Foreign investment will help revamp Railways
With the Government notifying its decision to open up almost all of Indian Railways to foreign direct investment, the process of rejuvenating the beleaguered public sector behemoth must now begin in earnest. The foreign funds should go a long way in upgrading Indian Railways across the board, from creating new infrastructure to implementing better passenger safety measures to augmenting freight and passenger capacity. The additional funds will also help complete last mile connectivity projects, thereby paving the way for inclusive growth and development. Government sources estimate that once the country's extensive rail system is modernised, it will add as much as 1.5 to two percentage points to the gross domestic product. For now, FDI will breathe life into this collapsing giant which reported a loss of Rs30,000 crore for 2013-2014. In fact, in the last fiscal, Indian Railways had an operating ratio of 93.5 per cent. In other words, after covering operating costs, it had less than seven per cent of its revenue, which was just about Rs600 crore, to invest in new projects. The fund crunch is symptomatic of a larger systemic malaise that includes populist policies (passengers fare weren't revised for more than a decade, until June this year), a faulty financial model (cross-subsidising freight and passenger revenue has been damaging for Indian Railways) and bad administration (‘Railgate' is just one recent example of the rot that has set in). These are issues that FDI cannot resolve; in fact, it may even be argued that unless some of these fundamental problems are addressed by the Government, merely throwing crores of rupees at Indian Railways will have little impact.
Indian Railways's past experience with public-private partnerships, which saw only limited success under the Congress-led regime but is still highly favoured by the new BJP-led NDA Government, holds some important lessons in this regard. For one, the previous regime's efforts to bring in cash through the PPP route didn't do very well. The Government was hoping to attract as much as one lakh crore rupees for railways, under the 12th Plan period ending in 2017. But in the first two years, it could only generate Rs3,000 crore — possibly because investor sentiment had been dampened after a decade of UPA misgovernance. The NDA will have better luck with the FDI route but it should still take a look at the Comptroller and Auditor-General's report which explains some of problems with PPP projects. For example, the agreements were not structured properly, as a result of which there were not adequate checks and balances and crucial details were either open-ended or vaguely defined. financially unviable projects were often given the green signal. Delays and cost-overruns were routine. For example, even after funding for a new railway line had been cleared, it has often taken several years to acquire land for the project.