RAIL BUDGET 2015: WILL IT KICK-START INDIAN RAILWAYS?

Indian Railways is one of the world’s largest railway networks comprising 1,15,000 kilometers of rail track and 7,172 stations. The Indian Railway carried 8.425 billion passengers or more than 23 million passengers daily and 1,050.18 million tons of freight in the past year. As such, the Indian Railways became one of the pillars of India’s infrastructure and is closely related to the country’s industry and economy.

The railways play a crucial role in the bulk transportation of coal, iron ore, raw materials for the manufacturing industry, fertilisers, cement and steel products, and food grains, along with of course the transportation of people. Thus the transport demand through railways is directly interlinked with the growth in the country’s GDP. Traditionally, the railways’ share in the country’s GDP has been more or less constant at a level of 1.18 per cent from 2003-04 onwards.

However, due to political paralysis the potential of the Indian Railways has been undermined. The Government of India needs to drive considerable changes in its entire set-up. Look at China which was far behind us in the past but has improvised their railway network to such a huge extent. Further, the government has to start investing at this point of time since it will take at least a decade for the results to be clearly seen. This certainly can be a huge infrastructure project. Furthermore, safety is also a prime concern. It is just not acceptable the way people die in railway accidents across the country. There is therefore a huge task on hand to build a large network connecting ports with factories and factories with with mines. It is therefore upon the political system to initiate a plan and take Indian Railways to the next level.

Fortunately, now we have a minister who has a history and reputation of being a reformist; a decisive person from a party that not only has a clear mandate but also the willingness to turn things around. After being appointed the new railway minister, Suresh Prabhu stressed on his ministry’s accountability to ensure that safety and passenger amenities meet international benchmarks. The minister has clear intentions and aims to transform Indian Railways in the next three years. Further, he has focused on improving the railway infrastructure along with introducing bullet trains, thereby promising to open up ways to attract investments in this sector from global markets, predominantly Japan. Hence we can expect certain specific reforms to be included in the Railway Budget on February 26.

Prabhu has delegated decision-making powers to zonal railways and railway board members in a move that marks a significant decentralization of power. The move is aimed at speeding up the procurement process and bringing in more transparency for contracting railway works and services to field officials and thereby facilitate quicker implementation of projects. Further, this decentralization is aimed to reduce corruption too. The lower level officials will now be empowered and accountable for their decisions. The move will effectively free the minister and his staff and further insulate political dispensation from any controversy arising out of procurement process in the future. The decentralization will help companies with smaller contract tickets such as Kalindee Rail Nirman (Engineers) and Texmaco Rail and Engineering.

In order to improve railway infrastructure, the ministry plans to initiate projects related to the development of stations and gauge conversion through the public private partnership (PPP) route. There are some of PPP companies such as Pipavav Railway Corp, Hassan-Mangalore Rail Development Co., and Kutch Railway Co. that are developing such projects, predominantly gauge conversion. The government has also invited a few foreign financial institutes such as HSBC and JP Morgan to participate in the PPP model.

Meanwhile, Indian Railway’s share in freight transport has declined with expansion of the national highway network in India. With its inability to provide time-bound freight and multi-nodal logistics’ services, Indian Railways has witnessed a decline in high return, non-bulk traffic. It has also not been able to adapt efficiently to business other than movement of bulk cargo over long distances due to high pricing of freight transport and subsidy for passenger transport. The introduction of high-capacity and high-speed wagons can reduce the cost of operations, thus making transportation efficient.

Also, the setting up of private freight terminals and commodity-specific terminals with adequate incentives can also give the required boost to Indian Railways’ freight revenue. Incentives for promoting port connectivity and encouraging the private sector for ownership of wagons, terminals and warehousing will also add to its coffers. Any positives on the freight transport front will benefit logistics’ companies such as Container Corporation of India.

On the infrastructure front, Indian Railways is facing a slowing down of its network augmentation, including doubling congested routes. Further, there are large sanctioned projects pending due to inadequate funding for time-bound completion even as implementation of projects in the northeast region or J&K continues to pose huge obstacles. Given this scenario, Indian Railways needs to expand capacity and set up new manufacturing units to augment it. The private sector therefore needs to be involved to help establish a non-lapsable dedicated fund outside the normal budget on socio-economic lines.

To provide capability for safe, secure and productive freight and passenger transportation, Indian Railways intends to undertake modernization by way of expansion of network, increasing the axle load and run double-stack, longer container trains. There is also a plan to modernize the electronic signaling technologies for maximum track utilisation and for providing high-speed operations with safety. Some of the companies that may benefit from such a plan include Kernex Microsystems (India), Nelco, Bharat Heavy Electricals, Hind Rectifiers, Transformers & Rectifiers (India), etc.

Meanwhile, in order to expand and modernize the railway network, the Union Cabinet has allowed FDI in the sector which is expected give a fillip to infrastructure development. FDI has also been allowed for the dedicated freight corridor project. India has a huge array of ageing locomotives and there has been a plan to get them replaced by attracting FDI through a PPP model. Any development in this direction in the coming rail budget will definitely benefit companies like Stone India and locomotive manufacturer BEML.