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Plan to raise spend by 285% will transform railways: Morgan Stanley

The firm said the railways' efforts at exploring innovating funding models were a key reason for the optimism

BS Reporter  |  New Delhi 

Prabhu's plan to raise railways' spending by 285% will transform railways: Morgan Stanley

Railway Minister Suresh Prabhakar Prabhu’s plan to increase spending by the Indian Railways by 285 per cent to $132 billion over the next five years through 2019, as against the capital expenditure of $34 billion in the preceding five years, is a positive step that will transform the Indian Railways, global investment major Morgan Stanley has said in its report.

The primary reason for this optimism, according to the report, is the “reformist credentials” of Prabhu as power minister (1998-2004) and the fact that he was quick to identify the impeding elements, namely overcapacity and speed, and has also devised an innovative approach to ensure funding for projects.

“Rail is a significantly cheaper mode of transport than roads, yet the share of roads in Indian freight movement is more than 1.5 times that of the Railways, owing to the congestion in the rail network and poor policies. The railway minister is in the process of bringing change to a relatively moribund ministry. He has promised to spend $132 billion on the railways in 2015-19, a 285 per cent increase from the $34 billion spent in 2009-14,” said, Ridham Desai, head of India Research at Morgan Stanley.

The investment to be made by the railways over the next five years, along with its multiplier effect on the economy, will result in a 12 per cent increase in the growth of the gross domestic product (GDP) between 2015 and 2019, according to Akshay Soni, the author of the report.

The report says Prabhu’s plan to transform the railways through investments and capacity creation will lead to a 10 per cent reduction in India’s logistics cost, 15 per cent increase in corporate India’s profits and a five per cent rise in trade.

According to Morgan Stanley, the key reasons for the decline of the railways were under-investment, poor utilisation of funds and heavy cross-subsidisation.

Asserting that the “driver of the change is the man at the top”, Morgan Stanley has praised Prabhu’s ministry for announcing the plan in this year’s rail budget to fast-track 7,000 km of doubling of lines, involving $87 billion of investment, starting 77 new doubling projects with an investment of $962 billion and focusing on the decongestion of existing super-saturated corridors.

The firm said the railways’ efforts at exploring innovating funding models were a key reason for the optimism. This includes a $25 billion loan extended by Life Insurance Corporation (LIC) for financing the expansion of 24 saturated corridors, the funding of the dedicated freight corridor (DFC) project by the World Bank and the Japan International Cooperation Agency (JICA), the plan to develop 8,000 stations on the public private partnership route and new business models for tapping into funds for last-mile connectivity.

First Published: Sat, November 28 2015. 22:38 IST