The past few years have been eventful for the railway sector. The government has unveiled several initiatives for expanding and decongesting the existing network. There has also been a sea change in the scale and scope of projects being implemented. A number of big-ticket programmes and schemes have been launched. Transformation of age-old technologies and digitalisation that has been on Indian Railways’ (IR) priority list for a long time is taking place. Station redevelopment and modernisation works are in full swing. Work on India’s first high speed rail (HSR) corridor, the Mumbai-Ahmedabad HSR, is currently under way. Trial runs on a few stretches of the upcoming western and eastern dedicated freight corridors (DFCs) have been carried out successfully.
Further, passenger safety and comfort is being accorded the highest priority with the provision of new technologies, systems and amenities. A number of initiatives are also being taken to improve the share of revenue from the freight business.
A snapshot of noteworthy trends over the past year and outlook for the sector…
- In Union Budget 2019-20, the railway sector has been one of the government’s key investment areas. It has received the highest ever allocation of Rs 1.6 trillion. Of the total outlay, Rs 658.37 billion will be sourced from budgetary allocations, Rs 2.67 billion from the Nirbhaya Fund, Rs 105 billion from internal resources and Rs 835.71 billion from extra-budgetary resources. The operating ratio is targeted to improve from 96.2 per cent in 2018-19 to 95 per cent in 2019-20.
- Of the total allocation of Rs 1.6 trillion, more than Rs 350 billion or 22 per cent will be spent on rolling stock, 11 per cent on line doubling, 6 per cent on track renewals, 5 per cent on new line construction and 2 per cent on improving passenger amenities. With regard to long-term investment requirements, it is estimated that railway infrastructure will need an investment of Rs 50 trillion for the 2018-30 period. The use of public-private partnerships (PPPs) has been proposed to ensure faster development and completion of tracks, rolling stock manufacturing and delivery of freight services. Other key announcements include greater investments in building suburban rail networks through the special purpose vehicle route and the launch of another massive programme for the modernisation of railway stations in 2019.
- Freight traffic carried by IR witnessed a higher year-on-year growth of 5.33 per cent in 2018-19, as compared to 4.78 per cent in the previous fiscal year. From 2014-15 to 2018-19, freight traffic grew at a compound annual growth rate (CAGR) of 2.76 per cent. During the first five months (April-August 2019) of the current fiscal year, total freight traffic stood at 497.53 million tonnes (mt). From 2014-15 to 2018-19, freight earnings grew at a CAGR of 4.71 per cent, from Rs 1,058 billion to Rs 1,272 billion. During April-August 2019, freight earnings stood at Rs 464.33 billion.
- In contrast, IR’s passenger segment has been making losses due to the unviable fare structure. From 2014-15 to 2018-19, passenger earnings grew at a CAGR of 4.85 per cent. During April-August 2019, passenger earnings stood at Rs 223.85 billion. Passenger traffic grew at a meagre CAGR of 0.63 per cent from 2014-15 to 2018-19. During April-August 2019, total passenger traffic stood at 3.48 billion.
- IR’s operating ratio, a key parameter for gauging its financial health, increased from 91.3 per cent in 2014-15 to 98.4 per cent in 2017-18. In 2017-18, IR recorded an operating ratio of 98.4 per cent due to pressures arising out of the Seventh Pay Commission commitments, downward trend in traffic earnings and an increase in ordinary working expenses. In anticipation of better growth in traffic earnings as compared to the estimated growth of total working expenses, the targets for the operating ratio for 2018-19 (revised estimates) and 2019-20 (budget estimates) have been fixed at 96.2 per cent and 95 per cent respectively.
- IR has achieved reasonable growth in its track network. During the three years 2016-17 to 2018-19, 8,313 km of railway tracks including new lines, gauge conversion and doubling works have been commissioned. As of March 31, 2018, the network stood at 68,442 route km. The commissioning of railway tracks touched a record high in 2016-17 when a total of 2,855 km was commissioned. For 2018-19, IR had set a target of undertaking 1,000 km of new line, 2,100 km of doubling and 1,000 km of gauge conversion works. As per the latest available estimates, around 87 per cent of the work (3,587 km) was completed during 2018-19 (till March 31, 2019), which translates into a shortfall of around 13 per cent.
- IR’s coach manufacturing units have been consistently meeting their production targets. The cumulative coach production by the three coach manufacturing units – the Rail Coach Factory, the Integral Coach Factory (ICF) and the Modern Coach Factory (MCF) – increased at a CAGR of 16 per cent between 2014-15 and 2018-19. There has been a complete switchover to the production of safer Linke Hofmann Busch (LHB) coaches. In 2018-19, IR manufactured 6,074 coaches, 129 diesel locomotives and 605 electric locomotives.
- Further, a number of new projects have been sanctioned for expanding the capacity of existing manufacturing units and setting up new ones. In 2018, a new coach manufacturing factory was sanctioned at Latur in Maharashtra at an estimated cost of Rs 4.9 billion. A workshop for refurbishing LHB coaches at New Bongaigaon at a cost of Rs 900 million was also sanctioned in 2017-18. Further, Rs 4.87 billion has been sanctioned for augmenting the capacity of the ICF, from 1,700 coaches to 2,750 coaches per year. Similarly, Rs 4.8 billion has been sanctioned for augmentation of production capacity of the MCF from 1,000 to 2,000 coaches per annum.
- Station redevelopment and modernisation works are in full swing. The redevelopment of the Habibganj railway station has already been taken up through the PPP mode. Work on the station is expected to be completed by December 2019. Apart from Habibganj, works are under way for the redevelopment of the Gandhinagar, Charbagh and Gomti Nagar stations. The Gandhinagar station is also expected to be completely redeveloped in the next four to five months. Besides, 46 stations have been awarded to six central public sector enterprises to act as project management consultants to the Indian Railways Stations Development Corporation.
- IR has introduced a number of digital solutions to make bookings and rail travel easier and more comfortable for passengers. Many new web- and mobile-based applications such as next-generation e-ticketing systems, freight e-demand registration, SMS alert facility and passenger complaint and suggestion systems have been launched. Free Wi-Fi services for passengers are being provided under RailWire, a retail broadband initiative. As of July 2019, the RailWire Wi-Fi was live at 1,600 stations across the country. GPS-based trackers have been provided to keymen and patrolmen to get real-time information on any incident.
- In light of the increasing number of accidents due to derailments, there has been greater focus on safety. Over the five-year period 2014-15 to 2018-19, safety-related expenditure increased at a CAGR of 14.65 per cent. Further, in 2018-19, IR assigned a budget estimate of Rs 730 billion for safety works, an 18 per cent increase from the revised estimate of Rs 621.52 billion in 2017-18. Besides, a new safety fund – the Rashtriya Rail Sanraksha Kosh – worth Rs 1 trillion has been created. Works at level crossings and for track renewals will receive the bulk of the investment from the fund. In 2018-19, train collision incidents came down to zero, while the number of derailments decreased from 78 in 2016-17 to 46 in 2018-19.
Outlook and the road ahead
- IR has set massive network expansion and decongestion targets for the next four to five years. During this period, IR plans to undertake 22,825 km of new line and 12,215 km of line doubling works. Besides, it plans to electrify at least 28,000 rkm of railway network. Around 2,800 km of the eastern and western DFCs are scheduled to be completed by 2021.
- Rolling stock will continue to be a major thrust area for IR. It plans to manufacture a total of 6,534 coaches in 2020-21 and 6,695 coaches in 2021-22. Besides, for 2019-20, 2020-21 and 2021-22, IR has set a target of manufacturing 725 electric locomotives in each year. IR is also setting up 17 new manufacturing/refurbishment/ maintenance facilities at an estimated cost of Rs 390 billion.
- There will be greater focus on mobilisation of new funding sources. The Life Insurance Corporation of India is already providing financial assistance to the tune of Rs 1.5 trillion for doubling and electrification works. Other funding options being explored include advertisements, commercial exploitation of vacant land and providing space rights over station buildings, institutional financing, and monetising land along railway tracks. IR will also actively move towards automation and digitalisation to improve its passenger and freight operations.
- Going forward, the network expansion and decongestion plans are expected to create huge opportunities for contractors, project developers, and technology and equipment providers.