lcy to supply steel for rail upgrade

India's rail upgrade on fast track
by Raja M

India's rail network, once held up as a symbol of the country's bureaucratic and slow-moving ways, is hauling itself into the modern world with the upgrades that include addition of two freight rail corridors at a cost of US$7.5 billion after turning to a profit under the leadership of Railway Minister Lalu Prasad Yadav.

The Indian government approved development of the freight corridors as part of efforts that might require as much as $475 billion in overall spending to upgrade the country's infrastructure to sustain an economy growing at nearly 10% growth per year. Private investment could provide $101.8 billion by 2012, say consultants Ernst & Young in a study released in November.

The investment on railway development reflects the key role the transport system plays in the economy. Indian Railways is the world's fourth-largest carrier of freight - moving an average of 1.49 million tonnes of freight daily - and contributes 2.3% of India's gross domestic product, according to the New Delhi-based India Brand Equity Foundation, an initiative of the Ministry of Commerce & Industry. The railways are also the country's single largest employer, directly employing 1.5 million people.

The economic significance of the Indian Railways is such that the annual railway budget is presented separately to parliament a day or two before the general budget in February. Its present budget outlay for growth is a record US$ 5.9 billion.

Even so, that pails beside the spending on railway upgrades by the country's northern and fast expanding neighbor China, where China Rail has been granted $20 billion for a major upgrade, the biggest budget in its history.

Indian Railways link 6,856 stations and carries about 5 billion passengers annually at an average of 14 million daily, dwarfing China Rail's 1 billion passengers carried annually, with 2,000 trains daily linking 3,000 stations.

The expansion by both countries is part of a wider trend as rail markets in Eastern Europe, the Commonwealth of Independent States and Asia upgrade outdated networks amid expected annual growth of more than 3% over the next decade.

"Governments are showing increasing support for the development of railways and public transport," said Andreas Schwilling of consultancy Roland Berger's Transportation Competence Center, which was commissioned this year by the Association of the European Railway Industries (UNIFE) to study the global industry. "This is because rail transportation plays an important part in the sustained development of their economies.''

One of India's new railway freight corridors, to be built over five years, will connect New Delhi and the country's financial center, Mumbai. The other will connect the prosperous north-western Indian state of Punjab with Kolkata on the east coast. Japan in August said it was considering offering low-interest loans to help fund the Mumbai link.

"The project will provide the much needed rail infrastructure for growth of Indian economy and trade," Finance Minister Palaniappan Chidambaram said on November 28. Specifically, the multi-modal, high axle load freight corridors would "immensely benefit" ports, exporters, importers, shipping lines, container operators, coal companies, steel plants and thermal power stations.

A surging economy and revitalization of the company by Railway Minister Lalu Prasad Yadav have helped Indian Railways make a dramatic turnaround in the past three years. The 1998 Rakesh Mohan Committee on Indian Railways, headed by Rakesh Mohan, then Secretary, Department of Economic Affairs, had called the company a "white elephant" and gloomily predicted that it would lose over $15 billion by 2008. Instead, it posted gross earnings in 2006-07 of $15.19 billion, a 14% increase from $13.25 billion a year earlier.

Remodeling of freight was a crucial part of Indian Railways' success, with Yadav increasing the capacity of each wagon load and bringing private players into various aspects of the business, such as in dedicated freight and passenger corridor projects, container services, railway station modernization, catering, manufacturing facilities for locomotives and coaches. The current budget aims at additional loading of 4 to 8 tonnes per wagon which by itself promises additional revenue of $1.2 billion.

According to the government, Indian Railways carried 501.46 million tonnes of revenue-earning freight during the first eight months (April - November 2007) of the financial year, an increase of 37.07 million tons, or about 8%, over the corresponding period last year.

Indian Railways is estimated to require $56 billion of investment to meet infrastructure demands in the next five years, of which debt and public-private partnership are expected to account for $15 billion.

In contrast, China has taken the equity route to raise funds for its railways and related infrastructure, a move that Indian Railways might inevitably consider in coming years. The state-owned railroad builder China Railway Group recently raised $5.5 billion from listing its shares in Hong Kong and Shanghai. The group, which has built over two-thirds of China's 75,000-plus kilometers of rail tracks and 95% of the country's electrific railway lines.

In India, international companies are deeply involved in upgrading the rail system. Canada's Bombardier Transportation is making rail cars in Gujarat state, Japan's Mitsubishi Corporation is considering a locomotive manufacturing and maintenance facility in the country and Toshiba is negotiating with Indian Railways to manufacturing coaches and locomotives. Also from Japan, Kawasaki Heavy Industries Ltd is in the final round of talks with Indian Railways for jointly producing freight carriages while from the United States, General Electric plans to build heavy-haul diesel locomotives in a joint venture with the Indian operator.

Indian Railways has launched a slew of schemes to increase passenger facilities, such as rail ticket booking through ATMs and cellular phones, cleaner trains and stations and low-fare fully airconditioned trains. On a more local basis, new German-designed trains are to ease Mumbai's suburban rail traffic - the city has the world's most crowded urban transport system, carrying 6.5 million passengers daily.

Thinking ahead, Yadav has asked to have senior railway staff study at top global business schools such as New York's Stern School of Business, Wharton and Harvard in the US, and in similar centers in Singapore and Europe. He hopes the global administrative perspective this will give his senior managers will serve Indian Railways in coming decades, helping to keep the profits rolling in and the country's economy moving with ever better efficiency.