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Foreign equity can flag next leg of Indian rail's journey
Thursday August 7, 2014 6:08 PM, Arvind Padmanabhan, IANS

A momentous decision by Prime Minister Narendra Modi government late Wednesday, allowing 100-percent foreign equity in big-ticket projects of Indian Railways for the first time, can prove a game-changer for the 160-year-old network in India that was seen floundering in recent decades due to a mix of issues, notably political populism, lack of clarity in executing its social obligations and paucity of funds.

India boasts one of the oldest railroad networks in the world and also among the largest, ferrying some 23 million people, or a population the size of Australia, on its coaches each day. But this long journey, since the first train service was launched in 1854 between Bombay (Mumbai now) and its suburb Thane, somewhat lost velocity.

The outcome, accordingly, proved disastrous.

Rail-related accidents kept mounting as allocation of money for safety became a victim of irrational tariff regimes, with successive governments subsidising ordinary passenger travel by freight earnings and premium tickets. The rail infrastructure, too, suffered as new trains kept being added without much thought on expansion and modernisation.

Little wonder, a commonly used parameter to measure the efficiency of a railway system -- the operating ratio, which tells the percentage of revenues that goes into day-to-day operation and maintenance -- suffered immensely. This ratio for Indian Railways declined to an unsustainable level of over 95 percent in 2010-11 from around 80 percent in the 1950s. This is one of the worst globally. A figure of 75-80 percent or lower is what is seen as a healthy benchmark.

Cut to January 2014. Prime Minister Modi, who led his Bharatiya Janata Party (BJP) to victory in the recent national elections, promised to the people something they had never imagined could ever be implemented in India.

"We have such a huge rail network. But it is our misfortune that no attention is paid to the railways in the country. The change that Japan's rail system has undergone, it deserves to be applauded," said Modi during an election speech in the national capital.

"End of the day, the change there occurred because Japan introduced the concept of bullet trains and got the country elevated. China followed that concept. In India, we have such a long rail network, but don't think of its modernisation," said Modi, who has made a number of visits to both these countries to study their infrastructure development.

If this was not a major surprise for the people, Modi also promised what he called a diamond quadrilateral rail network, on the lines of a similar project for roads, with high-speed trains inter-connecting all the four metros and, with it, other key cities.

His idea: A person in any part of India should be able to reach any destination in no more than 24 hours using the country's road and rail infrastructure.

Today, for the record, the longest train service in India is Vivek Express that covers a distane of 4,272 km between Kanyakumari in India's south to Dibrugarh in the northeast, taking as many as 82 hours -- that is, more than three days, not counting the delays.

All this was the result of a major constraint: lack of enabling policy measures for Indian Railways to attract capital. By Railway Minister D.V. Sadananda Gowda's latest estimate, shared in his maiden rail budget last month, the railroad network in India needs $38 billion in 10 years for modernisation and upgrade.

Now cut further to Aug 6. Modi, who knows the Indian Railways rather well, having travelled extensively on its vast network during his days as a volunteer of the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS), of which he was a preacher, made the first real move towards this direction.

A cabinet meeting he chaired Wednesday evening allowed 100 percent foreign equity in areas such as high-speed train systems, suburban railroad networks and dedicated freight projects to be implemented in public-private partnership mode. It was a move that had to wait close to 25 years since the current phase of economic reforms was initiated in July 1991.

All these projects mentioned above involve big-ticket investments. Technology, coaches and the engines for high-speed trains can be bought. The infrastructure also can be created. But the money will not come in till such time an enabling policy environment is attractive for investors -- domestic or foreign. The option of foreign equity weighed heavily in favour.

To give a glimpse into the financial needs of these projects, the proposed high-speed rail service between Mumbai and Ahmedabad, touted as India's first step towards bullet trains, is set to cost $10 billion. The nation-wide freight corridor project is seen needing $13 billion in six years, and more later. The entire north east is crying for a good rail network and the terrain there is none-too-easy for a train system.

But thus far, India's experiment with public-private projects in railways hasn't been quite encouraging. But that has to change, given the ambitious projects that need private and overseas capital in large doses.

The decision Wednesday also comes significantly close to Modi's visit to Japan -- a country that has been a major source of funding for long-gestation railway projects such as the dedicated freight corridor. Some significant announcements can be expected during the visit.

Often, laudatory facts and figures are bandied about Indian Railways: That it ranks among the world's top five, ferrying 23 million people and 2.65 million tonnes of goods daily from 7,172 stations on 12,617 passenger and 7,421 freight trains. Also that the impressive network stretches from Baramulla in the Himalayan foothills in Jammu and Kashmir, to the southern tip of Kanyakumari in Tamil Nadu, through some difficult terrain.

But one another fact numbs such achievements: In terms of route kilometres, very little has been added to the network since independence. Even if one concedes that many of these lines were single-track some decades ago and have now been double- or multi-tracked, the route-kilometres of Indian Railways was 53,000 km then and 65,000 km now.

The extolling statistics also fall flat each time a rail accident claims a life, a train reaches its destination late, a running coach gets overpowered by stench, the food served is unpalatable and the hygiene levels at rail establishments continue to be poor.

The Indian Railways sure has miles to go. But now, it appears, with a nod to foreign equity, and an evolving roadmap being personally monitored by the prime minister, a valid ticket has been issued to this crucial infrastructure to fund its ambitious journey towards a world-class network.

(Arvind Padmanabhan is executive editor with IANS. The views expressed are personal. He can be reached at

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