Rail Budget 2014: Modi faces uphill task to put Railways on track
Modi has made up his mind to allow Foreign Direct Investment in Indian Railways in order to help mobilise the resources needed.
The foreign hand is all set to become a vital part of Prime Minister Narendra Modi's vision for the Railways.
The country's creaky and overburdened railway infrastructure desperately needs to be modernised and expanded, and Modi has made up his mind to allow Foreign Direct Investment (FDI) in Indian Railways in order to help mobilise the resources needed. The proposal is still in the inter-ministerial discussion stage but it is likely to be mentioned in the Railway Budget as part of the government's strategy. In other words, the government will declare its intent now that the gross outlines of the FDI plan have been worked out. The tentpoles are in place, and the fleshing out will follow. Railway Ministry joins Facebook, Twitter
"The comments from the Railway Ministry have not been received on the FDI proposal which is still being discussed among the various ministries," a senior official of the Department of Industrial policy and Promotion (DIPP) told Mail Today. DIPP is the nodal agency that deals with FDI and will eventually forward the proposal for Cabinet approval before the government goes ahead with the move, the official said. The passenger fares and freight charges will not be raised, but an overarching vision of improvement in infrastructure, services and outlook will form the bulwark of the budget.
According to sources, the railway minister will mention the government's intention to allow FDI in railways for all private public partnership (PPP) projects without revealing details. The sources said the proposal allows for 100 per cent FDI through the Special Purpose Vehicle (SPV) route in railway projects to provide last mile connectivity to ports, mines and power plants. New services in suburban areas and high-speed tracks are other segments that are likely to be thrown open to foreign companies.
Existing passenger and freight operations of Indian Railways will not, however, be open to foreign investors under the initiative, a senior official said. The proposal is expected to take forward the Public-Private-Partnership (PPP) mode of investment. The SPVs are also expected to go in for joint ventures with Indian companies that manufacture rolling stock and track equipment.
"The key to success lies in good concession agreements and the government aims to attract up to $10 billion of foreign investment over the next five years,'' the official said. He revealed that companies such as Canada's Bombardier, General Electric of the US and Germany's Siemens have already shown interest in investing in India. In fact, Bombardier already has a factory in Gujarat that produces coaches for the Delhi Metro. Also read: Sensex crosses 26,000 level amid pre-Budget expectations
Chinese companies such as CSR Corp Ltd and Japanese manufacturers that already supply hi-tech equipment to the railways are other potential investors that the government has on its radar.
The railways have been running short of cash as the populist polices of previous governments have not permitted any increase in passenger fares while the number of loss-making passenger trains has been increased every year to win votes. The Modi government has already made it first break from the past by increasing passenger and freight fares.
The main earnings of the railways come from its freight operations which cross-subsidise the losses on running passenger trains. But goods trains are made to wait to let passenger trains pass as there simply isn't enough track to accommodate so many trains. As a result the average speed of a goods train has come down to 25 km per hour which makes trucks a better option for many customers. While the railways had a market share of 65 per cent in goods movement of the country in 1986-87 this has now come down to 30 per cent while the road sector's share has gone up from 34 per cent to 60 per cent in the same period.
A mere 25 per cent of the investment in the railway budget is financed through internal revenues of the vast organisation. The rest comes from government handouts and loans. The vast network is therefore in desperate need for more funds.
India's is the world's fifth largest rail network, after US, Russia, Canada and China. Not only does it lag behind the others on every count, it has deteriorated over the years due to heavy congestion of tracks and failure to modernise rolling stock and operation systems like signalling networks and tracks. China, on the other hand, which until two decades ago was behind India in rail transport, has leaped into the era of bullet trains.
Between 2006 and 2010, China allocated $160 billion for the expansion of their railway network.