The progress on projects such as Dedicated Freight Corridors (DFCs), high-speed rail and redevelopment of railway stations is likely to mark a paradigm shift in the country's railways sector. However, user-charge model for redevelopment of 600 stations is yet another innovative proposal that is on the stakeholders' table. Once the proposal gets the green signal, cash accruals will happen as soon as the station is redeveloped.
The country's railway sector is expected to become the third largest globally by 2022. For the current fiscal, a record amount of Rs 658.37 billion was allocated for the Indian Railways in the Union Budget. The public sector transporter also received the highest-ever Capex outlay of Rs 1.6 trillion. The money would be utilised in the expansion of suburban railway systems, elimination of manned level crossings, electrification of 7,000 km of broad-gauge network, third and fourth line works on 3,750 km, introduction of Automatic Train Protection (ATP) system and station redevelopment.
Earlier, the Railways had announced a massive investment plan of Rs 8.56 trillion over five years from FY2016-20 towards modernisation. Industry observers, however, warn that the Railways might be falling short of the lofty targets due to a host of external factors such as contraction in the economy and slow growth.
"Assuming the realisation of revised estimates and the planned capital outlay as per the budget FY2020, the total investment shall be Rs 6.32 billion which is 26 per cent less than the planned investments," stated Jagannarayan Padmanabhan, Director & Practice Leader, Transport and Logistics, CRISIL Infrastructure Advisory. "Although the overall capital investment outlay has fallen short on the five-year plan, the sector has seen a significant uptick in capital investments at 14 per cent compound annual growth from fiscals 2016-20 and 1.7 times increase in budgetary support to nearly Rs 661 billion," he added
Railways' performance to date for FY2020 is not very heartening when compared with the freight traffic growth of 4.8 per cent and 5.4 per cent and passenger traffic growth of 2 per cent each in FY2018 and FY2019, YoY.
It is often pointed out that every rupee invested in ramping up railway infrastructure benefits the economy six times over. Soon after the National Democratic Alliance (NDA) government came to power the first time in May 2014, a committee was formed under Professor Bibek Debroy to restructure the Railway Board. A majority of recommendations made by the senior economist at the New Delhi-based Centre of Policy Research to expedite decision-making were implemented.
Consequently, Indian Railways has been able to substantially increase its capacity expansion over the last five years by over 200 per cent, according to government data. The line commissioning is nearly 60 per cent and rake renewal about 50 per cent higher than in 2014. In fact, from the usual 200-plus km that were being added monthly on an average, the Railways was able to touch a new high of 640 km in January to end FY 2018 with around 4,400 km of new tracks. Similarly, line electrification increased from around 618 km in FY2014 to 4,087 km in FY2018.
The Ministry of Finance has estimated that railways infrastructure would need an investment of Rs 50 trillion between 2018 and 2030 and proposed the Public-Private Partnership (PPP) route for faster project delivery. Other than the budgetary allocation, the Railways has also been looking at innovative ways of increasing its non-fare box earnings.
Therefore, the progress on projects such as Dedicated Freight Corridors (DFCs), high-speed rail and redevelopment of railway stations is likely to mark a paradigm shift in the country's railways sector.
Corridors to Boost Cargo Plans
The Railways is targeting to increase its freight carriage to 3.3 billion tonnes by 2030. The completion of the Eastern and Western corridors by next year is expected to give a boost to cargo plans. Mangal Dev, Head Hitachi Rail Systems, India & South East Asia expects DFCs to have a long-term impact. "Since DFC is a greenfield project the Railways could rethink all the constraints and create a network that is open, faster and capable of handling bulkier and longer trains. This is going to have a positive impact on industrial activity for many years to come," he told INFRASTRUCTURE TODAY.
Tilak Raj Seth, Head of Mobility, Siemens Ltd feels that the completion of the first two DFCs would also give a fillip to private sector participation in the movement of cargo. "The moment the first two dedicated freight corridors from Ludhiana to Dankuni and Dadri to Jawaharlal Nehru Port Trust (JNPT) are available shortly, the goods traffic will shift there. That is when the real paradigm shift will start as it's a new way of operation," he observed.
Where the timely completion of the 538 km from Sonnagar in Bihar to Dankuni in West Bengal section is concerned, there is some uncertainty. In August, Bengal Chief Minister Mamata Banerjee shot off a letter to Union Minister of Railways Piyush Goyal, stating, "Strangely, the fate of the further eastward stretch from Sonnagar to Dankuni (in West Bengal) is yet uncertain. We have already acquired 70 per cent of land and handed over 60 per cent of land for this stretch."
The letter also questioned the Railways plans to execute the stretch under the PPP model when the two other legs were being built with public funding.
Rail ministry officials, however, attributed the slow progress on stretches passing through the states of Bengal, Bihar and Jharkhand on delayed land acquisition by the respective state governments.
Meanwhile, the federal government has plans to invest another Rs 3.3 trillion in the project to develop the East-West, North-South and East Coast arms of the DFC.
Need for Speed
The Railways has envisaged doubling of the average speed of freight trains and increasing the average speed of all non-suburban passenger trains by 25 km per hour in the next five years under Mission Raftar, which translates as "mission speed" from Hindi. The six principal routes identified for raising speed under Mission Raftar are located on the Golden Quadrilateral and diagonals - Delhi-Mumbai, Delhi-Howrah, Howrah-Chennai, Chennai-Mumbai, Delhi-Chennai, and Howrah-Mumbai. These carry 58 per cent of freight traffic and 52 per cent of passenger traffic, with a share of only 16 per cent of the network. They are also prioritised for replacement of short-distance passenger trains with the Mainline Electric Multiple Unit (MEMU) or Diesel-Electric Multiple Unit (DEMU) trains to provide better pick-up and braking.
This has resulted in the launch of the semi-high speed Gatimaan Express (160 km/hr) in 2016 and Train 18 or Vande Bharat Express (180 km/hr) in February this year.
Similarly, six corridors on the Diamond Quadrilateral connecting metropolitan cities and growth centres of the country, viz. Delhi, Mumbai, Chennai and Kolkata, were earmarked for the feasibility study for high-speed rail connectivity. But as high-speed projects are highly capital and technology-intensive, their approval is subject to their technical feasibility, financial viability and resource availability. Presently, the Mumbai-Ahmedabad rail corridor is the only sanctioned high-speed rail project in the country and is being implemented with Japanese assistance.
"Although high-speed railway projects involve multi-billion-dollar Capex investment, they are required in the country. Overall, the average speed of trains needs to be increased," opined Seth.
"The Mumbai-Ahmedabad corridor is only the beginning. We would need more bullet train corridors. In my assessment, the country would need around 8,000-10,000 km of bullet train corridors," pointed out Achal Khare, Managing Director, National High Speed Rail Corp. Ltd. (NHSRCL).
Redevelopment of Stations
The government has also approved the proposal for the redevelopment of 600 stations by inviting open bids for providing amenities and other requirements, including permitting commercial development of the real estate. This has been rightly billed as the world's biggest exercise in Transit-Oriented Development (TOD).
A dedicated special purpose vehicle (SPV), the Indian Railway Stations Development Corporation (IRSDCL), is overseeing the programme. In July 2016, the IRSDCL inked an agreement with a consortium of Bansal Construction Works and Prakash Asphalting and Toll Highways for modernisation of the Habibganj railway station in the central Indian state of Madhya Pradesh. Habibganj is one of the eight stations identified by the Railways for redevelopment under the PPP model. Work on the Habibganj project is expected to be completed shortly.
Measures like the extension of the lease period on railway land from 45 years to 99 years and inclusion of station redevelopment along with commercial development in the category of infrastructure projects were widely hailed by developers. However, financing continues to remain a challenge. For instance, Railways' financing arm, Indian Railway Finance Corp. (IRFC), processed IRSDCL's loan towards the redevelopment of three stations under the Engineering Procurement Construction (EPC) model only after receiving a letter of comfort from the rail ministry!
User Charge Model
Speaking to the INFRASTRUCTURE TODAY, Sanjeev Kumar Lohia, Managing Director & CEO, felt that the dependence on real estate for fundraising for station redevelopment needs to be curtailed to facilitate early financial closure of projects by exploring avenues such as user development fee. "If we have the user charge model, cash accruals will happen as soon as the station is redeveloped. And those charges can be absorbed in the ticket price. Our proposal is presently under consideration and if it's done then the pace of station redevelopment would get expedited."
Emphasising on the need to keep an open mind on raising finance for future projects, Seth averred, "In the last Union Budget and also in the Metro Rail Policy announced in 2017 there is a renewed focus on exploring all modes of financing rather than relying only on captive financing by the government."
In the last few years, the operating ratio of Railways has been under stress due to a fall in internal revenue and an increased expenditure on salaries and pensions. According to CRISIL's Padmanabhan, obstacles are also likely to crop up on funding requirements for capital expenditure, land acquisition and opposition to plans for partial privatisation of certain services.
"The Railways shall require to significantly ramp-up private participation to realise its vision for modernisation. To harness the potential of DFCs, it might need to revisit the tariffs and lower them down substantially to reduce the total logistics cost for rail transport vis-a-vis roads. Further, initiatives such as private-passenger train operations are steps in the right direction that shall help railways capture private capital and efficiency," he asserted.
The general perception about Railways' true potential, however, remains high. In October, the IPO of the Railways' subsidiary Indian Railways Catering and Tourism Corp (IRCTC) was not only oversubscribed 112 times but listed on the exchanges at double the issue price. The government is now looking at divesting its 25 per cent stake in the Indian Railways-owned broadband and VPN services provider RailTel by January next year.
- MANISH PANT