April 2019

Despite the development of alternative modes of transportation, IR remains the key player in India’s transport and logistics sector. It performs two key roles. It has the crucial economic task of transporting freight and passengers across its vast network and making a profit. It also performs the key social task of connecting far-flung places at an affordable cost, which in turn, creates positive externalities. IR faces many challenges. It has been struggling to remain profitable, with the operating ratio climbing above 98 per cent in the past few years. Passenger traffic has slowed and the segment is making losses. Freight volumes are growing at an anaemic pace of less than 3 per cent CAGR and road traffic is eating into IR’s market share.

At the same time, IR has ambitious expansion and modernisation targets that will require at least Rs 10 trillion worth of investments in the next few years. It cannot generate the internal surpluses required to fund these expansion and modernisation plans. Hence, it has to find alternative means of raising financing. It also has to find alternative sources of revenue generation, which means that it must not only set fares and tariffs that are both competitive and profitable, but it must also create non-ticketing revenue streams such as through advertising and other means.

Raising finances is, in one sense, easier than it would be for a comparable private sector entity, because IR is a government-owned organisation with its debt carrying sovereign guarantees in practice. The LIC for instance, has subscribed to a Rs 1.5 trillion bond issue. Multilaterals such as ADB and overseas government arms such as JICA are open to contributing to IR projects. There have been successful IPOs of public sector enterprises, RITES Limited and IRCON Limited in the previous fiscal year.

There is a huge opportunity for the private sector, which will have to contribute meaningfully to this process of revitalisation. PPPs could be key to the station redevelopment plans, with ancillary plans for redevelopment of real estate, where over 600 stations will be refurbished at a cost of over Rs 1 trillion. The private sector could also contribute to various aspects of track electrification and doubling, the switchover to renewables, the expansion of manufacturing facilities for coaches and locomotives, etc.

However, the flip side of IR being a government entity is that policy remains mired in political uncertainty, which hampers the business model and affects the quality of service delivery and financial health. A huge backlog of projects and inevitable budget overruns are testimony to this. Thus, key issues such as procedural delays and financial instability must be addressed by policymakers. The broad vision embodied in IR’s future plans is impressive but it can only come to fruition if appropriate policy is formulated and implemented at the ground level.

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