On the right track: Rlys reforms must begin with planning, execution
The Indian Railways’ reformation must begin with investment planning and project execution, with a focus on capacity creation, writes Varun Gandhi.ht view Updated: Feb 01, 2015 23:15 IST
For India to grow at 10%, the railway network needs to grow at 15-20% annually. A single 200 km high-speed rail route can add $20 billion to India’s economy annually. By linking producers and consumers across the nation, it can leverage geographical advantage, creating an efficient division of production and providing the means to expand economics of scale and scope. To ‘Make in India’, efficient rail transport becomes necessary, raising growth in poor and isolated districts. By making inter-city travel economical, the railways helps lay a foundation for service industries and tourism. Every kilometre of new railway track can create a hundred jobs.
The government’s push for modernisation of this sector harbours immense potential for reform. The railway minister’s empowerment of zonal railway heads should be utilised for furthering operational and financial goals, while bolstering accountability.
A comparison helps. By 2014, China had completed constructing a high-speed rail network of about 11,000 route-km, far exceeding the high-speed railway network in any other country. All this has been built at a typical infrastructure unit cost of about $17-21m/km, compared to $25-39m/km in Europe. China’s accomplishment relied on clear lines of responsibility, a strong technical capacity and large economies of scale, while incurring high railway debt. Clearly, thinking on a large scale helps.
With a worsening operating ratio (93.5%), slowing revenue growth (compound annual growth rate (CAGR) at 2.8%) and rising costs (CAGR at 10.9%), the railways finds itself fiscally constrained in making necessary investments. Of nearly 340 capacity enhancement and modernisation projects worth Rs 172,934 crore of investment (61% are uneconomic), we allocate just Rs 10,000 crore of funds each year.
A three-pronged approach is needed. First, a massive reconstruction programme needs to be launched to incorporate new lines, high-speed rail and freight corridors, separating long haul and suburban networks. Second, railway finances need to be fixed through public investment, market borrowings and private investments. Third, the railways need to be restructured from the bottom-up, improving investment planning and project execution, while ramping up safety.
Consider India’s railway map. Traffic flows on these routes are highly uneven and imbalanced. Lines connecting the four major metros constitute less than 16% of the total route but account for the majority of the passenger and freight traffic, with most lines having crossed 100% utilisation. We need to create capacity ahead of demand.
Construction in this railway network needs to be jumpstarted. There are several projects, including doubling of lines, gauge conversion and new lines that can be prioritised and constructed through ring-fenced turnkey projects. High-speed rail needs to be given a push, with the recent Delhi-Agra trail run a welcome success.
Public-private partnerships (PPP) could be offered on new lines to the private sector, with the government providing viability gap funding using existing schemes and adding sops, like the development of real estate and railway stations, and conversion of spare land into commercial developments. The private sector can help redevelop up to 50 railway stations through projects worth Rs 50,000 crore over the next three years.
The railways should also allow private inter-city trains to operate. With capital and operational expenditure borne by private operators, pre-determined paths and time-slots could be used to add capacity, while preventing cannibalisation of the railways’ revenues. A focus on axle loads, increasing trailing loads and running longer trains could help in the short run. Currently dedicated freight corridors are being partly financed through the World Bank. Such corridors can be bid out on a PPP basis, with up to 20% project cost available as viability gap funding. The railways could guarantee minimum traffic and pay access charges for freight movement.
The Indian Railway Finance Corporation (IRFC) has limited its mandate to leasing rolling stock; it needs to focus on railway electrification and signalling. About 14,000 km of network can be electrified over the next five years, through turnkey projects. The IRFC could fund this through market borrowings and the current allocation. Joint ventures with state governments, PSUs, port companies and the private sector can help construct railway line projects on a build, operate and maintain basis, with the railways paying a negotiated access charge.
Providing world-class signalling and train protection systems would go a long way in increasing throughput and improving safety. Investing in Automatic Block Signalling and using GSM-based mobile train control communication systems would lead to a line capacity increase of 30% for a cost of Rs 25,000 crore, with improved revenue generation paying for the expenditure.
This organisation needs reformation. It all begins with investment planning and good project execution — sharply focused towards capacity creation. An archaic structure, focused on engineering lines, should be reorganised on business lines such as freight transport, passenger transport and infrastructure management. Such creation of profit centres would help bring railway accounts in line with global accountancy standards.
An institutional separation of roles is much called for. Focusing on policy, the government could help define a consistent vision for the railways as an entity that focuses on both passenger and freight traffic. This should be institutionalised by the creation of the Indian Rail Regulatory Authority (IRRA) and the India Railways Executive Board (IREB), focusing on the regulatory and management divisions of the railways respectively. The IRRA should focus on protecting consumer interest, fix tariffs and subsidies, and introduce competition into the network. The IREB should implement the restructuring and reorganise the regional organisations. Only then can it power forward to pull India’s economy along.
Varun Gandhi is BJP national general secretary and Lok Sabha MP
The views expressed by the author are personal