Reforms driven agenda: Why it’s time to modernise the Indian Railways & make it world-class

The introduction of PPP in Indian Railways is a welcome step and can lead to the kind of reforms that can help transform India and make it a global leader

The broad contours of the Indian Railways’ proposal feature a list of 109 pairs of routes through 151 trains (rakes), divided into clusters with at least 12 rakes to be operated.
The broad contours of the Indian Railways’ proposal feature a list of 109 pairs of routes through 151 trains (rakes), divided into clusters with at least 12 rakes to be operated.

By Amitabh Kant

Spanning an extraordinary 68,000 route km, the Indian Railways is truly the pulse of the nation. It employs over 1.2 mn people and generates approximately Rs 2 lakh cr annually—a major contributor to jobs, GDP, and mobility. In fact, efficient and optimal use of the railways could further add up to 1% to GDP.

The robustness of passenger demand is unprecedented as it has withstood long-term modal shifts and consistently reported unserved demand levels of 15%, in the form of waitlisted passengers. The unmet demand level necessitates substantial investments in capacity augmentation and technology.

The time has come to modernise the Indian Railways, make it world-class, and a key driver of the country’s growth in the post-Covid era. The overall travel experience of the common man needs to be transformed; high-quality in-transit experience needs to be supplemented by best-in-class railway stations.

However, to undertake an operation of such gargantuan proportions, India must involve the best resources via PPP to bring in the latest technology, leading practices, and efficiencies.

The recent opening of PPP opportunities by Indian Railways is a clear indicator that a reform-driven agenda is being implemented. It is a controlled foray into PPP, where market forces will help enhance the quality of services and in-transit experience, without the government relinquishing control over public safety and security.

PPP has been actively deployed as a mechanism in Europe and Japan. In Germany, Deutsche Bahn divided into two distinct entities—DB Netz for infrastructure and DB AG as the operator—which remain state-owned and continue to operate most inter-city services. Entities in Britain and Italy, too, have opted for PPP, while Japan has made several forays into PPP in its rails and stations. In the 1980s, seven for-profit companies were made as a result of the bifurcation of Japan Railways under the PPP umbrella.

The broad contours of the Indian Railways’ proposal feature a list of 109 pairs of routes through 151 trains (rakes), divided into clusters with at least 12 rakes to be operated. Journey time will be, within a range of 10%, like the fastest Indian Railways train on that path. Proposed routes include Delhi–Mumbai, Delhi–Chennai, Mumbai–Chennai, and others. This is a follow up of last year’s launch of the IRCTC-run Tejas Express, and the Kashi Mahakal Express. Once the ecosystem is evolved, the model could be replicated on many more routes in future. For routes that may not be attractive for private operators, upfront fares may be prescribed, and gap funding be structured to bring in viability.

PPP operators are expected to finance, procure, operate, and maintain the allocated trains. To make the current packages a viable business model, the railways has created a composite haulage charge mechanism to access common infrastructure such as track, signalling, and terminals, among others. The haulage charge, specified upfront in the agreement, will be payable monthly upon commencement of operations. This could generate revenues that will offset expenses towards infrastructure maintenance of private trains.

The initiative will bring in cutting-edge, technologically advanced rolling stock, shorter journey times, enhanced job growth, better safety, and best-in-class service standards. And, crucially, bridge the demand-and-supply deficit for passengers. The PPP investment is expected to be in the range of Rs 30,000 cr—in a Make in India–led growth strategy. Encouraging domestic manufacturing of rolling stock, these projects will also create direct and indirect employment.

With the commissioning of dedicated freight corridors, a substantial chunk of our freight traffic will move there, freeing up track capacity on key corridors for PPP operations space.

Critically, the railways will be non-discriminatory in its treatment towards trains operated under PPP. For the first three years, the railways cannot originate a new train within 60 minutes of the scheduled departure time of the originating station.

Safety certification of the rakes will be in line with all the railways’ safety and security parameters. The concession period will be for 35 years, and the PPP operator may procure trains and locomotives as per choice as long as they are compatible with predetermined specifications and standards. With regard to introducing new rolling stock, the validation will be done by an accredited independent safety assessor on an Indian Railways track, until such time RDSO adopts testing norms as set out in UIC-518 or other international norms.

Another key initiative is the redevelopment of railway stations through a PPP model, remaining cost-neutral to Indian Railways. Initially, 50 stations will be bid out and funded through land monetisation as well as user charges. The modernisation and redevelopment of stations will be conducted primarily through Indian Railway Stations Development Corporation Limited, Rail Land Development Authority and other central government entities. The PPP basis is under the Design, Build, Finance, Operate and Transfer model. The land lease period has increased to 99 years for residential development around the railway stations as part of the project, and commercial development to 60 years. To add to the viability of this project, all clearances will be single-window, and plans will be approved in consultation with urban local bodies and authorities to ensure a collaborative exercise.

It entails utilising the potential of real estate for excess land and air space in and around the stations for development through PPP. Comprehensive techno-economic feasibility studies of stations across the country are and will continue to be conducted. Already, development at Gandhinagar and Habibganj railway stations is at an advanced level, expected to be completed by the end of the year. The redevelopment of Anand Vihar, Gomtinagar, Bijwasan, and Chandigarh railway stations has already been agreed to, and work is commencing.

The 50 big stations have been planned to be bid out through the PPP route aimed at bringing in investments exceeding Rs 50,000–60,000 cr, and a paradigm shift in the travel experience. While eight have been bid out, the two large stations of New Delhi and Mumbai will be in the soon be in the fray, with the rest expected to hit the market soon.

In any structural reform of this nature, there will be challenges. One of the primary challenges will be independence of adjudication in disputes. An independent regulator could go a long way towards allaying concerns of equitable treatment of PPP operators and ought to be considered strongly. Other issues that could factor in will be the pricing strategy to remain competitive yet stay profitable, given the competition through air, road, and to some extent, water transport. It will be vital to address the challenges to ensure this is a successful and sustainable model.

The introduction of PPP in Railways is a welcome step and can lead to the kind of reforms that can help transform India and make it a global leader.

The author is CEO, NITI Aayog
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