Views of V. Shanker: “IR is keen to create a competitive environment for private investment”

“IR is keen to create a competitive environment for private investment”

V. ShankerPrivate sector participation in the railway sector has existed for a long time in non-core segments and services such as catering, cleanliness, manufacturing/maintenance vendor base etc. Traditionally, these services have been provided by private enterprise. At a recent conference organised by Indian Infrastructure, V. Shanker, Executive Director, planning, Railway Board, spoke about the initiatives undertaken by the government to attract private investments in the railway sector. Excerpts…

In recent times, Indian Railways (IR) has been looking to attract private investments not only in ancillary services but also in the core activities of rail transportation in both passenger and freight segments. IR is focusing on providing a much wider role and broadening the opportunity spectrum for private investors in the railway sector. It is keen on creating a competitive environment for the private sector to invest and reap a healthy rate of returns on the investments.

Prior to 2014, railway infrastructure was not growing much as compared to other modes of transportation such as road and civil aviation. It led to the sector stagnating and getting competed out from the overall transportation and logistics network. Further, the capital expenditure on the railway sector on an annual basis was much lower, which led to a delay in capacity creation. The resulting chain reaction increased the congestion in the network and decreased the efficiency of train operations. The productivity of fixed and moving assets along with human capital had also declined substantially. Given that the capital investment was low, projects were getting delayed and there were cost overruns. The entire railway system became inefficient and unattractive for private investments. Even though the railway sector was in dire need of increased investments and policies were introduced to attract investments, private investors were not willing to invest because of a lack of guarantees and poor rate of returns.

With the merger of the rail and union budgets in 2014, the railway sector has come into focus. In pursuit of greater development, the government started focusing on increasing the capacity, efficiency, productivity and profitability of the sector in order to create a congenial environment for attracting private investments. Emphasis is being given to reducing the operating ratio to guarantee that the sector is profitable and can offer a healthy rate of return to the private investor. The sector is now focused on reducing the cost of operations and increasing the volume of traffic, thereby increasing the overall profitability of the sector.

The annual capex for the railway sector has witnessed a sharp rise from Rs 459 billion in 2009-14 to Rs 2,150 billion in 2021-22. The components of the capex include public and exchequer funding, internal revenue generation and extra budgetary resources in the form of market borrowing, joint ventures, special purpose vehicles and private investments. The increasing uptake of private investments is essential to ensure a high quality of railway services along with improved productivity and profitability, resulting in high investment returns for the private players. In short, private investments will have a positive impact on both the quantitative and qualitative aspects of rail transportation.

Some areas that have recently opened up for private sector investments include construction of new lines, setting up of inland container depots, private freight terminals and their development, station redevelopment, setting up of locomotive producing units, private investment in passenger train operations and asset management. According to the National Monetisation Pipeline unveiled on August 23, 2021, railway assets would contribute 26 per cent to the aggregate asset pipeline of Rs 6,000 billion. The monetisation of the railway’s brownfield assets is expected to reap over Rs 1,520 billion in four years. Of this, Rs 178.1 billion would be monetised in 2021-22, Rs 572.22 billion in 2022-23, Rs 449.07 billion in 2023-24 and Rs 325.57 billion in 2024-25. The assets identified include railway station, passenger train operations, track-OHE, goods shed, Konkan Railways, Hill Railways, dedicated freight corridors and railway colonies.

The outbreak of the ongoing pandemic did not have any major impact on the sector’s infrastructure development plan. IR was able to complete a large number of existing works and meet its capex targeted spending for financial year 2020-21. IR is on target for increasing capacity in line with the National Rail Plan 2030 and increasing modal share of the railways in freight to 45 per cent.