Trends and Outlook: MoR lays a strong foundation for sector development

MoR lays a strong foundation for sector development

Over the past few years, the Ministry of Railways (MoR) has attempted to change Indian Railways (IR) from a somewhat slow-moving, bureaucratic and underfunded organisation to a more dynamic, enterprising and well-funded one. IR’s aim to dominate the modal share is of long standing. However, the organisation is making concerted efforts to achieve its goal. It has undergone major structural changes over the past year, starting with the approval to incorporate an independent rail regulator, the Railway Development Authority, and the piloted merger of the Rail Budget with the Union Budget in 2017-18, aimed at supporting the organisation in meeting its revenue shortfall. Going forward, with the introduction of a slew of initiatives and the formulation of the National Rail Plan 2030, IR will be focusing on passenger safety, capital and development works, cleanliness, and financial and accounting reforms.

Key trends

  • While the growth in traffic numbers was almost flat, IR’s freight volume recorded an all-time high of 1,106 million tonnes (mt) in 2016-17. However, the year-on-year growth stood at 0.41 per cent vis-à-vis 0.63 per cent recorded during 2015-16. Further, both steel and iron ore loading stood at the highest ever value of 48.4 mt and 137.6 mt respectively.
  • Freight earnings, on the contrary, recorded a decline of 4.31 per cent in 2016-17, after registering a growth of 3.42 per cent in 2015-16 and 12.73 per cent in 2014-15. Growth in earnings has therefore reflected a declining trend over the past three years.
  • With respect to passenger traffic, ridership on IR increased for the first time since 2012, from 8.15 billion in 2015-16 to 8.21 billion in 2016-17.
  • Passenger earnings have also shown a positive rate of growth over the past three years. In 2016-17, IR recorded a growth in earnings of 4.75 per cent vis-à-vis 4.73 per cent in 2015-16 and 15.3 per cent in 2014-15.
  • Regarding non-fare revenue, IR secured Rs 101 billion in 2016-17, which is close to an 80 per cent increase in just one year.
  • Over the past three years, capital investments in IR accelerated from Rs 587.18 billion in 2014-15 to Rs 937.95 billion in 2015-16 and Rs 1,210 billion in 2016-17. This is in sharp contrast to an average of Rs 460 billion spent during 2009-14.
  • IR has almost doubled the pace of network creation with 2,857 km lines commissioned and 2,013 km lines electrified in 2016-17 vis-à-vis the respective averages of 1,528 km and 1,184 km achieved in 2009-14.
  • In terms of length, about 3,000 km of broad gauge lines were commissioned during 2016-17 in comparison to 2,828 km of lines commissioned during 2015-16. In 2016-17, 481 km of broad gauge lines were commissioned in the Northeast as compared to the average of 411 km during 2014-16 and 100 in 2009-14. Further, all metre gauge lines have been eliminated in the north-eastern region.
  • Commissioning of new freight terminals has also been ramped up with 45 terminals commissioned in 2016-17 and 35 terminals in 2015-16.
  • Safety-related infrastructure has grown at a rapid pace, with 1,503 unmanned level crossings eliminated and 1,354 rail overbridges constructed in 2016-17 as compared to 1,139 and 762, respectively, constructed during 2009-14.
  • Over the past three years (2014-16 to 2016-17), under the Make in India mandate, IR recorded the highest-ever investment of Rs 400 billion for setting up two locomotive factories at Marhowrah and Madhepura in Bihar. Furthermore, the construction of an electric loco assembly and ancillary unit at Chittaranjan Locomotive Works at Dankuni in West Bengal was completed; a diesel electric multiple unit factory at Haldia was commissioned; a mid-life rehabilitation workshop for coaches at Jhansi was set up; a modern LHB coach manufacturing facility at the Integral Coach Factory, Chennai, was commissioned; a bogie manufacturing factory was commissioned at Budge Budge; and the RITES Limited-Steel Authority of India Limited joint venture (JV) factory for repairing and overhauling wagons was commissioned at Kuti, West Bengal.
  • Station redevelopment contracts were awarded for Habibganj and Gandhinagar, and more than 25 stations are under bidding. India’s fastest train (160 km per hour), the Gatimaan Express, was introduced. Further, Rs 170 billion was sanctioned to develop the Delhi-Mumbai and Delhi-Kolkata sections as semi- high speed corridors.
  • Reservation capacity also grew from 371 million berths by end-2014 to 500 million berths in May 2017.
  • The customer experience has further been enhanced by increased digitalisation. The share of cashless transactions for the freight segment has grown to 99 per cent, while for the passenger segment it has grown to 68 per cent at present. System capability has also improved by almost three times during 2014-17 with a user handling capacity of 120,000 achieved.
  • As part of the Swachh Rail initiative, the number of bio-toilets installed on trains grew from an average of 1,917 during 2009-14 to 34,014 in 2016-17. Further, the number of on-board housekeeping services launched has grown from an average of 62 during 2009-14 to 146 in 2015-16 and 198 in 2016-17.
  • With regard to governance and transparency, IR has brought down the average project approval duration from 24 months to just six months at present. Further, 100 per cent e-procurement has been established, along with the complete digitisation of the supply chain catering to an annual procurement of over Rs 250 billion.
  • In 2016-17, IR encouraged partnerships with state governments to undertake coal and mine connectivity projects. As of June 2017, seven rail connectivity projects worth Rs 22 billion under the customer-funded model have been cleared and are under implementation, while six port and nine connectivity projects worth Rs 33 billion have been approved for implementation under the JV model.

Outlook

  • The MoR’s efforts have begun to show some results, though there is still a long way to go. Overall, IR has envisaged a total investment requirement of Rs 8.56 trillion over the next five years, of which 30 per cent is expected to come from gross budgetary support, 28 per cent from debt, 15 per cent from internal sources, 14 per cent from state JVs and 13 per cent from public-private partnerships. A major portion of these funds will be spent on network decongestion and expansion, procurement of rolling stock and station redevelopment.
  • In a bid to augment the railway network, in 2016-17, the MoR announced the development of the National Rail Plan 2030 (NRP-2030) to provide a long-term perspective to planning, in consultation with all stakeholders including state governments, public representatives and other relevant ministries. The plan aims to harmonise and integrate the rail network with other modes of transport and create synergy for achieving a seamless multimodal transportation network across the country.
  • Safety is another area of concern across the railways. To take safety initiatives across the railways, the central government announced the creation of the Rashtriya Rail Sanraksha Kosh with a corpus of Rs 1 trillion to be raised over the next five years. Seed capital will be provided by the Ministry of Finance and the balance will be raised from other sources.
  • Further, with the Seventh Pay Commission coming into effect, the expenses of the railways jumped by over 19 per cent in 2016-17. Also, IR reported an operating ratio of 97 during the year, which was the poorest performance in the past 16 years.
  • In order to meet the huge funding requirements, IR plans to tap off-budget debt sources through low-cost pension and insurance funds for a 20-30-year period and utilise free reserves/equity for raising debt in railway public sector units. IR further plans to develop the Rail India Development Fund, independent of the rail budget, with the assistance of the World Bank, to tap sovereign wealth and pension funds. The feasibility study for the fund is currently being undertaken.
  • Going forward, the commissioning of broad gauge lines in partnership with state governments, currently expected to increase to 19 km a day, will further increase to 25 km a day. IR also plans to electrify close to 11,000 km over the next three years and commission two new dedicated freight corridors (DFCs) by 2019. It further plans to increase the average speed of freight trains from the current 50 km per hour to 80 km per hour.
  • In order to increase efficiency, IR plans to reduce its costs by controlling staff costs by rationalising recruitments and increasing savings through a reduction in fuel costs (diesel). The carrier further plans to increase the share of non-core commodities like white goods, fast-moving consumer goods, automobiles, etc., and the share of non-fare revenues to 10-20 per cent through train banding, railway display networks, on-board entertainment and advertisements for zonal railways.
  • In the area of customer services, IR plans to refurbish over 40,000 coaches with world-class amenities, like on-board entertainment, Wi-Fi, vending machines, automatic doors, etc.; install 200,000 rail display screens across 2,000 stations for information dissemination and advertisements; offer higher speeds of web interface, point-of-service terminals and ATMs to reduce the time to purchase tickets to less than five minutes; and redevelop over 400 stations to world-class standards under the first phase of the station redevelopment programme.
  • IR further plans to undertake accounting reforms to link outcomes with inputs; institutionalise the system of performance appraisal based on objective parameters; and revise the selection process for key posts like general managers and divisional railway managers.
  • Over the next five years, IR plans to generate around 1,000 MW of solar power and more than 130 MW of wind energy. It also plans to convert all production units as well as at least one workshop in each zonal railway to a green industrial unit.
  • The sector has suffered from years of under- investment which has led to overutilisation of about 60 per cent of the routes and inadequate carrying capacity. Besides, cross-subsidisation of passenger fares has been a severe strain on IR’s financial health. Nevertheless, infrastructure creation will continue to be top priority for the MoR. Big-ticket projects such as the development of DFCs, the induction of high speed trains, and station redevelopment will go a long way in improving the modal share of the sector. Further, long-term plans of reducing dependence on core sectors, capturing new markets, and introducing high axle load, low tare weight wagons will help boost the growth of IR’s freight segment.