Let Private Sector invest in Rolling Stock; IR should cease direct investment in Wagons/Rakes/Locos: Mittal Panel

According to the Mittal panel, the railways’ non-fare revenue needs to be increased from an abysmal 3% now to 10-20% in a time-bound manner

A panel tasked with finding new avenues for raising the Indian Railways’ revenue, reducing its expenditure and monetising its assets has recommended that the transporter should cease to make direct investments in wagons, locomotives and passenger trains and let the private sector fund the rolling stock.

Currently, the Indian Railway Finance Corporation (IRFC) which borrows for the railways, owns the rolling stock procured and receive lease rentals from the transporter.

Under a public-private partnership (PPP) model, the private companies as train operators can realise revenue as passenger fares and freight from the users and share it with the the railways as track access charges, experts said.

They added that the new model would require a regulator to ensure the compatibility of the tracks with the modern trains that the private sector will likely bring in. The railways, of course, will need to run trains in sectors and routes where private interest is absent.

The DK Mittal committee, which submitted its report to the government a few weeks ago, also suggested a sharp increase in market borrowings by the IRFC to an annual  R25,000 crore (more than double the level in FY15) and external commercial borrowings (ECBs) by railway PSUs like IRCON and RITES to fund “capital expenditure”.

graph-page1The cash-strapped transporter, producing meagre surpluses, spent a below-par R65,798 crore for capital investments in FY15 but in the 2015-16 Budget, railway minister Suresh Prabhu laid the road map for a huge R8.5-lakh-crore capital investment in the rail network and complementary facilities over the next five years, pinning hopes on investments from PSUs, multilateral funding and pension and insurance funds.

According to the Mittal panel, the railways’ non-fare revenue needs to be increased from an abysmal 3% now  to 10-20% in a time-bound manner.

Stating that a 10% of non-fare revenue would mean a substantial Rs 15,000 crore, the panel listed ways to achieve the target: monetisation of non-operating assets like vacant land (seen at 48,000 hectares), giving advertisement rights to aggregators (corporate houses may be allowed to brand trains and stations) and station-development (suburban stations must utilise their Floor Area Ratio to create commercial space). “The potential of Rs 8,000 crore per annum (as non-fare revenue) can be realised over the next 3-4 years, if IR starts to have appropriate emphasis, time-bound plans and targets, and allocates resources with adequate autonomy for the same. Target should be 5% of tariff based revenue in 2016-17 and 10% in 2020-21,” the panel said.

Suggesting the ways to expedite monetisation of vacant railways land, the panel said identification of such land should be completed by September 2015 and stressed that 1,000 hectares of land should be entrusted with the Rail Land Development Authority (RLDA) every year for leasing out. The RLDA set up in 2007, has so far been given just 900 hecrates of land, scattered over 100 cities and towns and has generated a measly Rs 1,370 crore as lease rentals. (Recently, 590 hectares of these land was taken back from RLDA by the Railway Board for lack of clear titles; while the RLDA says it is adequately empowered to get the states change the land use, the railways blame other factors including lack of due diligence by the authority).

According to the Mittal committee, the RLDA needs to be empowered with suitable delegations of powers. “The Railways should make a policy to allow RLDA to decide on use of such lands, which are not needed for its use, for residential, commercial or mixed use, to maximise the revenues, without approval from Railway Board,” it said.

The panel added that the RLDA should be authorised to execute transfer of land to state government on behalf of Railways Board for getting land use change approval from them. “Railway should write to the concerned department of state governments which deals with Master Planning indicating provisions of Indian Railways Act about land use with the request to permit change of land use on the request of RLDA.”

Calling for creation of record of land inventory, the panel said it needs to be digitised and mapped to a GIS database. “The land that is not required now and is identified as not required even in the future needs to be handed over to RLDA, along with land of the narrow gauge /metre gauge lines which have been discontinued in part or full. Unused land around microwave tower/stations should also be leveraged after dismantling of such towers.”

Given the high level of cross-subsidisation of passenger segment, the panel proposed a policy framework where fares can increase at the rate of 25% of consumer price inflation on a quarterly basis. “Tariff should be increased by 2 paise per passenger kilo metre every 2months for Second class tickets (including suburban and intercity trains) till break-even point is reached. This is in addition to normal annual increases,” it said.

According to the panel, the number of coaches for all trans, where demand exists, should be immediately increased to 21, then to 24 and further to 26/28, subject to demand. “Preference for incremental coaches should be given to AC3 tier subject to demand on that route.” Average speed of all long-distance trains, according to the panel, should be increased to more than 55 kmph. At present, average speed of mail express is 50.4 kmph, passenger trains 36.1 kmph and freight trains is 25 kmph.

The panel said the exports by railway PSUs (of locomotives etc. to African and some Asian countries) could be increased from around Rs 1,000 crore now to Rs 5,000 crore by FY17 with 10% growth in subsequent years. Analysts, however, doubted the feasibility of achieving such a jump in exports, citing intense competition from China which provides export credit to their railway infrastructure exporters. It said IRFC should be given access to Rural Infrastructure Development Fund by the Reserve Bank of India. The firm has financial assets worth Rs 75,000 crore at present.