Indian Raliways: Improving Infrastructure

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Glen Savio Palmer, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur


The Indian Railways is one of the largest transport and logistics networks of the world. It runs about 12,000 trains, carries over 23 million passengers daily and connects about 8,000 stations spread across the country. Moreover, Indian Railways runs more than 7,000 freight trains per day carrying about 3 million tonnes of freight every day.

The Indian economy has emerged to become the fastest growing economy of the world today. However, Indian Railways has not been able to capture this growth due to unavailability of wagons and lack of infrastructure, thereby losing share steadily to roads.

To increase its market share in the transportation of bulk and non-bulk freight, the Central government has been steadily increasing investments in railway infrastructure. The budget allocation was increased to ₹ 643 billion in 2014-15 from ₹ 593.6 billion in 2013-14. Presently, the focus is on finishing the capacity-augmentation projects which have the highest rates of return. There are 154 New Lines, 42 Gauge Conversion, 166 Doubling and 54 Railway Electrification projects across the country at a cost of ₹ 285,652 crore (US$ 42.87 billion). For Railway Electrification projects, the cost as on April 1, 2014 is estimated to be ₹ 6,692 crore (US$ 1.0 billion).

In August 2014, The Department of Industrial Policy and Promotion (DIPP) introduced and permitted 100% FDI in certain sub-sectors of the Indian Railways. The revised FDI policy allows FDI in the construction, operation and maintenance of only the following:

• Suburban corridors through public private partnership (PPP)

• High speed train projects

• Dedicated freight lines

• Rolling stock including trains sets and locomotive/coaches manufacturing and maintenance facilities

• Railway electrification

• Signalling system

• Freight terminals

• Passenger terminals

• Testing facilities and laboratories

• Non-conventional sources of energy

• Railways technical training institute

• Concession of standalone passenger corridors (branch lines, hill railways etc.

• Mechanised laundry

• Rolling stock procurement

• Bio-toilets

• Technological solution for manned and unmanned level crossings

• Technological solutions to improve safety and reduce accidents

Some of the major developments and investments in the railway sector are:-

1.  Japan International Cooperation Agency (JICA) granted the Madhya Pradesh Government a loan of ₹ 12,000 crore for Indore and Bhopal metro rail projects

2.  Japan will finance India’s first bullet train between Mumbai and Ahmedabad at less than 1% interest rate, on the condition that India buys 30% of equipment from Japanese firms. The cost of the project is almost ₹ 98000 crores.

3.  Indian Railways issued a Letter of Award to US-based General Electric (GE) for a ₹ 14,656 crore (US$ 2.2 billion) diesel locomotive factory project at Marhowra, and to French transport major Alstom for ₹ 20,000 crore (US$ 3 billion) electric locomotive project in Madhepura, both in Bihar.

4.  An MoU was signed between the Ministry of Railways in India and the Czech Railways (Ceske Drahy) and Association of Czech Railway Industry (ACRI) of the Czech Republic on technical cooperation in the field of the railways sector.

Railway infrastructure requires large investments that cannot be undertaken out of public financing alone. Hence the Government has resorted to Public Private Partnerships (PPPs) to attract private capital and the techno-managerial efficiencies associated with it.

1.  Railways Infrastructure for Industry Initiative- This policy was announced in 2008-09 to attract private participation in rail connectivity projects so that additional rail transport capacity can be created.

2.  Private Freight Terminals (PFT) Scheme- It was launched in May 2010 in a bid to develop a network of freight terminals with efficient and cost effective logistic services and warehousing. The development of PFTs is to be funded through PPP. As of 2012-13, 43 proposals had been received for development of PFTs of which 38 had been finalised.

3.  Automobile Freight Train Operator Scheme (AFTO) and Special Freight Train Operator Scheme (SFTO)- These schemes were introduced in 2010 to increase the Railways’ share in the transportation of automobiles and commodities like fertilizers, molasses, edible oil, caustic soda, chemicals, petrochemicals, alumina, bulk cement and fly ash. These schemes have been further liberalised in 2013. For AFTO, the Railways received proposals from two firms out of which one had been given approval as of 2012-13. This AFTO will manufacture a new type of automobile wagon that has been developed by RDSO.

4.  Liberalised Wagon Investment Scheme and Wagon Leasing Scheme (WLS) – The Railways has allowed investments in Special Purpose Wagons (SPW) and High Capacity Wagons (HCW) by manufacturers and consumers of goods and their leasing by leasing companies from 2008. To make these schemes more popular, the Ministry of Railways revised the eligibility criteria in February 2011 by reducing the minimum net worth requirement for wagon leasing companies. The new norms also allowed for the leasing of wagons under the Automobile Freight Train Operators Scheme, Special Freight Train Operators Scheme and Container Train Operators Scheme. By 2012-13, two companies had registered as Wagon Leasing Companies.

Turning around the cash strapped Indian railways is a herculean task. A lot of investment, research and time are required to put it back on track. Though the present government in its election manifesto spoke a lot about improving the railways infrastructure and have placed a qualified and experienced minister at the helm of affairs. However, it can be safely concluded that their efforts will bear fruits when the changes promised are implemented meticulously.



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