The Indian Railways (IR) network is one of the largest in the world, spanning a total track length of 119,578 km across a route of 66,687 km (as per the latest official estimate of March 2016). Most of this network – about 90 per cent – is broad gauge, while about 6 per cent is metre gauge and the remaining 4 per cent is narrow gauge. About 58 per cent of this total route network is concentrated in seven states – Uttar Pradesh, Rajasthan, Maharashtra, Gujarat, Madhya Pradesh, West Bengal and Tamil Nadu. However, railway electrification levels remain low in the country, with only about 43 per cent of the total route network currently electrified.
Indian Infrastructure looks at some of the key trends witnessed in the railway sector and its outlook for the coming years…
The growth in traffic, both passenger and freight, has remained more or less flat over the past few years. In 2016-17, while freight traffic recorded an all-time high of 1,106 million tonnes, it was only a 0.41 per cent year-on-year increase as compared to the 0.63 per cent year-on-year growth recorded in 2015-16. Meanwhile, after declining consistently for four years (2012-13 to 2015-16), passenger traffic increased to 8.22 billion in 2016-17 (from 8.15 billion in the previous year).
IR’s earnings increased from Rs 1.3 trillion in 2012-13 to Rs 1.7 trillion in 2016-17, at a compound annual growth rate (CAGR) of 6.95 per cent. While revenues from freight consistently increased during 2012-13 to 2015-16, they declined by 4.31 per cent in 2016-17, to Rs 1,043 billion. Passenger earnings, on the contrary, have shown a positive rate of growth since 2012-13. In 2016-17, IR recorded a 4.75 per cent growth in passenger earnings over the previous year.
During the same period, IR’s working expenses increased from Rs 840 billion to Rs 1.2 trillion, translating into a CAGR of about 9.17 per cent. The quantum of funds spent on capital investments has also increased significantly over the past few years. IR’s capital investment in 2016-17 was almost five times the average capital investments made during 2004-05 to 2008-09 and three times those during the five-year period 2009-10 to 2013-14.
In a bid to finance its capital investment projects from new sources of funds, IR has started exploring other feasible options. For instance, it has introduced external borrowing resources institutional finance to finance railway projects, entered into joint ventures with several state governments and public sector undertakings for network expansion projects, and raised funds worth about Rs 70 billion through institutional financing and over Rs 150 billion through partnerships in 2015-16 alone.
IR has also renewed its focus on improving its fixed assets. It almost doubled the pace of network creation in 2016-17, with 2,857 km broad gauge lines commissioned and 2,013 km lines electrified. Stress has also been laid on improving infrastructure in the Northeast, with about 480 km of broad gauge lines commissioned during 2016-17, as compared to the average of 411 km during 2014-15 to 2015-16 and 100 km during 2009-10 to 2013-14. Further, all metre gauge lines have been eliminated in the region. The commissioning of new freight terminals has also been ramped up with 45 terminals commissioned in 2016-17, as compared to 35 terminals in 2015-16 and an average of 28 terminals during 2009-10 to 2013-14.
Meanwhile, IR is increasingly focusing on augmenting indigenous rolling stock production. During the three-year period 2014-15 to 2016-17, IR invested Rs 400 billion to set up two locomotive factories at Marhowrah and Madhepur in Bihar, under the Make in India initiative. At the same time, several locomotive manufacturing facilities have been commissioned recently. Besides this, the Ministry of Railways (MoR) has launched Phase I of the station redevelopment programme, which comprises works for 23 major railway stations.
Significant headway has also been made with high-speed rail projects in India. The MoR has undertaken trial runs for 160 kmph/200 kmph train sets and has launched India’s first semi-high speed train – the Gatimaan Express between Delhi and Agra. Feasibility studies for the development of high speed corridors are currently being undertaken. The Delhi-Mumbai and Delhi-Kolkata railway corridors are being developed to enable speeds of 200 kmph, with construction works worth over Rs 180 billion already sanctioned for upgrading the capacity of the two tracks. On the dedicated freight corridor (DFC) front, all contracts for the Western DFC have been finalised and contracts for the Eastern DFC are in the tendering process. The first goods train was plied on the DFC from Durgauti to Sasaram, and back in 2016.
IR has also laid stress on undertaking safety initiatives over the past few years. A total of 1,503 unmanned level crossings (UMLCs) have been eliminated and 1,354 rail overbridges (ROBs) constructed in 2016-17, as compared to 1,139 UMLCs eliminated and 762 ROBs constructed during during 2009-10 to 2013-14.
To meet its investment plans for the coming years, IR has estimated an investment requirement of about Rs 8.56 trillion for the five-year period 2015-16 to 2019-20. Most of this investment will be for network decongestion and expansion, safety, rolling stock, logistics parks and station redevelopment works. In the medium term, IR plans to meet its investment requirement primarily through gross budgetary support and debt. At the same time, institutional financing, public-private partnerships, state joint ventures, internal generation and rolling stock lease will also aid IR in raising funds.
The sector thus offers significant opportunity for investors. The Expert Group on Railways has recommended the modernisation of 19,000 km of existing tracks, strengthening of 11,250 bridges to sustain higher axle loads at higher speeds, and the elimination of all level crossings. Further, over 30,000 km of routes will be constructed as double/multiple lines, 33,000 km will be electrified, and 25,000 km of new lines will be added to the network by 2019-20. There will also be increasing focus on station redevelopment, augmenting rolling stock, and introducing higher speed coaches. Meanwhile, the overall proposed length of 4,215 km of eight high speed rail corridors will translate into a financing requirement of over Rs 421 billion. Besides, signalling and telecommunication projects involving an investment of over Rs 117 billion are also in the pipeline.
Improving passenger amenities has also been brought to the fore with several initiatives regarding ticketing, provision of escalators and lifts, e-catering services, security systems, etc., on the anvil. IR aims to provide Wi-Fi facilities at 400 stations by 2018, bio-toilets in all coaches by 2019, and CCTV cameras on 500 coaches in the coming years. Investment opportunities are also expected in the energy domain as IR plans to generate around 1,000 MW of solar power and more than 130 MW of wind energy in the coming years.
In conclusion, the railway sector is expected to record strong growth over the next few years. The medium-term investment requirement (from 2015-16 to 2019-20) for undertaking various network decongestion and capacity augmentation works in the sector is estimated at over Rs 8.5 trillion. About 84 per cent of the total investment will be required for network decongestion and expansion, safety, rolling stock and station redevelopment works. To meet the financing needs, IR plans to tap off-budget funding sources such as low-cost pension and insurance funds, advertisements, commercial exploitation of vacant land, etc. Thus, significant opportunities exist for investors to capitalise on the railway sector’s growth.
Based on a presentation by Yashpal Sachdeva, group general manager, transport and economics, and Jatin Sarkar, adviser RITES, at a recent India Infrastructure conference