The Metro Rail network is likely to witness 2.7 times expansion in the next five years

Abhishek Gupta

Sector Head & Senior Vice President, ICRA Limited

How do you assess the current Indian rail and Metro Rail market scenario?

Railways: Indian railway network is amongst the largest rail networks in the world and carrying around 1,418 million tonne (MT) of cargo in FY2022. However, the growth in cargo handled by Indian Railways had been growing at a modest CAGR of 4.3% between FY2015 to FY2022 as the Railways have lost market share to other mode of freight transport. However, the Ministry of Railways (MoR) has embarked upon a long-term plan called the National Rail Plan (NRP), which targets Railways to carry 3,600 MT by 2030-31. Over the medium term, the Railways have a mission to achieve 3,000 MT by 2027. To achieve this, sizeable investments towards railway infrastructure capacity enhancement is required. An investment of about Rs. 15 trillion is planned during 2021-2031, which would be primarily towards track infrastructure, terminals, and rolling stock. Hence, this is likely to provide sizeable opportunity to the players involved in railway infrastructure construction, rolling stock and railway technology.

Metro Rail: In India, 15 cities have an operational Metro network of about 746 km (many of which are undertaking network expansion), while another seven cities of about 640 km have under-implementation Metro projects. This apart, 1,400 km of Metro Rail projects worth Rs. 2 trillion are in the approval/proposal stage of which a 352-km new Metro network has been approved, with the balance being in the proposal stage. The Metro Rail network is likely to witness 2.7 times expansion in the next five years. Typically, the average Metro Rail development cost is estimated at Rs. 3 billion/km for the elevated Metro, while it could be significantly higher in the case of an underground Metro network. Given the large size of the Metro projects planned, this is likely to offer sizeable opportunities for construction companies over the next five years.

The Indian Railways is planning to spend more than Rs one trillion on developing and procuring assets. How far do you think this will help Railways to improve its performance and operational efficiency?

Capex is budgeted to increase to Rs. 2.46 lakh crore in FY2023BE from Rs. 2.15 lakh crore in FY2022 (RE). Core track infrastructure related capex (doubling of lines, new line construction, etc.), and rolling stock procurement are the largest components of total capex by MoR. While this is sizeable investment by the Railways and will help in reducing the capacity constraints, the impact on Railways freight share and operational efficiency is likely to be gradual. The Railways network has lagged due to prolonged under-investment in the past decades leading to capacity constraints, which eventually impacts the service quality - speed and reliability. Hence, the capex by the Indian Railway is expected to continue over the long term to increase the capacity and upgrade railway infrastructure. Higher capex in turn is likely to keep the operating ratio of Railways under pressure. The operating ratio weakened from 97.4% in FY2021 to ~98.9% in FY2022, though it is budgeted to improve to 97% in FY2023, with recovery in passenger and freight traffic. The freight share of the Railways is also expected to increase with the operationalisation of the two dedicated freight corridors (EDFC and WDFC).

The Indian logistics industry is too dependent on road transportation while the Railways provide a better and greener alternative. What opportunities do you foresee for the Railways in freight movement and logistics?

While the Indian logistics market has grown significantly since independence - from ~90 MT in 1950s to ~5,000 MT currently, railway cargo has grown at a slower pace from ~73 MT to 1,418 MT, and railways' share has fallen from ~85% in 1950s to ~28%. Road transport has gained dominant share during this period, supported by an improved national highway network. As freight movement by the Railways is relatively efficient and has lesser CO2 emission, the focus is on upgrading the rail network to increase its modal share. This can also help reduce the logistics cost for the country.

Given this context, the Indian Railways has been undertaking significant investment towards capacity improvement, which is expected to support the increase in their share of freight. Besides improving the rail infrastructure and wagon quality, operationalisation of the two DFCs will also help in achieving it. Under the PM GatiShakti initiative also the priority is on completing critical railway projects by FY2025, which can help decongest the rail network by 51%. This will provide significant boost to the railway freight movement and improve its share in logistics.

What could be the key challenges in the revival of railway infrastructure? What is the way forward?

Improving on the pace of railway infrastructure development will be a key challenge as railway projects have witnessed significant delays and cost overrun in the past. Hence, prioritising and completing critical projects early would be important to improve efficiency. Attracting private players through public private partnership in railway projects can also help in faster infrastructure development, though thus far there has been relatively limited success with such projects.

Besides, gaining freight share from trucks will be challenging unless the Railways is able to reduce wait time, and improve efficiency and reliability of transportation. Last mile connectivity could still remain in favour of road transport but for bulk goods to be transported over long haul, the Railways can gain share.

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