Reimagining Railways, a brand-new track

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December 26, 2020 5:15 AM

Faster speeds, more private players, airport-like terminals, etc; central to all this is getting the subsidy equation right

The Mumbai -Ahmedabad link will be operational by 2026, and four more will follow by 2031.The Mumbai -Ahmedabad link will be operational by 2026, and four more will follow by 2031.

Though it is early days, the Railways is in the process of a radical transformation and, if this remains on track—continuous reforms for years won’t be easy—a completely new entity should emerge in the next decade or so. Some signs are already visible in the swanky multimodal airport-like railway stations being developed in places like Gandhinagar and Habibganj, in the privately-run goods trains and in the plans being rolled out to have privately-run passenger trains as well.

Indeed, once the two dedicated freight corridors are up and running by 2026, the Railways freight operations should also get a boost as train speeds will improve dramatically; freeing up tracks for passenger trains means that, even without the new trains being planned, speeds for passengers should also increase dramatically … and then there are the 12 high speed corridors being planned for bullet trains by 2051. The Mumbai -Ahmedabad link will be operational by 2026, and four more will follow by 2031.

Transforming the Railways will, according to the National Rail Plan (NRP) that was put out last week will require Rs 16.7 lakh crore over just the next decade, at today’s prices, and then another Rs 10-11 lakh crore for each of the next two decades. Since this is money the Railways does not have, achieving this will require a massive ramp-up in private sector financing and operations; to cite one statistic from the NRP (page 711), from around 12% right now, around 72% of wagons will be owned by the private sector by 2031 and 100% by 2051. Executing this plan, in turn, will mean a complete turnaround in the finances of the Railways since private firms will need a financial return to make such heavy investments.

Right now, not only does the Railways not earn enough to meet what it needs, its finances are getting a lot worse as the rapid deterioration in the operating ratio shows. Losses on passenger traffic, the main reason for the losses, are up from around Rs 35,000 crore in FY15 according to an estimate made by Bibek Debroy who heads the PM’s economic advisory council to Rs 55,000 crore in FY20 according to a figure given by Railway minister Piyush Goyal.

If the losses at the aggregate level aren’t bad enough, their impact is worse. To make up for the subsidies for lower-class travel, the Railways charge too much for upper-class travel and are in danger of losing out to airlines and other modes of transport; indeed, overcharging on freight, to make up for passenger losses, has been responsible for the Railways share of total freight falling from 85-90% in the 1960s to around 28% today.

In order to fix this, the NRP envisages a rebalancing of fares as that is critical to the transformation. The NRP sees the Railways share in freight falling to 24% in another five years in a business-as-usual scenario, but sees it recovering to 31% if freight rates are dropped by 30%; if this is combined with a dramatic increase in speeds, the share can even rise to 45%.

Not only will reduced subsidies help the Railways finance part of what needs to be invested, it will ensure private operations of passenger trains are viable; and as the Railways charge less for freight, both volumes and profits from here will rise for both private and public operations. And as the Railways get more viable, more investments can be made that are critical for improving the quality of services. Since every government in the past several decades knows how runaway passenger subsidies are the root of the problem, it remains to be seen how fast the Railways are put back on track.

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