SCOPE OF PPP (PUBLIC PRIVATE PARTNERSHIP)/FDI IN INDIAN RAILWAYS

8/14/2019 SCOPE OF PPP (PUBLIC PRIVATE PARTNERSHIP)/FDI IN INDIAN RAILWAYS

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SANKURU ANIL KUMAR

DM14203, SECTION - II

SCOPE OF PPP (PUBLIC PRIVATE

PARTNERSHIP)/FDI IN INDIAN RAILWAYS

News item: Railways needs to spell out clear policy on PPP, FDI

investment: Assocham

http://www.indianexpress.com/news/railways-needs-to-spell-out-clear-policy-on-ppp-fdi-investment-

assocham/1041887/

SANKURU ANIL KUMAR



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SANKURU ANIL KUMAR


In modern times, when the SENSEX of India is 18000+ and still rising, and standard of living for

citizens of India, directly related to their per capita income, is one of the main things focused

upon today, the conditions of the railway stations has not at all improved. Dating back to the

1950s, the then railways' condition and now has a marginal difference, though nothing to beproud of, when the same is compared to other countries' railway system.

The Indian railways are contributing about 1% of the GNP to its economic development. It

accounts 6% of the total employment directly in the organized sector and around 2.5%

indirectly through its dependent organizations. Indian railways are playing vital role in the

human resource development by investing in health, education, housing and sanitation.

There is a lot of scope in the Indian Market to opening up the railways sector to Private

Investment. India opened its first deal with private sector in 2006, on the Container transportsector. The Second deal is with GATX India Private Limited which is a subsidiary company of

GATX (General American Transport) Corporation in 2010, for permission to lease railwayswagons to Indian Railways and Private companies in India. This will signifies that railways

sector in India can raise its funds through PPP.

The poor supply chain system in India is costing to this Sector. The inefficient supply chainsystem in India led approximately USD 60-65 billion in 2011. If Government will not take proper

action on this, it may leads to USD 145 billion in 2020 (As per experts forecasting).

The supply chain system in developed countries contribute only 7 - 8 % to their country GDP,but in India it is almost 12 -13 % of Indian GDP. Indian railways are the strength of the supply

chain system in India, but it is not fulfilling its role completely. British people started the railwaytrack in India. After British ruling, Indian railways added only 10,000 k.ms tracks, where as the

traffic has increased drastically i.e. around 1000% and population also increased. In the sameperiod, our neighborhood country China has added about 70,000 k.ms tracks to its railways

network. The Chinese Railways plans to spend USD 292 billion over 10 years. This translates toUSD 30 billion per year spent on the Chinese Railways for Capital Expenditure. In contrast the

Indian Railways spends just a quarter (1/4) of what the Chinese Railways spends. The proposedinvestment for the 2008-09 fiscal year is USD 7.5 billion, which in itself 21% more than for the

previous fiscal year

The ministry of railways came out with its Vision 2020 plan which will cover below points.a) Addition of 25000 km of new railway line

b) Doubling the amount of freight carried

c) Setting up the 6 dedicated freight corridors.

This Vision 2020 plan costs an investment of USD 280 billion. The Indian government had given

the green-signal also for this project. It is very difficult for the Indian Railways to generatethese funds by itself because its operational costs consume around 95% of its revenues. The

Ministry of Indian Railways requested the budgetary support of USD 10 billion for Financial Year2012-13. The Government granted around USD 5 billion for that request.


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So it is the deficit for the ministry of railways to achieve its vision 2020 plan. In such cases, PPP

is the best way to achieve its plan. For example, In India Airports and Road have benefitted tolarge extent from these PPP's. As per the report of Ministry of Finance in 2012, the road sector

total value through PPP is around USD 35 billion.

Besides all the developments discussed above, the Vision 2020 also aims at increasing the percapita income of the people who are currently employed by providing job opportunities, which

will directly lead to increasing the wholesale price index of India, due to the increasedpurchasing power of the newly employed people.

As of now Indian Railways allowed PPP only two times i.e. in Container sector and lease of

railway wagons from private sectors. For these two deals itself, Ministry of India got USD 2billion. This signifies that Indian railways itself has benefitted from PPP. Prior to these two deals,

railway sector tried for PPP but it failed in 1994 and 2004 in the container sector field itself.

In past, Indian railways failed to increase the PPP and more over it created obstacles with PPPby putting various conditions after the deal. For example, after accepting the license fee from

the Private players Indian railways imposed many restrictions and frequently changed the termsand conditions in the original agreement. The Private players faced many losses in the

transporting of goods because of these unconditional changes by railways. It makes difficult forthe Private Players to work with the Indian Railways in the long-term.

Now the trend is changing. Indian Government calls for the PPP and FDI in railways sector also.

It sent invitations to many private players across the world.

Railways modernization requires an investment of Rs. 8.4 trillion in the next five years out ofwhich Rs. 2.3 is expecting from the PPP.

It can be summarized from above, therefore, that a fund-starved Indian Railways is desperateon getting the involvement of private sector, in a major role, plus investments from private andforeign sectors. The railways sector is the biggest brick in the building of Services sector. Paving

a way for rapid growth in the railways sector of India will help in the development of the Indianeconomy, as well as create job opportunities for the unemployed, which will help in increasing

the WPI of India in the long run.


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Financial Performance of Indian Railways from 2003-04 in Rs. Crores

Source: Indiastats.com

Parameters 2003-04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

Traffic receipts 42905 47370 54492 62731 71720 79862 86964 94536 94765

Passenger 13298 14113 15126 17225 19844 21931 23488 25793 26127

Other coaching 922 990 1153 1718 1800 1972 2235 2470 2778

Goods 27618 30778 36287 41717 47435 53433 58502 62845 62489

Sundry 1004 1157 1839 1711 2565 2501 2880 3418 3171

Suspense 63 332 87 361 76 25 -141 10 200

Working expenses 39482 42759 45574 49047 54462 71839 82915 89474 87100

Operating expenses 30637 33389 35030 37433 41033 54349 65810 68139 65000

Reserve Fund 2592 2700 3604 4198 5450 10490 2187 5515 7600

Pension Fund 6253 6670 6940 7416 7979 7000 14918 15820 14500

Net traffic receipts 3423 4611 8918 13685 17258 8023 4049 5061 7665

Net misc. receipts 1055 662 -912 768 1076 1152 1495 1285 2117

Net revenue 4478 5273 8006 14453 18334 9175 5544 6346 9782

General reserve 3087 2716 3005 3584 4239 4718 5543 4941 6609

Surplus of deficit 1091 2074 4338 10206 13431 4457 1 1405 3173

Capital at charge 45672 50124 53062 58145 63981 72238 87655 130540 102329

Investment

from capital fund - - - - 24540 32063 35346 38676 42394

Total - - - - 88521 104301 123001 169216 158528

Item 5 as % of

item 8 - - - - 20.7 8.8 4.5 3.8 7.6

Item 7 as % of

item 8 9.8 10.5 15.1 24.9 15.2 4.3 0 0.8 3.4

Net revenue

to capital at charge 9.8 10.5 15.1 24.9 28.7 12.7 - - -


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References:

http://barandbench.com

http://www.irfca.org/news/ir-news.php

http://www.indianexpress.com/news/railways-needs-to-spell-out-clear-policy-on-ppp-fdi-

investment-assocham/1041887/

http://articles.economictimes.indiatimes.com/2012-12-07/news/35670845_1_ppp-models-

railway-modernisation-railway-ministry

http://indiastats.com

http://www.thehindubusinessline.com/industry-and-economy/logistics/article2995378.ece

SCOPE OF PPP (PUBLIC PRIVATE PARTNERSHIP)/FDI IN INDIAN RAILWAYS

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