Make rail prime goods mover

By Ramesh Raja
In Infrastructure
August 11, 2015

The network losing business to less efficient road transport

rail prime goodsEven though the Indian Railways enjoys supremacy in freight transportation in the world’s second fastest growing economy, it is not the primary goods mover of the country and not keeping up with exploding demand. Incompetence of the railways is at such a high that businesses turn to trucking for transportation, which is far less efficient and, among other things, drives up India’s oil import bill impacting the  economy. The railways simply doesn’t have enough wagons to carry all the freight that comes to it for loading. It often turns down business to the disadvantage of its own financial health and the country’s economic growth. For an economy growing at 7.5 per cent per year, freight traffic in India stands at over 3 billion tonnes. And it is growing
by more than 10 per cent yearly. This means, an additional carrying capacity of at least 300 million tonnes must be created every year to sustain that growth. Moving goods by rail is less polluting and more economical than road transport. As per a McKinsey report, India loses as much as $45 billion a year due to poor logistics infrastructure. This wastage could be slashed by half and fuel needs reduced by 15-20 per cent if the country fixes its transport infrastructure and moves more goods by rail, the report suggests. The railways has been losing traffic to the less efficient road transport to the extent that only one third of the country’s freight traffic is carried by rail today. And if McKinsey prediction is to believe, it will drop more to 25 per cent in years to come. Even more absurd is the way IR has been hindering private sector participation in freight movement. Billions in private investment is waiting to come into the sector but the railways, fearful of losing business to private competitors, has been obstructing it with an ever-growing list of constraints. The woeful tale began over three decades back when the national rail transporter decided to downsize the loading of ‘piecemeal’ goods like textiles, milk powder, fl our, polymer granules and chemicals. It was intended to use its limited wagon capacity to carry more coal, iron and steel, petroleum and other bulk commodities required by heavy industries and energy utilities. With a focus on increasing its market share in bulk commodity transport, the railways began to refuse to carry piecemeal goods. Also, it would have been a disgust in that socialist era to think of allowing private industry to serve the business the IR no longer wanted. Consequently, these smaller customers had to move
their freight through road and since then, the Indian Railways has been inept to get them back on track.

Almost 10 years ago, the Ministry of Railways had nearly worked out a solution to the shortfall in its capacity in the freight division when it invited the private sector to run container trains. A spate of investment poured in – approximately 16 companies paid over Rs 640 crore as licence fees and invested another Rs 1,250 crore to buy 96 rakes (goods trains minus engines). As per the policy, they would own the trains, while the IR would supply the engine and crew. The contract would last 20 years. It all looked set for a major expansion in carrying capacity. But in a rude shock to the private players, the railways started laying down the ground rules for them. The IR decided to restrict the private partners from carrying coal, coke and other minerals. It also hiked haulage charges over and over again rendering the freight movement business much less attractive for the private companies. Poor infrastructure is another aspect that disinterested them gradually.

Many of these companies have since decided to put all their investment plans in the business on hold for the time being, as the railways, on the one hand, wanted the private players to bring more traffic to the rail sector and at the same time, they do not support them. Another instance of how the railways’ indifference is affecting industry is the cement sector. Every year, during January and February, the prices of cement rise across the country even when there is a surplus in production. According to Sanjay Ladiwala, president of Cement Stockists and Dealers Association of Bombay, the railways are unable to send the required number of wagons at the start of the year as there is a massive requirement for transport of food grains and hence only a limited number of wagons are available to carry cement during the two months.

Partha Mukhopadhyay, an infrastructure expert, opines that the railways should understand that the worst case situation for them is not losing traffic to these private players but the truckers. It goes without saying that a healthy rail-road network will be important to meet growth-led demand for freight traffic in the years to come. Bearing in mind the scale of investment involved, the government needs to make firm choices in prioritising between the rail and road networks.

It may be noted that in 1951, the railways carried the majority of the freight (almost 90 per cent) traffic and the following years witnessed a steady change away from rail to roads. This shift from rail to roads challenges economic or social logic. Low freight and passenger rail fares have done immeasurable public good. The graded freight structure of the railways, which is inversely proportional to distance, has ensured that low-value cargo such as coal, minerals, fertilisers, food grains and cement can be carried at substantially low rates. In general, railway freight charges are about half the road transportation charges for commonly used commodities

Significantly, the economic, social and environmental costs of building and maintaining a rail network is far lower than for roads. Building a rail network requires much less land; reducing land acquisition costs not only in terms of the area to be acquired, but also in time saved in prolonged land acquisition proceedings. The railways are reasonably more energy effi cient, less polluting and less of a drain on natural resources, both during the construction and operation phases. The rail offers greater opportunities to execute and administer quality control. Unlike roads which are eventually congested with linear ribbon development along the road network, the rail network is unaffected by such developments. Although much needs to be done to improve rail safety, the railways are far better than roads.

As far as the economic aspect is concerned, the suboptimal distribution of freight traffic between rail and road has measurable implications. “In simple terms, if the railways moved one billion tonne of freight during 2013-14 and earned Rs 950 billion, the carriage of the same amount of freight through roads would cost twice as much. In other words, if the railways handled an additional one billion tonne of freight every year, preventing its diversion to roads, the resultant financial savings to the tune of Rs 950 billion may boost India’s GDP by more than one per cent,” believes Kamlesh Kumar, former Additional Director General, Ministry of Road Transport and Highways.

However, it’s not going to be that easy. Any spreading out or rejuvenation plan will require diligent design. “To reduce haulage and travel distances and avoid multiple freight handling, production, consumption and storage locations need to be strategically planned. The railways also need to develop a dedicated freight corridor and unlock the value of their land bank and utilise it to improve facilities, particularly for cargo handling. Increasing safe speed limits on existing tracks is another method by which capacity can be enhanced with minimal marginal investment,” suggests Kumar.

In fact, the railways calls for an autonomous governance model, with restricted government intervention. Any sort of social obligation needs to be within the limits of economic caution. Besides, the government should adopt a synchronised approach for the development of rail and road networks. While roads should be improved and developed to serve short and medium distance traffic, the railways must be developed as the preferred mode of transport for medium to long distance traffic (500 km and above). Roads ought to be used only where rail is found to be less worthwhile.