India’s railways puff slowly to private sector reform

By: | at 07:00 PM | Intermodal  

Tentative reforms and some eye-catching projects could herald a private sector-driven shake-up of India’s creaking railways, but deeper change is needed to tackle the supply bottlenecks that still crimp growth.

Once seen as a shining legacy of the British Raj and still one of the world’s biggest employers, India’s rail network crams 18 million people a day on to its ageing trains running from the foothills of the Himalayas to the southern beaches of Kerala.

Decades of low investment and policy stagnation mean India has fallen far behind emerging market peer China in building a network fit for Asia’s third-largest economy.

Contrasts abound. While Indian trains are notorious for 24-hour delays, China has made a global splash with a train whose top speed of 486 km/h will halve the travel time for the 1,318 km (819 mile) journey from Beijing to Shanghai to less than five hours by June.

“The Indian Railways is at an infancy as far as the reform and privatisation process goes,” said Ranveer Sharma, principal at Eredene Capital , a London-listed private equity investor in Indian ports and logistics.

There are some signs of change. The Indian government has initiated multi-billion dollar projects including a $90 billion freight corridor to connect Delhi and Mumbai, with world-class industrial and commercial hubs to be built alongside.

Backed by funds from the Japan Bank for International Cooperation and the Sumitomo Mitsui Banking Corporation, officials say the track will cross six states and benefit 180 million people, three times the population of Britain.

A second giant freight line to the east will likely be backed by the World Bank. The private sector is moreover flexing its muscle with inner city metro rail projects that have been snapped up by big-hitting domestic firms such as Reliance Infrastructure Ltd and Larsen & Toubro .

“There are encouraging signs,” said S. Nandakumar, a Chennai-based infrastructure specialist at Fitch Ratings.

“If you look at it on a timescale of where we were say six or seven years ago, there’s definitely a lot more activity in the rail sector in terms of expanding infrastructure, in terms of involving the private sector.

“On the flipside, in comparison with what we’ve achieved on initiatives in some of the other sectors, it’s a little short.”

A world away from the country’s gleaming new airports, trains teem with rural migrants and hawkers left behind by India’s near double-digit growth story. More than 80 percent of the network was built before independence from Britain in 1947.

New Delhi has given a big push to infrastructure spending with a planned splurge of $1.5 trillion over 10 years. Railways could end up a laggard as the network receives 5 percent of funds from private money, the lowest figure of any major infra sector, though it takes $20 billion in traffic receipts a year.

New Destination?
The railway ministry has talked up the need for tapping the private sector for funds and in mid-2010 launched two policies to open up freight traffic to private firms.

The Private Freight Terminals (PFT) scheme lets private operators build and operate terminals on private land for a duration of 30 years and charge third parties for handling freight, boosting, for example, the business potential of ports and logistics firms.

Another initiative by the ministry was to let private firms run freight trains for certain commodities.

“Privatisation of the container trains and the recent PFT policy are perhaps the first seeds sown by the government towards substantial privatisation over the medium- to long-term,” said Eredene Capital’s Sharma.

“Foreign private equity investors, including Eredene, remain keenly interested in such developments.”

India’s infrastructure is a study in contradictions, with showcase projects such as Delhi’s revamped airport and a swish sea-link in the financial capital Mumbai set against road and power projects held up for years by red tape and funding gaps.

Projects such as the Delhi-Mumbai f


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