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Construction : Perspective | October 2015 | Source : Infrastructure Today

Back on the rails?

Indian Railways has been a victim of years of chronic underinvestment. Though ushering in the PPP mode and 100 per cent FDI for the sector are being perceived as a panacea, there are miles to cover before things get rolling.

Ferrying 8.3 billion people and over 1 billion tonne of goods annually, the Indian Railways (IR) offers a convenient and economic mode of transport. However, IR´s contribution to the national GDP stands at one per cent for the last five years, and it has been growing at a meagre sustainable growth rate (SGR) of 1.69 per cent. The consistently loss making passenger segment, declining efficiency of the freight segment, slow economic recovery, high wage bills and slow rate of capacity augmentation due to capital deficit are the key reasons responsible for this abysmal state. The investment has been sluggish over time, and a below average fixed asset utilisation of 45 per cent and a low return on investment of 3.3 per cent against high inflation economic scenario is responsible for the sector being deep in the abyss. Nonetheless, the government is taking stock of this lag, the cabinet has approved ´participative models for rail-connectivity and capacity augmented projects´, which allows private ownership of some railway lines on a build-operate-transfer or annuity basis. It plans to take the route of public private partnerships and viability gap funding (VGF) for around 23 projects to bring in private investment.

The government has plans of investing heavily to upgrade railway infrastructure. It has allowed 100 per cent FDI in the railway sector. Cumulative FDI Inflows from April 2000 to May 2015 stood at $643.54 million. IR aims to award projects worth $1,000 billion through PPP route. Around 50 per cent of total railways´ funding comes from government budgetary support with internal accruals, accounting for only 20 per cent.

After coming to power, the NDA government announced the launch of a mega diamond quadrilateral project of high-speed train network, connecting major metros and growth centres and nine corridors identified for running semi-high-speed trains at speed of 160-200 kmph. However, implementation in terms of fund raising may be a deterrent to the dream of bullet trains, electrified railways and higher connectivity.

The formation of a special purpose vehicle (SPV) to provide efficient rail evacuation systems to major ports is another significant step that will enhance their handling capacity and efficiency. The SPV would be funded by all the 12 major ports and IR. Major ports would contribute 90 per cent of the equity, with IR contributing the rest. The SPV will help IR in raising the required funds for the implementation of these projects as well as provide IR with additional traffic (which is today going by road); thereby, generating revenue and increasing IR´s market share in EXIM traffic.

Lack of an independent regulator is often cited as a factor that stymies investments in railways. In its June 2015 report, the Committee for Mobilisation of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board recommended that a Railways Regulatory Authority of India be established. Organisational and institutional defic¡encies inhibiting PPP need to be identified and addressed- appropriate risk allocation is essential. An independent regulator with well-designed policies and implementation powers is expected to renew private interest in the sector.

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