MarketLine Blog

Indian Government seeks to put railways on the right track

Railways are an integral part of passenger transportation in India, described as a ‘lifeline to the nation’ by Indian Railways. Yet, they have been in a state of decline for at least two decades, as chronic underinvestment by successive governments has led to over-utilization as increasing volumes of passenger and freight traffic are transported on aging track infrastructure, where lines are often limited to a single track. As Indian Minister of Railways Shri Suresh Prabhakar Prabhu noted in his 2015/2016 budget speech, the potential economic benefits of reforming the railways, such as lower costs and faster transport, resulting in increasing competitiveness, are compelling.

The sheer scale of Indian Railways is noteworthy in itself. Marketline analysis valued the Indian passenger rail sector at $6.3bn in 2014, with volumes of 1125 billion passenger-kilometers (PKM) for the same period. Put in a global context, Indian Railways are the second largest in the world by passenger volumes, rivalled only by China’s 1126 billion PKM in 2014. In comparison volumes in Germany, Europe’s largest passenger rail sector, totalled 89 billion PKM in 2014.

The headline figures of the investment plan for 2015-2019 announced in Minister Prabhu’s budget statement on February 26th include INR3923bn (approximately $64.4bn) allocated to track infrastructure renewal and expansion and INR1020bn (approximately $16.7bn) for the purchase and maintenance of new rolling stock.  A further INR1000bn (approximately $16.4bn) has been assigned for the redevelopment of station facilities. The scale of such investment is likely to have an additional benefit of stimulating the Indian economy, particularly in construction and rail engineering, resulting in a large number of new direct and indirect jobs.

While the newly announced investment is a welcome boost for the sector, several challenges remain. The implementation of substantial change in an organisation of 1.3 million employees is likely to be a sizable administrative challenge in itself, particularly as low morale is a significant issue. More technically, passenger fares remain heavily subsidized, which is likely to hamper the efficient allocation of investment. The country’s railways are not run on a commercial basis, which leaves the system open to political interference, where assets such as new trains may be assigned to boost capacity in areas where the return on investment (ROI) may be lower than elsewhere, for political purposes. While the scope of Minister Prabhu’s reforms are laudable, they are also extraordinarily ambitious, seeking to address everything from the standard of on-board catering to the refurbishment of stations and overhaul of network infrastructure. It remains to be seen if such a bold vision will be fully implemented, given the lengthy timescales required to build stations and tracks, and the poor historic record of successive Indian governments in adequately funding the medium term growth of the country’s railways.

Overall, it appears the government may be able to implement demonstrable progress in the short term- new passenger train rolling stock is arguably the most straightforward to deliver and a visible change which passengers benefit from, as overcrowding is reduced. Whether the long term investment required to transform India’s railways will arrive on schedule remains to be seen.

For more, please explore our Passenger Rail Industry Profiles

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