Dr. Syama Prasad Mookerjee Research Foundation

Modern Rail Could Be PM Modi’s Abiding Legacy

By Amit Malviya

India presents its rail budget each year on 26 February, two days before the general budget. The practice of a separate railway budget started in the year 1924 when India was still a British colony. In those days, Railways constituted a significant portion of the budgetary allocation unlike now, when it is just about 8 per cent of the total spend.

Indian Railways is called the lifeline of the nation and directly influences lives of millions of Indians. It carries over 23 million passengers per day(approx. 8 billion annually) and 2.7 million tonnes of freight daily (about 1 billion annually). With 1.3 million employees, the Indian Railways is among the largest employers in the world.

A separate budget for the Railways was conceived with the aim of better policy formulation and implementation in a ministry that controlled what was then the greatest industrial asset. However, over a period of time, given the wide impact the enterprise has, politicians of different hues have used the Railways for political gains. The Railways budget became an exercise in announcing new trains, many of which never took off, declaring new projects many of which were dead on arrival, and catering to regional aspirations for political realignments.

Railways have been backbone of India’s long distance transportation system. Indian rail runs 12,617 passenger and 7,421 freight trains daily across 7,172 stations over a network 114,000 kms long. India’s large geography and dense population makes rail transport more efficient than either road or air. Railroads have the least transportation cost per tonne per mile, are less polluting, and more importantly the same system — the tracks, the signaling and switching system — can be used for both passengers as well as goods.

In short, India’s vast middle class and economy [more on this later] runs on steel wheels. It is keeping this in mind that Suresh Prabhu presented what is easily a people-centric yet potentially transformational budget. It focuses on enhancing capacity, modernizing infrastructure, improving technology, stepping up the quality of service, ensuring transparency, increasing operational efficiency, and most importantly making Railways financially sustainable. Prabhu’s budget doesn’t make grandiose announcements but sticks to addressing basic issues; it refuses to get drawn into parochial interests but focuses on overall economic growth.

The Railway budget plan stands increased by 52% to Rs 1.1 trillion for FY’16. It envisages an investment of Rs 8.5 trillion over the next five years. What is important is that the Rail Mantri outlines the sources from where he expects to raise money for all of the above. The short-term requirement will be met out of budgetary support (Rs 40,000 cr), internal accrual (Rs 17,793 cr), market borrowings (Rs 17,655 cr), institutional investment from state owned companies (Rs 17,136 cr), public private partnerships (Rs 5,781 cr) and Rs 1,645 cr from diesel cess. Funds for long-term requirements will be raised from pension, institutional and multilateral agencies. The Railways is also looking to set up an infrastructure fund and raise long-term debt in the holding company.

Around 1950, India had a rail network of around 55,000 kms, while China was lagging significantly behind with around 27,000 kms. Even in the early 1990s, India was ahead of China in route kilometer per capita and total route kilometer. In the decade starting 1992, China invested US$85 billion and started building its rail network.  India invested only US$17.3 billion in the same period. India’s route kilometer grew by ONE percent and China’s grew by 24 percent.[1]China, in a span of five years, constructed the world’s largest high-speed rail network.

India’s lack of adequate investment in its rail network over the years, coupled with ever-increasing new trains and stations, has led to wide-spread inefficiency. While Indian Railways is capable of delivering speeds as high as 175 kmph, in reality, few passenger trains go faster than 50 kmph and freight chugs along around 30 kmph. This has no doubt inconvenienced passengers, put enormous pressure on existing infrastructure, and led to precipitous decline (from 89% in 1950 to just about 31% now) in freight ferried through rail. As a result, India’s modest road network is also clogged now and the consumption of fossil fuel has skyrocketed at a high cost to the exchequer as well as to the environment.

Prabhu’s budget has stressed on the need to decongest the existing network and improve capacity on high-density network. The minister has announced 77 projects worth Rs 96,182 cr for capacity expansion covering 9,400 km along with electrification. He has also made top priority the completion of four dedicated freight corridors. Overall track capacity has also received the minister’s attention and is being enhanced by 10% to 138,000 km.

Furthermore, the Rail Mantri has also announced a review of the wagon-making scheme to encourage private investment; he has also stressed redevelopment and transformation of existing stations through public-private partnerships and developing satellite terminals in major cities. The budget aims to make freight business attractive to public-private participation. It talks of private freight terminals, special freight train operator schemes, and building feeder routes to the dedicated freight corridors in order to win back traffic lost to roads. The ambitious plans for growth of the Railways will not, however, sacrifice fiscal prudence – the minister has simultaneously increased freight rate by an average of three per cent across commodities, hoping to win back customers with quality rather than subsidies or short-lived discount schemes.

Investment in building the railway infrastructure will have forward and backward linkages, which will boost the economy. It will help industries supplying cement and steel; coach and locomotive manufacturing will also expand. Both directly and indirectly, every category of employment will increase – from unskilled labour to highly specialized technical work. If the extent of employment generation can be sustained over an extended period, it could absorb surplus labour from agriculture, thus increasing agricultural productivity and farm incomes. The multiplier effect on the GDP through backward linkages alone can be to the tune of four times the investment made in Railways.

An improved transportation system as a result of fast trains will benefit manufacturing, exports, agriculture and business-related travel. It will create jobs and capital goods, and build human resources capacity, infrastructure,and technology. It will fuel economic growth while simultaneously reduce the pressure on the environment (railways are less polluting than trucks, buses, cars, and planes). It will affect every aspect of the economy positively. This omnipresent footprint of the railway budget is why Suresh Prabhu’s vision could be potentially transformational.

While the Rail Mantri has been diligent in identifying what ails the Railways and has put forth solutions with clinical precision, he has consciously chosen not to burden the users. Passenger fares have not been increased even though an average user pays as little as 28 paise/km. On the contrary he has put a lot more on the table. The budget has made increased allocation for passenger amenities by 67 percent. He has promised greater transparency and convenience in ticketing (booking 120 days in advance, express ticketing on platform, paperless process), cleaner stations (private agencies to be engaged) and toilets in the train (provision for 17,000 bio-toilets). Adding more general coaches, making provision for clean water and pre-ordered food, focusing on women safety in long distance and suburban trains, national helplines for railway and security related issues, wi-fi at 400 stations, electrical points in general coaches, and user-friendly coaches are some of the other people-centric initiatives Prabhu has mentioned.

Very importantly, the budget is unflinchingly focused on enhancing safety. It provides for a 5-year quantifiable corporate safety plan to reduce accidents and Rs 6,750 cr towards eliminating 3,438 level crossings, building 970 road under- and overpasses.

In conclusion, the budget desires to improve travel experience. It is focused on upgrading the existing infrastructure and modernizing user facilities, it has cleverly identified sources of funding to execute its ambitious plans, and it is innovative yet pragmatic. It remains to be seen if Suresh Prabhu will be able to execute his vision just as he revolutionized India’s Power sector in NDA1. I, for one, have no doubts.

[1] World Bank Report “Highways and Railway Development in India and China from 1992 to 2002.”