17 Apr 2016 16:13 IST

1st Runner Up

Railways should focus on operation of rolling stock

Segregating freight and passengers, exploring PPP models and advertising might help the industry

“We are open to considering railways as the preferred mode of transporting goods, provided that it is economically viable,” said Lalit Malik, CFO, Dabur India.


Historically, Indian Railways (IR) has been the lifeline of the nation. But of late, it has been facing problems. Questions of its efficiency, quality and economic viability are being raised.



Over the last 15 years, the budget invested in railways has stood at 20 per cent of what is invested in roads, a Morgan Stanley report says. This has resulted in slow pace of network expansion, leading to an erosion of share in freight and passenger traffic. Absence of assured funding has left many projects languishing. A historical perspective will help to understand the size of the underinvestment better — in 65 years (from 1951), the rail network has grown by a mere 22.7 per cent.

As a result, the network has been severely congested, making it impossible to accommodate more trains or increase the speed of the present ones. According to the Pitroda committee, 40 per cent of the network carries 80 per cent of the traffic, which points to lack of physical capacity on the key routes.

The key step for IR would be to focus solely on operation and management of rolling stock, and distance itself from non-core activities, such as RPF, schools and hospitals. This will not only improve the operating ratio, but also release funds for capital expenditure. Traditionally dependent on PSUs for raising capital, IR could also focus on exploring innovative approaches like a PPP model, to reduce the funding gap.

Erosion of freight traffic

Keeping passenger fares low by increasing freight tariffs has pushed the traffic to the roads (the share of roads in freight-movement is 1.5 times more than that of the railways). Passenger fares have moved up just 28 per cent over the last decade, versus a 91 per cent increase in freight rates, leading to an imbalance in the revenues. Unavailability of suitable terminals for loading and unloading, and high transit times of freight trains are some other major issues pushing the traffic away from railways.

To counter these issues, segregating freight and passenger traffic might help, since it will lead to high speed movement of goods. It would also be useful to raise passenger fares marginally so that the cross-subsidisation burden on freight comes down. By offering competitive freight rates, IR can keepthe exodus towards road transport in check.

Absence of commercial accounting system

IR might be running many of its premium trains on losses. This fact doesn’t come to the fore because of the absence of a train-wise cost-benefit analysis. According to the Debroy committee, half the trains are running at a loss, every trip. A large number of projects sanctioned in the past have created a huge throw-forward liability, wherein IR carries the burden of losses from operations.

The exact cost of this social-service needs to be properly accounted for, so that per trip-cost analysis can be done to determine which trains to continue. To sustain socially-desirable projects, partnership with State Governments (sharing capital-expenditure and losses) would be a good idea.


Policy bottlenecks

In 2014, a railway committee’s report pointed out that 7 per cent of the projects (comprising 15 per cent of the capital-expenditure) were stuck for land and environmental clearances, while another 13 per cent were waiting for other clearances. According to NITI Aayog’s Manoj Singh, more than 300 projects are pending due to lack of resources and other constraints. Delay in executing projects leads to time/cost overruns, thus affecting their viability.

Taking cues from China, regional railway management should be made responsible for managing value of the assets assigned to them. Infrastructure activities should be transferred to a separate company that specialises in different aspects of railway construction. This can result in faster completion of projects.

The need of the hour is to set up an independent regulator, the Railways Regulatory Authority of India, which can be entrusted with regulating tariff, safety and fair access. The focus should be on de-linking railways from bureaucracy in a step-by-step manner. The IR has 16 zones, divided into 73 divisions reporting to the Railway Board. Restructuring IR along corporate lines would be helpful in cutting down approvals.

IR can also capitalise on the huge number of stations, turning them into advertising sources to generate non-core revenues. With the help of analytics, IR can use the huge customer data to determine scheduling and frequency of trains. In fact, after taking into consideration customer privacy, the data can also be sold to third parties.

These steps will enable IR to maintain competitiveness and act as India’s growth driver.

(The first runners up are first-year students of PGP at IIM Indore)