Railways on the right track

Expert reports on Railways reform and restructuring have repeatedly pointed out that the system has suffered from the absence of a comprehensive framework for capacity expansion. Consequently, only incremental changes have taken place through gauge conversion, doubling of lines, modernisation of signalling and so on, along with continuous addition of new lines on uneconomic routes.
 
What is crying out for attention, therefore, is a detailed operational long-term plan, taking into account the possible shifts and changes in the Indian economy, and consequently, the challenges that the railway system should be grappling with in the years and decades ahead.
 
This is precisely what the recently released draft of the National Rail Plan (NRP) sets out to achieve in a 1,100-page report. It looks forward to 2050, examines what the patterns of passenger and freight traffic are likely to be, and attempts to lay out a clear strategy of how the Indian Railways must evolve, in terms of both capacity and the financing needed to build that capacity.
 
The bottom line is that it calls for a capital expenditure of Rs 16.74 trillion between 2022 and 2031 on track and terminal infrastructure and rolling stock. The report projects an additional Rs 21.48 trillion investment in the 20 years after that. Track expenditure accounts for 60-66 per cent of that total capex, thus emphasising the importance of expanding the rail network.
 
But the details on how that network is to be expanded are just as crucial. The report forecasts that rail passengers are expected to rise by over 50 per cent over the next 10 years. At present, 64 per cent of passenger traffic is across just 20-odd High Density Networks (HDN) and Highly Utilised Networks (HUN), which comprise connections to major metros and cities. Passenger traffic is likely to get increasingly concentrated on such routes over the years, and the forecast is that the share of such routes in total passenger traffic will rise to around 69 per cent by 2031 and then stabilise at that level.
 
What this means is that there will be substantial chunks of the rail network, inclusive of freight, which will be operating below capacity, with the opposite being true of the HDN and HUN corridors. By 2031, for instance, 30 per cent of the HDN and HUN will be operating at above 100 per cent capacity; in contrast, close to 66 per cent of the rest of the network will be operating at below 70 per cent capacity. In other words, with business as usual, what will be seen is a huge strain on the economically-critical parts of the network, with large excess capacities elsewhere.
 
On freight, the report, in line with earlier reports, makes the point that it is important for the railways to increase its share of freight transport from the current level of below 30 per cent. Currently, the major share of railway freight business comes from bulk commodities such as coal, iron ore, food grains and fertilisers. The report points out the need to shift this freight mix towards container traffic. In a scenario where the railways makes the required infrastructure shifts and enables the current operating speed of freight trains to double from 25 km/hour to 50km/hour, along with a reduction of tariff by 30 per cent on various items, it would succeed in increasing its share of freight to around 44 per cent. Conversely, if the railways hesitates, and adopts a business-as-usual approach, the so-called “modal share” of the railways will fall to 24 per cent from the current 28 per cent, the NRP says.
 
To enable the improvement in the railways’ modal share, it is imperative that greater focus be given to the dedicated freight corridors, two of which are already under implementation. The report discusses three other freight corridors — the East-West Corridor, the North-South DFC, and the East Coast DFC. All three corridors find a place in the National Infrastructure Pipeline (NIP). The NRP also encompasses the high-speed rail projects mentioned in the NIP and proposes extensions and a set of newer corridors to improve the reach and connectivity of high-speed rail to large cities and towns.
 
The key question is: Where will the money come from? Traditionally, the railways receives funds from three sources — the government budget, retained earnings from its operations, or extra-budgetary resources (encompassing private investments and market borrowings). The report is realistic on the fact that the first two sources on their own will not be able to support the capex required under NRP. This leaves extra-budgetary resources as the main source of financing. Thus, a significant chunk of financing requirements is aimed to be met by mobilising private capital. To enable this, the report recognises the need for major reforms in the railways, citing that “…for long-term financial viability of the system as well as to allow leveraging of extra-budgetary resources in future, it would be important that financial viability of projects — as a criteria in itself, is given due importance.”
 
To its credit, the report does not stop at this but goes on to list the various possibilities for financing from different sources for each component of capex.
 
It is difficult to summarise a 1,100-page document with such granular detailing, but if there is a one takeaway, it is this: “Build more, build faster, but above all build smarter.” The “build smarter” part, including the financing, is the real challenge given the financial and organisational impediments that the railways has historically faced. But in its grasp of what needs to be done, the NRP is to be commended.
 
The writer is the Chairman of Feedback Infra