Trends and Outlook: Recent initiatives to boost performance

Recent initiatives to boost performance

Indian Railways (IR) occupies a crucial place in the country’s transport infrastructure. It is not only vital for long-haul bulk freight movement and long-distance passenger traffic, but also provides mass transit in the suburban areas of metropolitan cities. IR, managed directly by the Ministry of Railways (MoR), is the world’s fourth largest network with a route length of about 66,000 km.

Today, IR transports almost the equivalent of the world’s population annually. It carried over 1.1 billion tonnes (bt) of freight in 2015-16 and is the fourth member of the select billion- tonne club after the US, China and Russia. IR currently handles about 30 per cent of the country’s total freight traffic and 20-25 per cent of the passenger traffic. It runs 21,000 trains carrying over 23 million passengers per day connecting about 8,500 stations. Further, 65 per cent of IR’s trains carry passengers and yield less than 30 per cent of revenue, while 35 per cent are freight trains which yield about 65 per cent of its revenue.

A snapshot of the railway sector’s key trends and outlook…

Key trends

  • IR’s freight segment has been a profit-making business, accounting for almost three-fourths of the total railway earnings. Between 2011-12 and 2015-16, IR’s freight traffic witnessed a compound annual growth rate (CAGR) of 3.3 per cent, going up from 922 million tonnes (mt) in 2010-11 to around 1,100 mt in 2015-16. Freight revenue, on the other hand, increased at a CAGR of 12.2 per cent. Coal continues to dominate the freight basket, accounting for almost half the commodity share, both in terms of volume and revenue, in 2015-16.
  • In contrast, IR’s passenger segment has been witnessing a decline in the number of passengers over the past few years. However, revenue from the passenger segment increased at a CAGR of about 12 per cent during 2011-16, while the number of passengers declined from 8,306 million in 2011-12 to 8,152 million in 2015-16. The number of passenger bookings in both non-suburban and suburban segments fell by about 1 per cent during 2015-16. The suburban segment accounted for almost 55 per cent of the traffic during 2015-16.
  • During the current fiscal year (April-June  2016), traffic has not improved. Freight traffic was reported at 271 mt during the first quarter of 2016-17, which is about 0.5 per cent lower than the corresponding period of the previous year. Passenger traffic also witnessed a negative growth of 2 per cent during the first quarter of 2016-17 as compared to the corresponding period of 2015-16.
  • More recently, the pace of infrastructure development has picked up pace. IR commissioned about 2,800 km of broad gauge lines in 2015-16 against an average of 1,500 km during the period 2009-14. Electrification also gathered pace with 3,100 route km being electrified during 2014-16 against an average of 1,236 route km per year during 2009-14. In the Northeast, IR commissioned 545 km of broad gauge lines during 2015-16 as compared to the average completion rate of 110 km per year between 2009 and 2014.
  • The operating ratio, which is one of the key indicators of financial health, is still high and was recorded at about 90 per cent for 2015-16. The figure is expected to cross 92 per cent during 2016-17 mainly due to the financial burden imposed by higher salaries as per the Seventh Pay Commission recommendations.

Sector outlook

  • Government strategies based on recommendations of various committees such as the Bibek Debroy Committee are expected to bring positivity to the sector. Private sector investment is expected to grow, the safety level is likely to increase and decision-making will be faster, eventually leading to higher growth in freight and passenger traffic in the coming years.
  • The MoR has highlighted the need to restructure the Railway Board and set up the Railway Planning and Investment Organisation. It has also proposed the setting up of a holding company for railway public sector undertakings, a special railway establishment for strategic technology and holistic advancement for research and development and a special unit for transportation research and analytics. More importantly, the ministry has stated that the draft bill on the setting up of a rail regulator, the Rail Development Authority of India, will be finalised soon. These organisations are expected to ensure fair play and a level playing field for private players, determine efficiency and performance standards and disseminate information.
  • Further, various measures and initiatives have been taken by IR which are expected to push up passenger and freight traffic as well as earnings. The ministry has initiated a number of measures involving improved passenger amenities, the introduction of faster trains and lighter coaches, rationalisation of tariffs, computerisation of freight operations for efficient monitoring, the deployment of higher capacity locomotives and wagons, improvements in maintenance practices for rolling stock and track signaling systems, etc. The constitution of Indian Port Rail Corporation Limited to implement port connectivity projects also augurs well for railway freight traffic growth.
  • Meanwhile, IR is likely to come out with its Vision 2030 document soon, which will highlight measures required to ensure safe and punctual train services, increase average speed by 50 per cent and increase freight loading to 1.5 bt.
  • Government initiatives like Make in India and Digital India have been the most important growth drivers in the sector. Also, relaxation in the foreign direct investment policy will boost participation of overseas players as well as promote technological upgradation.
  • On the infrastructure front, IR has proposed the development of three additional freight corridors – a 2,328 km corridor between Kolkata and Mumbai, a 2,343 km corridor connecting Delhi and Chennai and a 1,114 km corridor between Kharagpur and Vijayawada. Besides, work on the high speed rail project between Mumbai and Ahmedabad is likely to gather pace with the setting up of National High Speed Rail Corporation Limited in February 2016.
  • Besides, IR aims to commission 2,800 km of broad gauge lines during 2016-17. The pace of broad gauge expansion has been targeted to increase to about 13 km per day in 2017-18 and 19 km per day in 2018-19, from about 7 km per day in 2016-17. Also, there is a huge electrification drive with 50 per cent higher outlay and a target of completing 2,000 km in 2016-17. Meanwhile, 90 new projects involving a total investment of Rs 1,261 billion covering about 8,432 km relating to new lines, line doubling, gauge conversion and metropolitan transport projects have been included in the budget. The key, however, will be to complete these projects on schedule and within the estimated cost.
  • The MoR also signed MoUs for the formation of joint venture (JV) companies with eight state governments. The states are Odisha, Maharashtra, Andhra Pradesh, Haryana, Karnataka, Kerala, Chhattisgarh and Telangana. The JVs will undertake project development work for an identified basket of projects, which will inter alia include conducting surveys, preparing detailed project reports, getting requisite approvals, getting sanctions for identified projects, etc.
  • Private participation is expected to increase with projects for station redevelopment, establishment of locomotive factories, bullet trains, etc. During 2015-16, IR generated an investment of Rs 150 billion through public-private partnerships, which is the highest in a year so far.
  • Going forward, the MoR plans to mobilise funds from the Life Insurance Corporation of India and through the issuance of infrastructure bonds by the Indian Railway Finance Corporation. The ministry also plans to set up a development fund with assistance from multilateral institutions like the World Bank to help meet investment targets. Besides, the MoR is also exploring new avenues of revenue through commercial exploitation of vacant land and space rights over station buildings, land along tracks, and soft assets such as data, software, etc.
  • The railway sector is poised for a high growth rate in the coming years. The timely commissioning of dedicated freight corridors and meeting targets for expansion works will play a crucial role. The ministry should also focus on private participation, cost reduction and efficiency improvement to achieve a higher growth rate. However, the recommendations of the Seventh Pay Commission will pose a major challenge for the MoR in terms of meeting its financial obligations.