The Indian Railways by Archie D’Souza. Its impact on the Economy, in general and the Logistics Industry in particular

The Indian Railways                 -Archie D’Souza

Its impact on the Economy, in general and the Logistics Industry in particular

[While I have referred to the current budget, I am not getting into the politics of the Railway Budget, just confining my comments to economic & commercial decisions]

The Indian Railways (IR) is State-owned and operated by the Ministry of Railways.  Unlike other government undertakings, IR is not a corporation or public sector company.  It is a department of the Union Government.  Its finances are separated from the general budget.  The Railway Minister every year presents a separate Railway Budget.  Here, its annual requirement for funds is voted upon.  The Ministry of Railways is headed by the minister of railways and its policy is formulated and managed by the Indian Railways Board which comprising a chairman and six functional members.  It has wide powers.  The Indian Railways owns and operates one of the largest rail networks in the World.  This spreads over 63,140 route-km.  Its traffic includes over 500 billion passenger-km and 400 billion tonne-km of freight.  However, between 1970–1971 and the late 1990s, the share of railways in the freight traffic market dropped from 65.5% to around 48.0% and its share in passenger traffic, from 32.9% to 23.0%.  However, the Indian Railway’s freight and passenger revenues are increasing as traffic flows of both rail and road networks grow.  This is all thanks to India’s robust economic growth.  The growth in traffic could be attributed to both demand-side and supply-side factors.

As stated, every year, in the month of February, sometimes in March, the Union Minister of Railways presents the railway budget.  This was presented to Parliament on Mar 14, 2012.  Here are some of the highlights of the railway budget.  The following proposals were made by Mr. Dinesh Trivedi:

•  Passenger fares to be hiked by 2 P per km for suburban and ordinary second class travel; 3 P per km for mail/ express second class; 5 P per km for sleeper class; 10 P per km for AC chair car/AC 3-tier and First Class; 15 P per km for AC 2-tier and 30 P per km for AC 1-tier.
• Minimum fare and platform tickets to cost Rs 5.
• 75 new Express trains to be introduced, along with 21 new passenger services, nine DEMU services and 8 MEMU services trains.
• Route of 39 trains to be extended and frequency of 23 trains to be increased.
• Railways to hire more than one lakh employees in 2012-13; 80,000 persons hired last year.
• Indian Railways Stations Development Corp to be set up to re-develop stations and maintain them like airports.
• To set up an independent Railway Safety Authority as a statutory body.
• The open discharge toilets on trains to be replaced with green (bio) toilets.
• All unmanned level crossings to be abolished in next five years to target zero deaths due to rail accidents.
• To provide rail connectivity to neighbouring countries, a new line from Agartala to Akura in Bangladesh to be set up.
• Double-decker container trains to be introduced.
• Steps to improve cleanliness and hygiene on trains and stations within six months. A special housekeeping body to be set up to take care of both stations and trains.
• New passenger services include escalators at major stations, alternative train accommodation for wait-listed passengers, laundry services, AC lounges, coin/currency operated ticket vending machines.
• Two new members, one for marketing, and other for safety, to be inducted into Railway Board.
• On board passenger displays indicating next halt station and expected arrival time to be introduced.
• Introduction of regional cuisine; Book-a-meal scheme to provide meals through SMS or email.
• Specially designed coaches for differently-abled persons to be provided in each Mail/Express trains.
• Railway Tariff Regulatory Authority to be considered.
• National High Speed Rail Authority to be set up; Pre-feasibility studies on six high speed corridors completed; study on Delhi-Jaipur-Ajmer-Jodhpur to be taken up in 2012-13.
• Wellness programme for railway staff at work places.
• Institution of ‘Rail Khel Ratna’ Award for 10 rail sportspersons every year.
• A wagon factory at Sitapali, Odisha, rail coach factory at Palakkad, two additional new coach manufacturing units in Kutch (Gujarat) and Kolar (Karnataka); component factory at Shyamnagar (West Bengal); new coaching terminal at Naihati, the birth place of Bankim Chandra Chattopadhyay.
• Freight loading of 1,025 MT targeted; 55 MT more than 2011—12; Passenger growth targeted at 5.4 per cent.
• Passenger earnings to increase to Rs 36,200 crore.
• Gross rail traffic targeted to increase by Rs 28,635 crore to Rs 1,32,552 crore in 2012—13.

Having seen the general highlights let us see the ones that are directly or indirectly related to freight and logistics:

• To provide rail connectivity to neighbouring countries, a new line from Agartala to Akura in Bangladesh to be set up.
• Double-decker container trains to be introduced.
• National High Speed Rail Authority to be set up; Pre-feasibility studies on six high speed corridors completed; study on Delhi-Jaipur-Ajmer-Jodhpur to be taken up in 2012-13.
• A wagon factory at Sitapali, Odisha, rail coach factory at Palakkad, two additional new coach manufacturing units in Kutch (Gujarat) and Kolar (Karnataka); component factory at Shyamnagar (West Bengal); new coaching terminal at Naihati, the birth place of Bankim Chandra Chattopadhyay.
• Freight loading of 1,025 MT targeted; 55 MT more than 2011—12; Passenger growth targeted at 5.4 per cent.

If freight figures achieve targets, and there are no signs to indicate they won’t, the tonnage will exceed a billion tonnes for the first time.  Having seen these, let us look at an overview of the current status of IR with reference to logistics & freight movements.

The Indian Railways Freight Services are the most profitable among all the services that IR provides.  It covers the entire network of Indian Railways. A wide range of goods is carried by the IR throughout its vast network.  These range from parcel traffic & small consignments to a rake-load-full of coal, iron ore and other bulk commodities.  Commodities carried by rail in India include, raw materials, agricultural products, petroleum products, garments, other finished goods and many more.  One the one hand, the Indian Railways Freight Services is quite economical, and on the other, the IR can carry very large quantities at a time.  Therefore, the Indian Railways Freight Services are able to generate a huge amount of revenue and play a major role in the development of railway network in the country. In fact, it is the surplus from freight services that makes up for the loss incurred on passenger services.

A Wagon, unlike a coach, is a rail bogie, used to carry goods.  A Rake is a group of passenger coaches or cargo wagons coupled together into a single unit pulled generally by one engine.  We are confining our discussion to cargo which is carried in freight trains and parcel vans of passenger trains.  Almost all trains have one attached to it.  The IR transports a wide range of goods within the country in these trains.  There also exist different types of wagons and rakes.  A few examples of these are refrigerated wagons, box vans, etc.

The Indian Railways has planned to construct dedicated freight corridors and mega multimodal logistics parks (MMPLs) or hubs along them.  These terminals will provide state-of-the-art integrated logistic facilities with mechanised handling and intelligent inventory management.  Located at select strategic locations they will serve the objective of reducing the overall logistics cost in the supply chain.  Users will thus get dedicated cost effective services that will cater to their time-sensitive freight transportation requirements.  A multi-modal logistics park (MLP) may be defined as a rail-based inter-modal traffic-handling facility complex comprising container terminals, bulk / break-bulk cargo terminals, warehouses, banking facilities, office space, etc.  Available here will be facilities for mechanised handling, inter-modal transfers, sorting / grading, cold chain, aggregation / disaggregation, etc, to handle freight.

The dedicated freight corridors are being built on a Public Private Partnership (PPP) model, with industrial townships coming up all along them.  Most of them will be declared as Special Economic Zones (SEZ) where the investors will get special tax benefits and be immune to India’s stringent labour laws.  Generally, the MLPs will be developed by the project authorities in charge of SEZs/industrial townships.  A report released in 2009 by Cushman & Wakefield, the Chicago-based global real-estate experts says that the annual growth of the Indian Logistics Industry is expected to be between 15 & 20 per cent.  At this rate revenues are expected to touch a figure of approximately $385 billion by 2015.  Industry analysts say that many logistics companies are in various stages of setting up warehouses, container freight stations, inland container depots, logistics parks, distribution centres and other facilities to tap the trade opportunities.  DHL Logistics, Transport Corporation of India, Gati, Adani Logistics, Sical Logistics, World Windows Infrastructure and Logistics and Mahindra Logistics are some of these companies.

One of the prime objectives of the policy is to enhance the presence of rail transport in the overall transport chain and in so doing reduce logistics costs for the users.  How would this be achieved?  Some of the methods adopted would be through:

·          Minimisation of multiple handling

·          Provisions of various logistics related services close to a rail transport hub

·          Better integration with logistics and supply chains.

To develop these MMPLs through Public Private Partnership (PPP), the ministry of railways had invited expression of interests (EOI).  Companies expressing interest need to provide seeking essential information regarding:

·          Proposed locations

·          Land area required

·          Type/segment of logistics business to be development etc.

These expressers of intent are large logistics service providers, real estate developers, third party logistics players, warehousing investors, container operators, financial institutions, industrial houses, etc. who are willing to participate in the development of these MMLPs.

The Dedicated Freight Corridors (DFC) under the aegis of the Dedicated Freight Corridor Corporation of India (DFCCIL) will be a flagship project of the Indian Railways.  The DFCCIL is a Special Purpose Vehicle (SPV) set up under the administrative control of Ministry of Railways to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of these DFCs.  DFCCIL was incorporated in October 2006 under Indian Companies Act 1956.  The plan to construct dedicated freight corridors across the country marks a strategic inflexion point in the history of Indian Railways that has essentially run mixed traffic across its network. Once completed, the dedicated freight corridors will enable Indian Railways to improve its customer orientation and meet market needs more effectively. Creation of rail infrastructure on such a scale - unprecedented in independent India – is also expected to drive the establishment of industrial corridors and logistic parks along its alignment.

The DFCs entail construction of approximately 3300 km of mostly double, electrified, high axle load track.  A liberal space envelope, fit for high capacity wagons and heavy haul freight trains at cruising speeds of 75 km/hr and top speeds of 110 km / hr, will be provided.  Here are a couple of the routes for the DFCs:

• JNPT/Mumbai – Tughlakabad (Western Route)
• Kolkota – Ludhiana (Eastern Route)

A large number of industrial nodes are also being planned along the Western Route.  These are all part of a related initiative by the Government of India.