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India needs to accelerate railway investment

(By chinca)

Updated: 2017-01-16 09:32:05

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THE Indian government should take a long hard look at the way it funds railway and metro investment as well as planning and project management processes if the country is to address the huge backlog of investment in the national rail network let alone keep pace with the needs of a steadily rising population. This is expected to grow from around 1.2 billion today to 1.4 or even 1.5 billion by 2030, by which time 40% of people will be living in urban areas which are already overcrowded.

While it is encouraging to see that progress is being made, as we report this month, the pace of change is not nearly fast enough. In August, the Cabinet Committee on Economic Affairs (CCEA) approved nine projects to increase capacity on sections of the Indian Railways (IR) network which have been operating beyond design capacity for some time. This represents an investment of around Rs 243.5bn ($US 3.6bn) and involves laying a third track and on one section a fourth track on sections totalling 1927km, including major arteries radiating from Delhi to Kolkata, Chennai and Mumbai. While this will help, 40% of IR’s 65,000km network is already operating above line capacity, and there is a shortage of funds to meet track maintenance targets.

The Indian cabinet decided on September 21 to end a 92-year tradition of annually presenting a separate railway budget in parliament. Instead the rail budget will be merged with the general budget.

While it is unlikely that the government will absorb IR’s entire financial burden, the merger will ensure that IR will no longer need to pay an annual dividend, which is expected to reach Rs 100bn this year. However, IR will still have to meet the commitments of the 7th Pay Commission which is expected to add Rs 400bn to its payroll.

To make matters worse, IR’s financial performance is deteriorating with first-quarter shortfalls in both freight and passenger earnings. IR’s passenger losses are expected to reach Rs 320bn this year and it is likely to overshoot its 92% operating ratio target.

The government has also been working on other policy reforms including the introduction of a corporate accounting system and the establishment of a rail tariff regulator, which will be known as the Rail Development Authority. This has revived speculation that the Indian government is planning to restructure IR along commercial lines and turn into a separate corporation.

This will be very difficult to achieve because IR is part of the social and economic fabric of the country. Passenger fares and freight rates are deliberately held down by the government as a large proportion of the population depend on low rates for their very survival. IR is also a state-within-a-state providing cradle-to-grave support for its employees and their families including health care and social activities, which is why jobs on the railway are so highly prized. To put IR on a commercial footing would require the government to fund the railway properly to provide socially-necessary train and welfare services. So far, Indian politicians have shown little appetite for such a major reform.

IR also needs to take steps to put its own house in order. Construction of the two Dedicated Freight Corridors is painfully slow, morale is poor in the project teams, and it is doubtful that the Eastern DFC will be completed next year. IR clearly needs to hone its project management skills, especially if it wants to implement its planned high-speed rail network successfully.

India also faces a major challenge to reduce traffic congestion and pollution in its rapidly-growing cities. There are already 48 cities with a population in excess of 1 million – the threshold for building a metro – and another 20 cities are expected to reach 1 million inhabitants by 2030.

India did not start building its first metro until 1973, but it took 11 years to complete the initial short section of the first line in Kolkata. This experience blighted further construction in India for at least a decade. Attitudes changed when Delhi demonstrated that it is possible to build a modern metro in India in a cost-effective and efficient manner. The first section opened in 2002 and the Indian capital now has a 213km network which is used by 3 million people a day.

Delhi has tried to extend its expertise to other cities with varying degrees of success. Metro lines have now opened in Mumbai, Chennai and Bangalore, with several more lines under construction in these and other cities, and numerous projects in the planning stage.

Around $US 40bn of public and private money is expected to be invested in metro projects during the next 10 years. While this is a step in the right direction, it is not so much the funding that is the challenge but India’s ability to build new lines quickly enough. It takes time to assemble teams with the skills to build a metro as well as good planning by the city authorities.

India’s Achilles’ heel remains its appalling bureaucracy and red tape which stifles development particularly in the public sector. Until this is tackled head-on, progress is likely to remain slow.