Indian Railways may not be the railways we know, any more. Taking advantage of several favourable circumstances the government is creating a new railway system parallel to the existing one. The investment in the new group of entities is already more than twice the investment in rail tracks, new passenger and freight trains that the generic rail budget presented in Parliament contains. Even the management of the new railways has moved out of Rail Bhawan.

This is the most riveting change to have occurred in India's largest infrastructure network. It has happened without any announcements within the past two years, though some of it began a bit earlier and it could be executed as the railways and the public at large have remained fixated on the rapid churn of ministers at the top.

Within the debris of the development plans for most of the infrastructure sector like roads, power, urban reforms including water, this is one which has surprisingly begun to sail through.

Successive rail ministers, with the brief exception of Dinesh Trivedi, have blocked any attempt to make the railways a corporate entity. They have used every possible reason to scuttle the moves despite pulling the railways closer to a financial emergency.

For instance, for FY14, the railways will borrow R14,000 crore from the markets through its financial arm the Indian Railway Finance Corporation. This is more than a third of its investment budget. The costs for the borrowing are kept low since the railways, through a book entry, hypothecates its rolling stock to the corporation. But in the process, more than 80% of the stock has got pledged which means the headroom is almost gone for additional borrowing in future.

Let us now examine the changes being brought in to solve this mega mess. The biggest of these is the central government clearance for two mega projects the Western dedicated freight corridor and more recently the eastern corridor, both under the Dedicated Freight Corridor Corporation of India Limited (DFCCIL).

As envisaged, the

DFCCIL is the biggest corporatisation story of the Indian railways. It will set up rail lines between all the major manufacturing hubs and ports in India. To get the perspective, just remember the British government too started out the railways on the same plan.

The two projects between them cover about 2,762 route km of two of the railways busiest freight and passenger routes. They account for 40% of the railways annual freight volume, as of now.

Other than the two corridors, this corporation will build at least five

more. Between them, they will put into shade all the major train line building plans of the Indian railways for the next few decades.

More, they will also run the trains on it. And those will not be the same rakes as the ones trundling across India. Since the government has cleared the plan to run double-decker freight trains on these lines, their construction including the height of the electric mast will be different.

The same batch of electric locomotives cannot obviously run on both. It is only a demonstration of how the new system will be like two companies running two parallel services, but on different standards.

There is however more to come. For FY15, the next mega project cleared for the railways is the plan for the bullet train. The project approved by the Planning Commission says for it to be viable the trains should run between several destinations instead of a single demo project.

It will be financed and engineered by Japan. To be formed as a corporation on the lines of the Delhi Metro Rail Corporation, the structure allows it to raise capital, both debt and equity from the markets without having to go through the IRFC or burden the government budget. The management of the company will sit outside rail ministry. The scale of investment for each segment of these trains, at about R35,000 crore is more than the backlog of investments Rail Bhawan pencils into its annual budget statements.

Of more consequence is a Cabinet note on DFCCIL. The note says the government will have the option of disinvestment in the company after five years. The bullet train corporation (it has not been named, as yet) too will also have the same option. The options are in line with some of the global best practices which say the government should build an infrastructure project but monetise it by selling off the running of it to the private sector.

In this context, we are not even counting entities like the Rail Vikas Nigam Limited set up in 2006. The railways has been forced to hand over some of its most profitable construction projects to this company which as its mission statement shows combines project development and mobilisation of financial resources into one organisation.

It makes a lot of sense to set up the Rail Traffic Authority as the Cabinet cleared it in January. Attention has been focused on how the regulator with only an advisory role will intervene to try to cut the cross subsidisation of passenger fares from freight charges. But, as it turns out, this will not even be the biggest remit for it. The industry will be paying far more attention to how it polices the fare strategy of the new public sector companies running the new railway system coming up in the country. Solutions to the political grandstanding over fare and freight charges in the old railways in Rail Bhawan can afford to wait. It will soon be of peripheral importance.