Business Today

Rail Budget opens door to private funding for new projects

The first rail Budget of Prime Minister Narendra Modi's government has made it clear that if the rail network needs to be fixed, users will have to pay for it.

Arunima Mishra and Anilesh S. Mahajan         Last Updated: July 8, 2014  | 20:57 IST
Rail Budget opens door to private funding for new projects
The rail budget also opened the doors to investment from private players and foreign investors . Gowda said the proposal will be discussed with the Cabinet.

For years, the Indian Railways was driven by a socialist mindset. But the first rail budget of Prime Minister Narendra Modi's government has made it clear that if the rail network needs to be fixed, users will have to pay for it. The message was loud and clear when Railway Minister D.V. Sadananda Gowda said rail fares will be revised at regular intervals.

RAIL BUDGET 2014:Key Highlights The rail budget also opened the doors to investment from private players and foreign investors . Gowda said the proposal will be discussed with the Cabinet. He made it clear in his speech that most future projects will be done through public-private partnerships (PPP).

However, the ministry has yet to come out with a concrete plan to implement the "change in attitude" reflected by the government. Railway Board Chairman Arunendra Kumar, in a press conference, said: "We are studying the prospects [taking investments in PPP] and would involve private players at a later stage." Other members of the board, however, told Business Today that there is genuine interest among private and international players in India who believe that railway has a great potential in the country.

These officials said that the government needs to make policies to attract these players and help them in executing the projects.
The three big things in the budget which will lure both domestic as well as international players are dedicated freight corridors, bullet trains and modernisation of 50 stations. The minister allocated Rs 100 crore for the country's first bullet train from Ahmedabad to Mumbai (450 km).

Officials at the railway ministry suggest that German company Siemens, Canada's Bombardier, American major General Electric, Japanese company Toshiba, and some Chinese companies are in touch with the Department of Industrial Policy and Promotion and railways to get into various business segments in this sector, including bullet trains. As per initial estimates, Rs 100 crore is required to build one kilometer of infrastructure for bullet trains.

Explaining the fine print, Railway Board's Kumar said: "There is no scope for FDI [foreign direct investment] in the operations of railways." The Indian Railways is looking at infrastructural investments in the sector. Railway officials also say the ministry has short-listed 10 stations to be modernised.

Reacting to the Budget, Sumit Mazumder, President-Designate of the Confederation of Indian Industry and who also heads CII's Special Task Force on Railways, said: "If the projects are made attractive to private investors, funds through PPP and FDI will be available. Multilateral funding should also be accessed for high-speed corridors."

Manish Agarwal, Leader (Capital Projects and Infrastructure) at PwC India, said that upgradation of existing infrastructure for higher train speeds on other routes is a good balance between affordability and desire. He also welcomed the intention to develop a rational approach to tariff setting.

Some thought seems to have been given on the need for different PPP models (user-charge based, annuities), as well as potential areas for leveraging PPP capability. However, given limited success on station modernisation projects so far, the implementation roll out remains to be seen.

Meanwhile, Federation of Indian Export Organization chief Rafique Ahmed said that FDI and private investment will augment the internal resources of railways to fund the expansion and modernisation envisaged in the budget.

The announcement of dedicated freight corridors in eastern and western routes has also been well received. This has not only provided another opportunity for investment from international players but will also allow India to rapidly move manufactured goods to ports for exports.

Gowda also opened up housekeeping at 50 stations, food courts at certain stations, allowing innovation to connect with e-commerce network and e-tracking of trains to private players.


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