India aims to get on track with rail network

Country depends heavily on the system and needs foreign investment to fund an upgrade.

Commuters wait on a crowded railway platform as a train enters a suburban station in Mumbai. Danish Siddiqui / Reuters

Mumbai’s Chhatrapati Shivaji Terminus railway station is a hive of activity. Traders from all over the country arrive at the historic station – housed in an impressive Victorian Gothic building – following train journeys that may have taken more than two days. Goods ranging from huge sacks of rice to motorbikes are unloaded on to the platforms. Lawyers and restaurant workers hop on the crowded local services for their daily commute across the city.

India’s railways are often described as the backbone of the country’s economy. But the antiquated network, much of which was built under British rule, is desperately in need of an overhaul, amid huge financial losses and safety issues. Narendra Modi, India’s prime minister, who came to power this year following a landslide victory, is taking steps to modernise the country’s railways by attracting foreign investment into the sector. This is part of a plan to inject 14 trillion rupees (Dh836.69 billion) into the network by 2020. The journey will not be easy, however.

“I know that everybody feels that they have a solution to the challenges which Indian Railways face,” DV Sadananda Gowda, India’s railways minister, said when he presented his first railway budget in May. The “growth of railway sector depends heavily on availability of funds for investment in rail infrastructure. Internal revenue sources and government funding are insufficient to meet the requirement”, he said.

Indian Railways, owned and operated by the government, is one of the world’s largest rail networks.

It covers 116,000 kilometres of railway track and carries more than 23 million passengers and 3 million tonnes of freight a day, connecting more than 7,172 stations across India, according to official data. It employs more than 1.3 million staff. But it has been suffering heavy losses in recent years, with a reverse of 250bn rupees in the financial year running to the end of March 2013.

One of the reasons behind trains bleeding cash in India is because of subsidised tickets being sold below cost. The government in May announced an unpopular move of hiking rail fares by 14 per cent in a effort to stem these losses.

In August, it opened up India’s rail infrastructure to 100 per cent foreign direct investment (FDI). Last month, Japan said it was ready to provide financial, technical and operational support for India’s plans to launch a high-speed bullet train between Mumbai and Ahmedabad, in a project which is expected to cost 600bn rupees. Japan is helping India conduct a feasibility study for the 300kph railway system. Soon afterwards, China pledged to invest in India’s railways with plans to improve the speed of the line between Chennai and Mysore via Bangalore, redevelop stations and help set up a university for the railway sector in India, as part of a broader target of investing US$20bn into India’s economy over the next five years.

There are lessons to be learnt from other countries in trying to achieve profitability, business leaders say.

“Japan undoubtedly will be a great model to emulate,” says BVR Mohan Reddy, the executive chairman of Cyient and the vice chairman of the National Association of Software and Services Companies. “The rail system is not only profitable but is safe, punctual, clean and comfortable. For metro passenger systems, Hong Kong MTR can be a good example where the train not only runs at 99.9 per cent punctuality but also the stations and trains are very clean.”

He says that foreign investment would create an “impetus for improved rail assets”. It would also bring in much-needed capital for the growth of the industry and reduce the burden on government finances, he adds.

“Indian railways has been pursuing the conflicting objectives of running like a commercial enterprise but serving like a welfare organisation,” says Mr Reddy. “Historically, populist measures have been taken as a routine which have resulted into low operational performance and wastage of funds.”

While there are mixed views on the success of rail privatisation in the UK under Margaret Thatcher’s government more than 20 years ago, Asheet Pasricha, the president of the Association of Indian Forging Industry, says that India should look to this model as an example of improvement.

“The railway sector in UK was declining,” he says. “The infrastructure needed a boost, the systems were not reliable and there was absolute lack of innovation. This scenario called for privatisation of the railways, which brought about a railway renaissance in UK. Thus the FDI and the PPP (public private partnership) models in railway, if implemented correctly, hold a lot of promise to bring in the desired turnaround in terms of revenues, profitability and sustainability.”

Investment into India railways is much needed, Mr Pasricha says.

“With railways incurring losses over the last few years there has been lack of investments in technology upgradation, laying new tracks and new coaches among others,” he says. “Apart from this railways are also reeling under the pressure of an overburdened network, incurring losses due to low service charge, declining profits due to absence of streamlined and rational policy approach and lack of focus on completing unfinished projects.”

The success of attracting private investment, however, depends on decisive and sustained implementation and a clear strategy to convince investors that they will see a return.

“Railways have been unsuccessful in the past in meeting their targets,” says Mr Pasricha. “Hence what is more critical is to create a conducive environment to attract private sector participation. Policies and guidelines will have to be spelt out properly and a clear roadmap will be required to build positive sentiments among investors to feel confident enough to receive good returns on their investment.”

Proposed improvements to India’s railway network would also provide a huge boost to the country’s tourism industry.

“A strategic three-pronged combination of connectivity, safety and modernisation has brought the spotlight back to ‘Destination India’, and augurs well from both an inbound and domestic tourism perspective,” says Madhavan Menon, the managing director of Thomas Cook India. “Connectivity to Kashmir, Meghalaya and Arunachal Pradesh immediately put them on the tourist radar as key emerging opportunities. We are delighted with the impactful new initiatives of both high and semi-high speed projects.”

Safety has been a major problem for India’s trains, with fatal accidents, including crashes, derailments,and fires, occurring all too often. Improving safety on India’s trains is a vast undertaking.

“India has the most dense network compared to other countries,” says Manoj Shenoy, the president in Mumbai of the Fire and Security Association of India. “In India, a minimum of 12 to 13 carriages are pulled by each train. The amount of people travelling on trains is also much higher than elsewhere in the world, where people use cars more or maybe fly. It is the lifeline of India. There may be a higher level of accidents being reported in this country.”

Foreign investment into India’s railways would definitely help improve the safety of its trains, he says.

“They will obviously come in with more advanced technology in terms of safety and security.”

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