“Targeted pricing will help railways maximise earnings”

As one of the countryÂ’s leading analysts in the transportation sector, Jagannarayan Padmanabhan, Director & Practice Leader, Transport and Logistics, CRISIL Infrastructure Advisory suggests that the Indian Railways can effectively fulfill its social obligations even while remaining sustainable through measures such as providing targeted subsidy to passengers and a thorough process for appraisal of projects. In this extensive interview to INFRASTRUCTURE TODAY, he says that it is entirely up to the Railways on how it would like to leverage its unique position as the countryÂ’s most inclusive transporter.

Integrated planning with a focus on freight is essential to lower Indian RailwaysÂ’ transportation and logistics cost. How can this be best achieved on a pan-India basis?
From numbers perspective, everyone is aware that India has one of the highest logistics costs among the emerging market economies.In terms of bringing efficiency, there is so much that can be done to improve production. Logistics efficiency can easily be achieved, and it would benefit the manufacturing sector. The government as well as private players are cognisant of this fact, and hence have taken enough measures to achieve it. The way to go forward is multi-fold.

The first focus is obviously on infrastructure development, for which there are now talks of setting up multi-modal logistics parks across the country. Direct port delivery ensures that all clearances happen at customer locations. The second focus is on overall integration. India has changed significantly over the last ten years. We now need to identify those districts that have grown well above the national average on a nominal basis. That will give us a sense of where the clusters are emerging and help us map the infrastructure based on their logistics requirements. Moreover, leveraging technology is an important aspect of businesses today, and customers want information on real-time basis. The Railways will, therefore, have to accommodate that. Improvements can happen once tracking is in place.

In the past one year, do you perceive any significant gains being made with the implementation of GST?
It is still early and we will not be able to comprehensively say that this has come about. All of that will happen when we develop the ability to evacuate cargo seamlessly. However, the railways will immensely benefit from cost and time, once infrastructure such as dedicated freight corridors (DFCs) comes into place.

Since infrastructure financing is likely to be a challenge and there will be pressure on the railways to only consider projects that are sustainable in the long term, what happens to their social obligations?
We would not like to broad brush it by saying that the Railways cannot be a social organisation, or that it has to be a social organisation; you can marry both. I will share a quick anecdote. When you buy a Mumbai Rail Vikas Corporation (MRVC) ticket, you will be transporting in the most subsidised way possible. If you go and ask a consumer today if he wants it at that price, some might be more than happy to pay more for the services. Therefore, a targeted subsidy is an important aspect. Here, technology can make a great impact. More than 1 billion people reportedly have access to the Aadhar card and a good amount of information is captured there.

Why not link it to the Unique Identification Authority of India (UIDAI) database and then verify where the subsidy is truly required?
Maybe 30 per cent of the passengers do not need it and the rest 70 per cent do. But that 30 per cent would add significantly to the profitability of the Railways. So, the social obligation can be tracked through individual, need-based pricing rather than a mass class of travel-based pricing. It is equally important that the railways take a judicious call on projects despite political pulls and pressures. We are not saying that it should not take up projects that do not give returns; it should be able to balance out its portfolio. About 25-30 per cent of the total projects might not be very profitable, requiring viability gap funding (VGF). Once you balance that out, and have a policy-level discussion followed by a proper project appraisal, it would go a long way in balancing out the social as well as sustainability obligations. One thing leads to another: financing, sustainability, safety, and profitability.

How can private participation in the railway sector be enhanced?
The railways were at the forefront of the public, private, partnership (PPP) model of infrastructure development well before many other sectors took it up. However, it did not move further ahead in terms of implementation and, consequently, sustained private sector participation has not really happened. Here, the example of recent developments in the roads and highways sectors will be relevant. Under toll, operate, transfer (TOT) model, the toll assets of the government or National Highways Authority of India (NHAI) have got successfully bid out to the private sector. The government did an extensive consultation to get the views of all key stakeholders. Such kind of view needs to be taken up by the railways too. The flexibility to absorb new ideas and thought processes will help the railways get the private sector on board. However, consultation needs to happen not only at the regional level but further down as well.

What are some of the areas where there is a potential for private sector participation?
One, we certainly feel that proper engagement with the key stakeholders can happen on station redevelopment. Let me put a context to this. Although people say that the real estate market is down, you can see the kind of private equity (PE) deals that have happened in the commercial space. At the end of the day, an Indian Railway station has a commercial orientation and therein lies the marketÂ’s absorption ability. Railway stations are located at prime locations and receive very high footfalls.

Therefore, we would say that there is a business case for redevelopment of at least the top 20–30 per cent of them. Two, there is potential in the area of private freight terminals, which has already started. Three, the Railways can look at inviting private participation in last mile port connectivity. Four is asset monetisation. A recent proposal talked about monetising all electrification and transmission works. Five is non-fare box revenue of which much is talked about, but not much has happened. World over, it is close to 40 per cent, but in the case of Indian Railways, it is nowhere near that number.

How well-founded are the fears of Rajdhani and other premier trains losing out passengers to road transport in this scenario?
Allow me to share a data point here. With a decline in price differences, many two-tier AC passengers now prefer to travel by air.

Now, if you have a highway coming up that is going to significantly cut down travel time, it is bound to cause some anxiety. Another reason is that a rail journey is point-to-point, while road travel can be point-to-home, in the sense that you will have bus services that start from within half an hour distance from your place of residence. Today, when you have premium luxury buses providing amenities of an aircraft cabin at attractive prices, there is bound to be a natural shift from train to bus.

Having said that, the railways still has a unique advantage as far as safety is concerned. The number of road accidents is far higher than railway accidents. The second positive for the railways is in terms of comfort of journey. Rajdhani and other services can look at shortening the travel time to intermittent points. The added advantage to the Railways is that once the Delhi–Mumbai Freight Corridor comes up, a significant amount of capacity that was earlier being used to carry passengers could get freed up for freight. That would enable the Railways to run faster and increased number of freight trains.

– Manish Pant