For those who regularly follow the Railway budgets, the contrast between the boastful optimism of former minister Lalu Prasad Yadav and the candid honesty of the incumbent, Mamata Banerjee, is unmistakable. Take, for instance, her confession on the excruciating shortage of goods wagons. The Railways simply doesn’t have enough wagons to carry all the freight that comes to it for loading. It routinely turns down business to the detriment of its own financial health and the country’s economic growth.
“Rising demand for coaches, locos and wagons cannot be met immediately,” Banerjee gloomily predicted in her Budget speech for 2011-12. She pointed out that the capacity for wagon manufacture was limited in India and even some of the required components weren’t made in the country. Her allocation of Rs. 13,820 crore for the purchase of 18,000 wagons during the year is a record for the Railways but still woefully inadequate to cover the ballooning shortfall.
Why Is it a Big Deal?
For an economy growing at 9 percent per year, freight traffic in India stands at over 3 billion tonnes. And it is growing by more than 10 percent. This means, an additional carrying capacity of about 300 million tonnes must be created every year to sustain that growth.
Moving goods by rail is less polluting and more economical than road transport. India loses as much as $45 billion a year due to poor logistics infrastructure, according to a report by McKinsey Quarterly. This wastage could be cut by half and fuel needs reduced by 15-20 percent if the country fixes its transport infrastructure and moves more goods by rail, say Rajat Gupta and Thomas Netzer in the McKinsey report.
But the candid confessions of Mamata Banerjee do not reveal the way the Railways has been bungling up this national priority by letting the wagon shortfall increase each year. Over the past three decades, it has been losing traffic to the less efficient road transport to the extent that only one third of the country’s freight traffic is carried by rail today. And McKinsey researchers predict it will fall further to 25 percent.
Even more ludicrous is the way the Railways has been blocking private sector participation in freight movement. Billions in private investment is waiting to come into the sector but the Railways, fearful of losing business to private rivals, has been blocking it with an ever-growing list of restrictions.
“The Railways ought to realise that the worst case scenario for them is not losing traffic to these private players but the truckers,” says infrastructure expert Partha Mukhopadhyay.
One Railways, Two Voices
The story began in 1980 when the national rail transporter decided to cut down the loading of ‘piecemeal’ goods like textiles, milk powder, flour, polymer granules and chemicals. The idea was to use its limited wagon capacity to carry more coal, iron and steel, petroleum and other bulk commodities required by heavy industries and energy utilities.
With a focus on increasing its market share in bulk commodity transport, the Railways began to refuse to carry piecemeal goods. On the other hand, it would have been anathema in that socialist era to think of allowing private industry to serve the business the Railways no longer wanted. So these smaller customers had to move their freight through road. Since then, the Railways has been unable to get them back.
Five years ago, the Railway ministry thought it had found a solution to the deficit in its capacity in the freight segment when it invited the private sector to run container trains. A flurry of investment followed. As many as 16 companies paid over Rs. 640 crore as licence fees and invested another Rs. 1,250 crore to buy 96 rakes (goods trains minus engines). Under the policy, they would own the trains, while the Railways would supply the engine and crew. The contract would last 20 years. It all looked set for a major expansion in carrying capacity.
The unpleasant surprise came when the Railways started laying down the ground rules for the private sector. It decided to restrict the private partners from carrying coal, coke and other minerals. It also raised haulage charges repeatedly. Coupled with poor infrastructure, this rendered the freight movement business much less attractive for the private players.
“On the one hand, the Railways wanted the private players to bring more traffic to the rail sector and at the same time, they do not support us,” says a top official at a logistics company. “Many of us have decided to put all our investment plans in the business on hold until the ministry hears us.”
One example of how the Railways’ apathy is hurting industry is the cement sector. Every year, during January and February, the prices of cement shoot up across the country even when there is a surplus in production. “The Railways are unable to send the required number of wagons at the start of the year as there is a massive requirement for transport of food grains and therefore only a limited number of wagons are available to carry cement during the two months,” says Sanjay Ladiwala, president of Cement Stockists and Dealers Association of Bombay.
Now, cement is such a low-value commodity compared to its weight that transport costs are the crucial difference between profit and loss for the producer. The Railways has simply raised the charges it levies on private container train operators transporting cement by about 200 percent. This, the operators say, has rendered it unviable for the producer to move cement by container trains, which could have augmented the Railways’ capacity to carry the commodity on short routes.
(This story appears in the 25 March, 2011 issue of Forbes India. To visit our Archives, click here.)
Dear Mamata madam, As minister of Railways you have full power do good things to do. If you cannot do good things pl step down from the power, good new minister can do the work. There is no long term vision for Indian Railway by Budget 2011, In Tamil nadu, there is no Double track from chennai to madurai, all the gauge conversion projects going very slow, it take another 15 years to convert all meter gauge to broadgauge. World is moving very fast, you can increase the fare and give good service to the people for Berth 3 tier, A/c 2, &3 tier. All the coaches are very bad small in the all fast train. You are visiting so many country how they are doing and planning, pl take care and do the better job for Indian Railway.
on Apr 5, 2011