The financially strapped Indian Railways is not just focusing on public-private partnerships (PPP) to revive investment, but is now proposing 100% foreign direct investment (FDI) through the automatic route, which does not require prior government approval, in railways infrastructure. In an interview, Arunendra Kumar, who took over as chairman of the Railway Board on Wednesday after being acting chairman since 1 July, spoke on a range of issues, including the structure of the proposed Rail Tariff Authority, prospects for the year and how Indian Railways will negotiate an otherwise difficult year. Edited excerpts:
You have just taken over as chairman of the Railway Board. What will be the areas you will focus on during your tenure? How do you hope to improve railways’ financial health and services?
My vision for railways is a better travel experience to a passenger. For stirring investments in railways we have to focus on doubling or tripling railway lines. New lines do not get me that much of traffic as much as doubling or tripling. It is also easier to do because we don’t have to acquire land. Scale of acquisition is far less if you have two lines, or three lines or four lines. If I invest in that area, it makes a good return for railways. That is one area we would like to focus on. Then we have gone for investment from corporates or firms that could benefit from the projects. We are trying to involve them and this is going to come in a big way. Like Coal India is wanting to invest through its subsidiaries into a lot of coal evacuation projects.
There has been a renewed thrust on PPP in railways. Speaking of first- and last-mile connectivity projects like the one you mentioned, you had set a target of Rs.9,000 crore collectively from port, coal and iron ore connectivity projects. How much of this target has been met so far?
We have given in-principle approval to projects worth Rs.6,000-Rs.7,000 crore so far. This means contractors can begin construction. Other PPP investment is coming in the factory areas.
How much PPP do you expect the two Bihar locomotive factories and coach factory in Palakkad, Kerala to bring in? By when will you be able to award these projects?
On the factories side we hope to give out bids for PPP worth more than Rs.60,000 crore. This includes bids for constructing the factories and supplying locomotives and coaches. We have initiated the bidding process, we hope to close it within this fiscal.
For the first time Chinese companies, CSR Corp. and CNR Corp. (China CNR Corp. Ltd), have shown interest in investing in Indian Railways by purchasing the request for qualification (RFQ) documents for the Bihar locomotive projects. They had certain reservations earlier about investing in railways. What issues have been addressed by the railways to make participation of Chinese firms possible?
These companies have come up in a big way as far their manufacturing base is concerned. They have bought RFQs both for electric and diesel locomotive factories proposed in Bihar. If they meet the technical eligibility criteria, then we will open their financial bids. These Chinese firms wanted modification of the eligibility criteria for the electric locomotive factory; that was not possible to be done as it was an approved cabinet decision. We already had adequate number of players available, so there was no need felt for a revised cabinet note even though we had not tested the market. Now that we have got two Chinese firms and four others, it appears that there is no need to revise as there is sufficient participation already.
Do you expect pricing pressure with the entry of Chinese firms?
Chinese firms are expected to be…inexpensive.
Any funding being tied with the Chinese government just like with Japan? Any security concerns over entry of Chinese firms?
No funding is being tied up with the Chinese government for Indian Railways. For China we have to have clearance from ministry of external affairs which we will do.
Railways is keen on getting FDI in railway infrastructure. The department of industrial policy and promotion (DIPP) has prepared a note for the same. Are you looking at project-specific FDI? How much FDI, and via what route, would you prefer?
Yes, more or less automatic. We want to bring FDI in (projects) like elevated rail corridor in Mumbai, the dedicated freight lines other than the two lines we have already started constructing, port connectivity projects and station development. But we do not want any FDI for railway operations and safety; that we would like to keep to ourselves. Mostly all areas where we have PPP. We have responded to the cabinet note and we have welcomed their step. It may be 100% FDI. We will be comfortable with 100% FDI but if it affects railway operations then it will be a big no-no. It should be limited for construction of a project and maintenance of the project. Initially, railways and atomic energy were banned areas for FDI. Now railways is not banned. Now government has opened up. DIPP is in the process of collecting the responses, they will collect everything and sort out differences and in a month’s time it should be with the cabinet.
What are your recent estimates for overall investment into railways this fiscal?
We had made a plan of Rs.63,000 crore but we have reduced our annual plan size to Rs.56,000 crore now. It could go up to Rs.57,000 or Rs.58,000 crore towards the end of the year.
Why has it been revised downwards?
Revised expectation is because we realized that our earnings are not as per the budgeted estimates, especially on the passenger earnings front. So we did not want to go into fiscal indiscipline situation. On the revenue side of passenger earnings we had projected a very ambitious increase of 33%. Presently we have seen a 17-18% increase in passenger earnings over last year in the first six months. There has been a drop in 0-50km segment i.e. in the short distance.
How much loss on the passenger segment is railways expected to incur this year?
We expect passenger losses to be around Rs.24,000 crore.
What about freight earnings and traffic projection?
Railways is likely to exceed the budgeted target of 1047 million tonnes of originating traffic for goods. Overall our total gross traffic receipts might fall Rs.2,000 crore short of the budget estimate of around Rs.1.43 trillion.
Railways hiked fares recently. Do you think the fare hike will make your freight rates, which are already high, less competitive? Could this impact your freight share vis-à-vis other modes of transport?
No, freight traffic will not get affected because the growth that we envisaged in the coal and food grains sector will remain. Our current share is 37% and that is not expected to change.
At what stage is the Rail Tariff Authority?
We are almost about to flag off the authority as we have everything almost covered up. Just one or two clarifications from the ministry of law may be further needed. But it is conceptually clear that it will be an advisory role and it will be an executive body, through an executive order. We have to now go for a search committee for nomination of members.
You have kept a target of 87.5% operating ratio (the ratio of operating expenses to net sales, a measure of efficiency).
We shall meet. We have controlled our expenditure and with fiscal discipline we shall be meeting that target.
When do you see railways getting back to the significantly better operating ratio like it had in 2007-08, of around 76%?
That was just before the release of money for the 6th Pay Commission. That is the only reason. The money that has gone out because of the Pay Commission (recommendations) has really been an issue.
What is railways doing to cut down on staff costs that constitute over 60% of expenditure?
You cannot cut down staff expenses. What we are focusing on is identifying those areas where we don’t need staff due to technological changes, and we are transferring them to areas where we need staff.
Railways has been looking to raise resources though monetization of surplus railway land—how much has been monetized so far and how much do you hope to get in this fiscal?
We have identified 136 sites with 3,700 acres of land for monetization. RLDA (rail land development authority) has shortlisted 53 sites with 1,500 acres of land for immediate monetization. So far railways has raised Rs.500 crore in this fiscal and the target for this fiscal is Rs.1,000 crore, so we are half-way. Overall, railways has raised Rs.1,200 crore from the time of the inception of the idea of monetizing railway land bank.