India opens railway modernisation to FDI

Government of India’s plans to modernise the Indian Railways has opened up a plethora of opportunities for private players. Given the size of the market and the huge potential for transformation, foreign players are eyeing multiple initiatives

October 24, 2018

With more than 12,500 passenger trains and over 7,400 freight trains, Indian Railways moves 23 million travellers and 3 million tonnes of freight daily between more than 7,300 stations

Indian Railways received FDI equity inflow of US$390 million over April 2014 to December 2017; India has planned an investment outlay of US$117.2 billion for the period of 2016-20

To pursue its US$1 trillion railway station redevelopment plan, the Government has decided to partner with private entities and set up Indian Railway Station Development Corp (IRSDC)

In one of the partnerships, Indian Government in August 2018 met with a team of 13 US companies from the areas of railway construction, maintenance and IT and infrastructure

Addressing the World Economic Forum at Davos this year, Minister of Railways Piyush Goyal invited global investors to be a part of Indian Railways’ modernisation and growth story. This development follows Government of India’s initiative to focus on India Railways as an engine of economic growth. According to a report by Crisil, a global analytical company, India has planned an investment outlay of US$117.2 billion for the period of 2016-20 to optimise the economic potential of national railways. This outlay is a combination of budgetary support as well as participation of external agencies, private parties and other stakeholders.

The importance of this move can be gauged from the fact that Indian Railways, which has a network of more than 115,000 km across the country’s length and breadth, is the third largest passenger rail system and the fourth largest rail freight carrier in the world. With more than 12,500 passenger trains and over 7,400 freight trains, Indian Railways moves 23 million travellers and 3 million tonnes of freight daily between more than 7,300 stations. To best implement the diverse socio-economic potential of India’s railway system, its long-overdue modernisation and technological upgradation has been taken up by the current Government.

The upgradation is anticipated to add considerably to the national economy. In a bid to “bring the charm back to train travel”, the Government is taking steps to upgrade the infrastructure, technology, and hygiene factors of the railway ecosystem to offer an enhanced passenger experience. To achieve these goals, Indian Railways has identified investment opportunities in diverse areas for foreign governments as well as companies across the sectors of railway engineering and manufacturing to telecoms and food services. So far, foreign participants have included French Railway (SNCF), Korean Railway, Governments of Germany, China, USA and the UK.

Foreign collaborations

In April 2018, a 26-member team from Germany visited India to explore investment opportunities in the rail sector. Germany is conducting a feasibility study for high-speed trains on the 450-km-long Chennai-Bengaluru-Mysuru route. Bearing the cost of the year-long research to understand route requirements, passenger inflow and other challenges, German companies are keen for technology tie-ups and setting up manufacturing facilities in India. The German interest comes as in the current financial year, Indian Railways is set to invest around US$4.8 billion in rolling stock, diesel and electric locomotives, wagons and passenger coaches.

A similar partnership with Japan announced last year to bring the bullet train to India was another affirmation of the pace at which Indian Government seeks to usher in change in the sector. Initiated under the National High-Speed Rail Corporation Limited (NHSRCL), India’s first bullet train has been scheduled for 2022. With an operating speed of 320 kmph, the train will cover a distance of 508 km, between Mumbai and Ahmedabad, two key business centres. Government of Japan has technically and financially supported the project with 81 per cent of project cost funded by a 50-year loan. The total project cost is estimated to be US$15 billion.

In March, India and France signed a pact to increase railway cooperation with a focus on high-speed networks. The work had started in 2015 with Indian Railways and French National Railways (SNCF) co-financing a study to upgrade Delhi-Chandigarh network to semi-high-speed 200 kmph line. A preliminary agreement has also been signed by India’s Research Designs and Standards Organisation (RDSO) and Republic of Korea Railroad Research Institute (KRRI) in July 2018 for exchange of expertise in railway. A similar deal has been signed with the government of United Arab Emirates for cooperation and investment in railway logistics sector. 

It all started in August 2014 with India allowing 100 per cent foreign direct investment (FDI) in railway infrastructure to let overseas investors participate in projects such as building high-speed railways, manufacturing and maintenance of rolling stock, electrification and modern signalling systems. Previously a monopoly of the Government, liberalisation has helped bring in necessary investments as well as the latest technology. In August 2017, FDI through automatic route were allowed in areas such as high speed trains, freight corridors, signalling, suburban projects, electrification. Till March 2018, railways have seen FDI worth around US$900 million.

Multiple railway initiatives

The rail network in India connects the remotest of areas and is the transport of choice for majority of the population. Hence, the rail fares in India have been kept low and are among the lowest in the world. Building infrastructure through fare hikes and consequent revenue has never been an option. The government is now looking to raise money through non-fare avenues such as land monetisation, catering, freight and commercial development of railway land. Hence, to pursue its US$1 trillion railway station redevelopment plan, the Government has decided to partner with private entities and set up Indian Railway Station Development Corp (IRSDC).

The corporation will work towards finding varied business models to monetise railway entities. Built on the lines of Germany’s Heidelberg railway station, Habibganj in the suburbs of Bhopal, Madhya Pradesh, is set to become India’s first railway station to be redeveloped under the public-private partnership (PPP) model. The station has been imagined to become a modern commercial hub with commercial and hospitality outlets, office spaces and a network of road connectivity, almost four decades after it started operations. Habibganj station will be a “green building” powered by solar energy and designed to sustain on wastewater reuse.

Special Freight Train Operations (SFTO) is another policy initiative of Indian Railways to encourage private investment in rolling stock. Under this policy, Tata Martrade International Logistics Ltd, a joint venture of Tata Steel, NYK Holdings Europe and IQ Martrade Holding Germany, has bagged a 20-year license to invest in and lease rakes for movement of finished steel products. Indian Railways is also seeking partnerships and investments under a wide spectrum of opportunities, from manufacturing and infrastructure projects to linking coal mines and ports to railway lines; from building high-speed tracks and suburban corridors to electrification.

Future of partnerships

Turning Indian Railways into an eco-friendly and environmentally sustainable entity is a humongous, yet lucrative task. Providing connectivity and using technology to find solutions for the particular challenges faced by millions of commuters in India, calls for innovation. As a step in this direction, an India-USA roundtable discussion held in August 2018 showcased the expertise of US firms in railway. Offering products and services such as energy efficiency, anti-corrosion coating, use of high-speed internet and cloud computing for passenger reservation and devices that can detect rail-flaw, the companies aimed at providing desired specific solutions.

Already, Google has been providing free WiFi service to more 400 railway stations in India. As the railways’ technology partner, Google’s WiFi service reaches eight million people every month. In May 2018, the Rail Ministry announced that free WiFi services would be provided at 7,000 more stations by 2019. Not just that, industrial technology provider ABB is supplying equipment to enhance power quality along the country’s longest freight corridor. The Government is also trying the European Train Control System-2 (ETCS2) technology to revamp its signalling system. If the trial is successful, the signalling equipment will be manufactured in India.

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