The railway sector has been on a high growth trajectory since the past few years. While the pace of infrastructure creation has been at an all-time high, new and innovative ways to improve operational efficiency and passenger experience are also being focused upon. From introduction of high speed trains to modernisation of railway stations, the sector has been abuzz with activity. Industry experts share their perspective on the sector’s progress, impact of key government initiatives, unresolved concerns and the future outlook for the sector…
What has been the progress in the railway sector in the past year?
Indian Railways (IR) boasts of an extensive network of 68,442 route km spread across the entire length and breadth of the country. IR has witnessed a sharp increase in annual capital expenditure over the past five years. The past year has seen significant progress in the railway sector on various fronts.
IR has been eliminating unmanned level crossings (UMLCs) over the past four-five years. It successfully eliminated 3,478 UMLCs across its entire broad gauge network during the past year. Further, the traditional Integral Coach Factory coaches are now being replaced by safer Linke Hofmann Busch (LHB) coaches. The production units manufactured approximately 4,000 LHB coaches last year, a sharp increase from their average annual production of about 1,400 coaches during 2014-18. IR has selected 25 routes for deploying the online monitoring of the rolling stock system that will monitor and predict failures related to bearings and wheels.
IR, with the help of the Centre for Railway Information Systems (CRIS), has developed eDrishti, a dashboard for passengers to gain easy access to information related to train punctuality. It has also rolled out 10 global positioning system-based locomotives under the Real-Time Train Information System project.
Strengthening its contribution to the Swachh Bharat Mission, IR installed about 41,000 bio-toilets in 11,000 coaches in the past year. Another major milestone has been the indigenous manufacturing of the semi-high speed self-propelled Train 18 (T18) (the Vande Bharat Express). T18 currently serves the New Delhi-Varanasi section.
In addition, IR also witnessed faster progress in the dedicated freight corridor (DFC) project, with the successful trial of a freight train on the Phulera-Atari section of the Western DFC and the Khurja-Bhadan section of the Eastern DFC. IR also commissioned the country’s longest rail-cum-road bridge, the 4.94 km Bogibeel bridge, across the Brahmaputra river.
In the past year there have been three key changes in the railway sector. The first one relates to the further opening up of the sector for private participation, with liberalisation of policies for investment in auto trains and a new policy on ownership of general-purpose wagons. The second change relates to a visible initiative by various non-railway government departments such as NITI Aayog and the Department of Logistics to try and “correct” existing policy frameworks to level the playing field for private investors in the railway space. The third change pertains to the consolidation of businesses and investment by players (such as DP World and Adani Logistics) that are expected to impact the scale of operations and create a smaller but stronger group of rail operators that will emerge as leaders in the rail logistics space.
Professor G. Raghuram
As has been the case in the past few years, IR’s financials barely give comfort in the surplus that they generate. For 2018-19, the total revenue was Rs 1,967 billion with working expenses being close at Rs 1,888 billion. The five-year compound annual growth rate for revenues has been 4.1 per cent, while for working expenses it has been 5.5 per cent. Earnings have been more through fare adjustments rather than through traffic per se.
On the policy front, some important thrust areas include new rolling stock like the T18, electrification, bio-toilets, and public-private partnership (PPP) investments in rolling stock, terminals and railway lines. While these are not new, there have been specific targets such as 100 per cent electrification, bio-toilets in all coaches by 2019, etc. The DFC is moving closer to becoming a reality with some segments having been opened, starting from August 15, 2018. The T18 achievement of indigenously developing a semi-high speed, state-of-the-art passenger train rake is commendable. It was inaugurated on February 15, 2019. IR forayed into education by inaugurating the National Rail Transport Institute (NRTI), a deemed university. The NRTI was inaugurated in September 2018, bringing on board a batch of 100 students for two undergraduate degree programmes in transportation.
What has been the impact of the key initiatives taken by the government?
The past year has been the safest in the history of IR. There have been zero train collisions and the number of train derailments reduced from 54 in 2017-18 to 35 in 2018-19. The number of accidents caused due to UMLCs also reduced from 10 in 2017-18 to three in 2018-19. Further, the on-time train performance of passenger trains improved from 71 per cent in 2017-18 to 74 per cent in 2018-19 (till October 2018). IR transported 8.35 billion passengers in 2018-19 as compared to 8.28 billion passengers the previous year. It hauled 1.21 billion tonnes (bt) of freight in 2018-19 as compared to 1.15 bt in 2017-18. Further, total revenue of Rs 1.96 trillion was generated in 2018-19, clocking an ap-proximately 10 per cent increase over 2017-18.
While some significant initiatives have been taken by the government, their impact has been limited. The main reason for this is the limited response of the private sector in terms of committing new investment in the sector due to the lack of confidence in the government. In addition, there has been a multiplicity of initiatives that are often working at cross purposes. Different departments are working to achieve common or sometimes even different goals, as a result of which industry response has been mixed and often scattered across these departments. There is a need to consolidate the initiatives through a single agency that has the power to execute and the mandate to listen to genuine feedback from industry.
Professor G. Raghuram
The T18 has been an inspiration for what is possible indigenously. However, the T18 has been subject to controversy, due to interdepartmental concerns. Of course, running faster trains and increasing the speed spread is likely to cause more congestion for the slower trains. Increasing electrification has streamlined the flow of trains, though usage of diesel locomotives “under wire” continues, presumably due to lack of sufficient electric locomotives. Of course, diesel locomotives will still be required for emergency use. Bio-toilets, while improving hygiene along the track, have created problems of odour and lack of hygiene within coaches. The revised schemes of attracting partner investments are beginning to yield results, with more parties making investments, albeit with shaky, but improving confidence.
The most important impact is the reinforcement of IR’s “never say die” value. While this is reflected in continuous improvements, the size and scale of this single monolith prevents a perspective on quantum jumps that are required to satisfy the transportation needs of the country. Progress is slower than what is possible.
What are the key challenges that remain unaddressed?
While IR has seen a sharp rise in annual capex over the past five years, with the budget for 2019-20 pegged at Rs 1.6 trillion, the total investment needed to modernise IR by 2030 stands at about Rs 50 trillion. Hence, traditional budgetary resources like government funding may not be sufficient to meet IR’s needs and it must look at raising finances through extrabudgetary sources.
Further, since IR is mandated with the social obligation of providing low-cost passenger transportation, it has not been able to raise passenger fares adequately and hence is making huge losses in the passenger transportation segment where it is able to recover only 53 per cent of the costs incurred. While these losses are being partially cross-subsidised by setting high freight transportation tariffs, the high tariffs are in turn pushing freight customers towards the road sector and thus reducing volumes (and hence revenues) from the profit-making freight transport segment. Hence, IR also needs to identify suitable arrangements to reduce the impact of cross-subsidisation to aid the passenger transportation segment. In light of this necessity, IR has recently come up with the Give it Up scheme where passengers will have the option of paying for the ticket without the concession.
The operationalising of the Western and Eastern DFCs is expected to create additional capacity; however, the loading and unloading terminals for freight traffic will continue to lie on the existing mixed traffic network and this aspect will have to be managed carefully in order to leverage the capacity created by the DFCs.
Finally, IR must start utilising the huge volumes of data it generates daily. In today’s times, where data is considered the new oil, IR continues to amass huge volumes of data and information and it must start developing artificial intelligence and machine learning-based systems that can be leveraged for operational efficiency, predictive maintenance, non-fare revenue enhancement and optimal timetabling, among many other opportunities. In association with CRIS, IR has started developing such decision support tools, but it must act quickly to validate and deploy them over its entire network.
Pricing of rail services remains the key barrier to an increased shift of cargo from road to rail. Rail pricing, especially in the container segment, continues to remain high and lacks transparency and long-term stability. While some initiatives, for instance reducing empty haulage, have been taken and appreciated by industry, much more remain to be done in this space. The second issue that remains relates to the quality of service – transit delays due to availability of locomotives, crew and adequate capacity remain a major challenge in improving the average speed of rail freight, which remains stuck in the range of 18-20 kmph on an all-India basis.
Professor G. Raghuram
Focus on tariff setting and increasing service levels is still less than desirable. Structural and cultural changes are required. For a start, there needs to be separation between the policymaker, operator and regulator. The need for this separation has been reiterated for decades but it is yet to happen
There are railway segments where capacity increases need to happen at the earliest to support traffic that should naturally come to the railways but is currently using road transport for lack of options. Even with new lines like the DFC, the challenge will be on tariff setting, marketing and streamlining services.
What is the sector outlook for the next one-two years?
The railway sector in India is largely governed by IR’s investment plans and polices. Since over the next one-two years, IR will be focused on implementing its 100-Day Action Plan (as ap-
proved by the Ministry of Railways in June 2019) as well as expediting its mega programmes, the sector can expect several upstream as well as downstream business opportunities for both the public and private sectors.
The corporatisation of IR’s production units into the Indian Railway Rolling Stock Company is expected to open up the country’s railway manufacturing ecosystem to global railway markets. The planned modernisation of signalling and telecommunications systems can further facilitate establishment of railway manufacturing hubs. This capacity can then be leveraged to further target export markets for railway technology-related products. Also, the opening up of specific routes to private train operators provides another attractive opportunity for the private sector.
Ongoing mega programmes such as the station redevelopment programme and 100 per cent electrification of the entire network will also strengthen the base of the sector. Given the large investments associated with these programmes, the outlook for the sector in the coming years presents an opportunity for all stakeholders to participate in IR’s growth story.
The major event in the coming two years will be the much-awaited completion of the DFC. This is likely to increase capacity, reduce congestion and reduce unit costs for rail transport on the North-West and North-East corridors.
Pricing for the end user is an issue which is likely to be addressed with the commissioning of the DFCs. While IR continues to talk of unit cost reduction, how this will translate into lower pricing for the end user needs to be seen. IR is expecting service providers (like private rail operators) to resolve this issue, but the complexities of converting a cost reduction into a price drop will need to be addressed and this does not seem to be on the DFC agenda yet.
Connectivity to the network is another factor that the DFC will deal with. Every chain is as strong as its weakest link. While the DFC will add capacity, issues like connecting the DFC to the rest of the rail network need to be addressed both in terms of possible congestion at the joining points, as well as the technical capabilities on feeder routes relating to axle load (the weight of cargo that a wagon can carry), and availability of similar traction since the DFC is operated with a high wire electric traction.
Other than the DFC, another major factor affecting rail traffic in the coming years will be the financial health of IR itself. Having had to effectively borrow from the future by getting major customers to pay advance freight for a year, IR has managed to artificially report a better operating ratio. However, it is quite clear that IR is currently spending more than it is able to generate as a commercial entity – the extent of budget support that is provided to IR in order for it to fulfil its social obligations will be critical to improve IR’s health.
Professor G. Raghuram
As always, the outlook for the next one-two years is positive in terms of opportunities. The question is whether the opportunities can be leveraged in an aggressive manner. Here, the outlook is not as positive, though it is not bleak either. PPP-based investments are likely to rise, even though the need for more PPPs is still being debated. It remains to be seen whether the NRTI can evolve more programmes, influencing the current “training” that takes place in IR by making it more in-depth and providing a platform for the much-required research in this domain.
The DFC (at least the Western DFC) and high speed rail projects that are on the anvil will certainly demonstrate game-changing possibilities.
“The corporatisation of IR’s production units into the Indian Railway Rolling Stock Company is expected to open up the country’s railway manufacturing ecosystem to global railway markets.”
Rajaji Meshram, Partner, Transaction Advisory Services, EY LLP
“While some significant initiatives have been taken by the government, their impact has been limited. The main reason for this is the limited response of the private sector in terms of committing new investment in the sector due to the lack of confidence in the government.” Manish Puri, Senior Advisor, Rail and Logistics
“Focus on tariff setting and increasing service levels is still less than desirable. Structural and cultural changes are required. For a start, there needs to be separation between the policymaker, operator and regulator. The need for this separation has been reiterated for decades but it is yet to happen.”
Professor G. Raghuram, Director, Indian Institute of Management, Bangalore