K L Thapar: The railways' looming crisis

The railways have to their credit sustained productivity and output gains, more pronounced in recent years. But for this, the rate of economic growth may well have been lower. Since 2000, they have moved, on an average, 42 million tonnes of additional freight traffic each year. Compare this with an average of 6-7 million tonnes per year over the previous 50 years and you get an idea of how well the railways are performing.

It is, however, worrisome that the performance may well have peaked. This can be seen from chart 1, which depicts the incremental freight loading since 2000. In a year when the economy has grown at over 9 percent, incremental loading is down from 66 million tonnes to 58 million tonnes and the wagon turnaround time has become almost flat.

It would be observed that a severe bottleneck is in the making. The reason for the same is that there just is not enough capacity to run more trains. All the major routes are over-saturated and the operational capacity has been stretched to the limit. The railways have also exploited the potential of carrying capacity of wagons by increasing the axle load limits on its network.

Further capacity augmentation requires fresh and large investments, as all soft options have been exhausted. It is, indeed, a matter of serious concern that both investment and delivery of projects is lagging behind by an unacceptable margin. We have been hearing of the dedicated freight corridors for the last 18 months but so far there has been no progress at all in this direction. Not a sod of mud has been turned.

It is important that the railways' policymakers do not continue to focus on a pie in the sky. The investment in ground infrastructure is lumpy and massive. The gestation period is long and it takes years for the returns to become positive. This sort of wait can be afforded only by investment financed through capital raised via taxation and is extremely hard to finance through normal risk capital, especially when the bond market does not have the required depth.

The world over, there is a resurgence of the railways. Indeed, the European Union has a policy mandate to shift traffic from road to rail. China has rapidly expanded its rail network and made massive investments "" $120 billion "" in the last decade and a half. In the same period, India invested only a little over $20 billion. Not just this, the bulk of Chinese investment went into the creation of capacity. Sadly, this has not been the case in India.

This situation, if not corrected urgently, will prove quite costly in the years to come. It is also time to ensure that the hard policy decisions are not put on the back burner. Despite various pronouncements, even a beginning has not been made in respect of the corporatisation of the railways' production units. There is no doubt that these can become world class manufacturing units with appropriate capital infusion and strategic technical collaborations.

The integration of the Indian economy at the global level requires that transactional costs are competitive and the railways have to play an important role in this regard. Unfortunately, the tendency of milking freight traffic while keeping passenger fares virtually unchanged, continues. Chart 3 shows the earnings per million tonne since 2000. There is an urgent need for correction, more so in the context of inflationary pressures in the economy.

It should be pointed out that the freight tariffs on the Indian railways are 65 percent higher than in China. In the case of passenger traffic, the position is reversed. The average passenger fare per kilometre in India is less than half that in China. The national interest is best served by rational choices, not rank populism.

The author is Chairman, Asian Institute of Transport Development, New Delhi