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By Dhruv Garh and Nitin KumarThe transport and logistics sector serves as the backbone for India’s Developed India @2047 vision. As our national carrier, railways connect remote places, providing a sustainable and affordable mode of travel. Today, India has the fourth largest railway network and is the second largest freight carrier in the world. Recent budgets have played an important role in supporting this infrastructure by allocating Rs 2 to 2.5 lakh crore over the last two to three years. While investment in building track and rolling stock infrastructure has been significant, the average train speed over the last ten years has remained in the range of 20-25 kmph for freight and 50-52 kmph for mail/express passenger. Large public investment has still not given impetus to significant private sector participation in aspects such as tracks, railway stations and manufacturing units. To compete with other modes, especially expressways, a clear value proposition is needed to increase freight rail share from below 30% to an ambitious 45% target by 2030.
Thus, although budgetary support on infrastructure creation remains important, it will be necessary to link these investments to structural reforms.It is therefore suggested that the government focus on the following sectors to drive one of its important growth engines – Railways.
- Focus on private investment: Investments made by the government may not be sustainable for long-term regional needs and development. It is therefore important to channelize private investment to bring in innovative technology, efficiency and service. Based on lessons learned from PPP initiatives
Indian Railways There is a need to bring innovative models that are investor-friendly with appropriate risk allocation framework for regulatory, financing, construction, traffic and operational risks. This will lead to wider participation of the private sector and create a pipeline of projects that will enhance the delivery efficiency of Railways while promoting innovation, new technology adoption and efficient O&M practices. Since railway projects have high capital costs and socio-economic constraints, cost recovery should include non-tariff measures such as non-fare revenue and land value capturing to enhance feasibility and project returns. - Manufacturing Growth: The success in manufacturing rolling stock like Vande Bharat, passenger coaches like Metro and automated train protection systems like Kavach should be encouraged and replicated in the rail industry through private sector led innovations and advanced technologies in rolling stock, track, signaling and electrical systems. To make India a global rail component manufacturing hub, there is a need to explore capacity or production linked incentives for advanced technology components and systems.
- Industry-aligned commercial structure: The current fare and tariff structure needs to be better aligned with the business needs of the freight sector. It is therefore important to align tariff policy with innovative models that incentivize rail freight movement, long-term industry commitment and promote efficiency and competition. These may include multi-operator arrangements, dynamic pricing, per train pricing schemes rather than tonnage, time-tabled services, value-added services, return load discounts and multi-modal integration. This will help Railways to bring in e-commerce including non-bulk commodities like containerized movement, auto carriers and parcel/lightweight shipments, which are growing at a larger pace than traditional bulk commodities.
dedicated freight corridors (DFC): DFC has demonstrated an opportunity for Indian Railways to provide efficient and faster freight services. There is a need to implement new corridors while ensuring that services in the freight corridors are further optimized through intermodal freight terminals as well as high capacity and speed capable rolling stock in its network/feeder network. Future corridors can be planned in a targeted time bound manner involving private and public investments.- Supporting Institutional Structure: The measures mentioned above highlight the importance of having the right institutional structure to drive innovative models to achieve customer satisfaction, promotion of efficiency, transparency in business, flexibility in operations, disciplined implementation etc. An enabling regulatory framework is needed to bring greater transparency and confidence and link social responsibilities with business needs. There is a mismatch between rolling stock and infrastructure, with passenger trains lacking track infrastructure, and freight trains lacking the type of wagons needed to achieve operational speeds. As a result, assets and investments made are underutilized. Implementation of security features like Kavach 4.0 and advanced signaling systems is slow. The lessons learned from the implementation of 100% electrification works should be reviewed and reused for the implementation of advanced signaling systems.
It is therefore important that the Budget drives a transformational agenda for capital recycling models and private sector investment in both capital formation and operations. Furthermore, it should introduce industry-friendly tariff structures, encourage rail-related industries, and provide a strong framework for the introduction of an institutional structure that promotes investment in assets, competition, efficiency and innovation in services supported by human capital development. By doing so, the Budget will enable Indian Railways to become a strong contributor to achieving the goal of Developed India @2047.(Dhruv Garh is Partner and Nitin Kumar is Director – Transport & Logistics, Infrastructure, PwC India)
