For over 150 years, Indian railways have been living up to its motto as the ‘lifeline of the nation’, employing more than 1.3 million employees at the last count, and uniting the vast area of the sub-continent with 7,172 stations spread across 71,000 miles of track.
Go deeper with GlobalData
However, decades of low investment coupled with a long-term policy of subsidised fares has left the system severely stretched in the face of rising demand, and contributing to the lack of robust national infrastructure that President Pranab Mukherjee recently described as "one of India’s major impediments".
Now, all of that could be about to change, as newly elected Prime Minister Narenda Modi’s majority administration sets out to modernise and upgrade the rail network and finally implement the high-speed service that was first mooted more than thirty years ago.
The Diamond Quadrilateral
Both of India’s main political parties’ manifestos ahead of the 2014 elections contained high-speed train pledges, with the Indian National Congress promising links for all of India’s cities, while Modi’s own Bharatiya Janata Party (BJP) favoured an initiative that would connect the four corners of the country. The Diamond Quadrilateral project – modelled on the successfully completed Golden Quadrilateral mega-express-highways linking the key metropolitan centres of Delhi, Mumbai, Kolkata and Chennai – will see these same cities served by a high-speed rail network, and a further five schemes are also being considered.
See Also:
Nevertheless, Railway Minister Sadananda Gowda’s inaugural budget speech in early July, which also announced a number of other improvements and extensions to key parts of the rail system, did not meet with universal approval. The very next day, members of the rival Nationalist Congress Party took to the streets to protest against the BJP-led ruling National Democratic Alliance plans.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHard Choices
"There’s a feeling that big-ticket spending on high-speed trains won’t do much for many Indians, especially given the creaky nature of the system, the variety of gauges in the country [there are currently four, although standardisation work is underway] and the fact that even the proposed bullet trains will have to run at less than half-speed for years to come," says transport consultant, Ernie Bell.
The United States has the world’s longest railway network, followed by China and India.
"Critics argue that for the cost of implementing the Diamond project, you could speed up the work to bring existing lines up to 160 to 200 km/h and upgrade much of the existing fleet to run on them – and bring improved service to the whole population, not just the favoured metro areas," he says.
In many ways, deciding between purchasing high-speed trains or doing something to ease the journey for the 23 million Indians who travel by rail each day is just the latest in a list of equally hard choices that have accompanied the development of India’s railways over the years, but the debate highlights one important issue. Joining the high-speed club comes at a price; is it one that India can afford – or perhaps more importantly, is willing to pay?
Economic slowdown
India’s once meteoric growth has slowed down significantly over the last few years, falling to around 4.7% in 2013/14, and Modi’s sweep to power was fuelled in no small part by his promises to revitalise the nation’s flagging economy and plug the budget deficit.
Rail projects form a key element in the plan. Estimates suggest that railway improvements could add at least 1% to the country’s GDP as faster connections, better freight handling and planned specialist agri-rail links transport people, goods and perishable foodstuffs quickly and dependably to where they are needed. With ready capital in short supply, however, the government is looking to public-private-partnership to meet the bulk of the cost, aiming to put in place what is described as a new "fast-track, investment-friendly and predictable mechanism" to attract the required funds.
According to Bell, India seems in the habit of announcing new rail schemes without necessarily being entirely sure of their funding, and many do not materialise as a result. He says that out of around 100 officially sanctioned over the last decade, so far only one has been taken right through to completion, and points to Gowda’s recent admission that some $82bn was still needed to finish ongoing projects. Funding the Diamond Quadrilateral will add almost double that.
Culture change
Reforming the railways is a brave thing for any Indian government to undertake. It is an unavoidably sensitive area politically, and successive administrations have often been reluctant to implement change, preferring instead to maintain the status quo in order to safeguard jobs and perpetuate cheap travel for their voters. As a result, the operating ratio today runs at around 94% – just 6% surplus, amounting to less than a projected $100m for the 2015 financial year. It may require something of a culture change for the current round of proposals to gain anything approaching full popular support.
The decision to move its headquarters from Tokyo, Japan, to London in the UK, is driven by the company’s increasing international business.
"It’s been said that the Indian Railways are expected to act like a social service and yet turn a profit like a business, and the truth is they’re losing money hand-over-fist on the passenger side alone," Bell says. "But after all the years of subsidy, who is going to want to pay anything like the ‘real’ price of their tickets?"
There has already been a 14% hike in fares and while the Modi government have been quick to point out that this is a result of decisions taken by the previous administration, unsurprisingly passengers fear it may be a sign of things to come as the costs of the new high-speed projects mount.
Technology imports
One factor that could significantly drive those costs is the need to import many of the technologies required, leading some to criticise the Diamond Quadrilateral as a project only for the rich. With coaches for the high-speed corridor costing around $1m apiece, and locomotives considerably more, and some European studies suggesting that high-speed travel can end up two to three times more expensive but only 25% faster, they do have a point.
However, Satish Agnihotri, Chairman of the High Speed Rail Corporation – an organisation created by the Ministry of Railways to implement the programme – has repeatedly argued that the economies of scale from India’s huge passenger numbers, coupled with indigenisation of manufacturing, makes high-speed rail viable, despite the high capital demand. There is no doubt that the Bombardier and Alstom units at Tamil Nadu and Gujarat would welcome the work and, beyond that, the estimated 29% reduction in energy consumption that the proposed high-speed network could achieve over existing trains is clearly attractive too.
Prepared for change
The true picture may get clearer when the results of two international studies into the proposed Mumbai-Ahmedabad corridor by the French SNCF and Japan’s International Cooperation Agency become available over the next year, but until then Bell says India would do well to mull the Chinese experience.
"Beijing has invested heavily in high-speed rail – 12,000 km of it – but if you take Beijing-Shanghai out of the equation, the rest of the lines are expected to be running at a loss for decades – and I mean a really big loss. Is India prepared for that?"
Maybe it is; Indian Railways recently announced that revenue earnings were up by over 10% between April and July 2014. Perhaps that culture change is starting after all.
