A complete overhaul of India?s transportation network

By Kundan Singh

India’s transportation sector needs major improvements, especially modernization and capacity expansion. Setting up of high-speed networks is needed for the sector to keep pace with the growing consumer requirements. These projects require large investments. The government would be unable to meet all the expenses without the participation of the private sector and various international organizations. While the government has been actively pursuing new channels for funds with considerable success, it is yet to be seen whether or not this success is replicated in the execution of these projects. The article highlights the various such fundraising efforts of the government.

With India making rapid economic progress, it is imperative for the country to perk up its infrastructure, especially in transportation and energy. It also faces the huge challenge of attaining sustainable growth, taking into consideration the environmental impacts of infrastructural development. India’s vocal participation at COP21 and its own National Action Plan on Climate Change are excellent examples that showcase the country’s commitment towards the cause.

India’s rapid urbanization and increasing levels of disposable incomes mean that there will be a huge growth in demand for private vehicles. At the same time, rapid economic growth will require increased transportation of goods by roads, rails and waterways.

Figure 1: Trends in Vehicle Ownership in India

In order to meet these requirements the government would have to focus on the following:

• Creating a sustainable and robust transport network – This would require overhauling the current system of transportation. Railways, the most carbon efficient medium of transportation, lags behind road transport in its share of freight carriage. Dedicated and high speed freight corridors will be needed to reverse this trend. Besides, alternate modes of freight transport such as inland waterways and coastal transport would also have to be developed.
• Overhauling the public transport system in cities – In order to curtail the rapid growth of private vehicles, the government would have to develop public transport aimed at both intra-city and inter-city travel. However, achieving the aim of reduced emissions would require focus on the development of world-standard transit systems such as Bus Rapid Transport Systems (BRTS) and other non-motorized transport such as metros, monorails, high speed railways, etc. The government would have to create policies encouraging alternate fuel vehicles and focus on the enforcement of higher fuel efficiency for private vehicles.

Figure 2: India’s Transport Needs

Both of the above areas would require support from the government, with respect to finances and policy collaboration. The Indian Railways (IR) has already identified few such projects such as the 1840 Km long Eastern Dedicated Freight Corridor, the Mumbai-Ahmedabad high speed rail link and the Delhi-Mumbai Industrial Corridor. The government has been working on both financial and technical fronts to successfully implement these projects. For financing the projects, it has approached various developmental agencies, it is tapping the capital markets and also looking to raising funds through taxes; while simultaneously attracting private players who have the necessary expertise to execute such projects.

Figure 3: Planned High Speed Rail Corridors in India

[su_pullquote align=”right”]The government will be able to offset the cost by the revenue realized through freight load which is projected to increase at 7 percent per annum[/su_pullquote]

The Eastern Dedicated Freight Corridor (EDFC) is an 1850 Km long freight-only rail corridor which aims to boost the freight carrying capacity of the Indian Railways. The project will also increase the average speed of trains on the route to about 100 Kmph. The project is being funded by the International Bank for Reconstruction and Development (IBRD) of the World Bank group in three stages. The total disbursement for the project by IBRD will be $2.725 billion as a loan with a 7-year grant period and a 22-year maturity period. The government will be able to offset the cost by the revenue realized through freight load which is projected to increase at 7 percent per annum. The project will also result in a 55 percent reduction in greenhouse gas emissions.

For projects such as the Mumbai-Ahmedabad high speed rail, the government has been able to rope in agencies such as SNCF of France, which runs high speed trains at 320 Kmph in France, to carry out a feasibility study. In order to facilitate greater flexibility and autonomy for the study, the government has set up a nodal agency called the High Speed Rail Authority of India (HSRA). The French government has approved a grant of €600,000. For the same project, the Japanese government, which also has experience in running high speed bullet trains, has offered a $15 billion loan at an interest of less than one percent. Thus, the government has been able to rope in experienced international players for its large scale transportation projects.

However, such projects would not see the light of day if the government doesn’t boost the capacity of the IR in areas such as safety and modernization. These areas again need large capital investments requiring participation from private players.

The IR has set up a Public Private Partnership (PPP) cell as an expert advisory and consultancy body for such projects.

Figure 5: List of various binds issued by IRFC in FY14 and FY15

[su_pullquote]To finance its clean energy initiatives such as the setting up solar and wind energy plants, the IR is planning to float ‘Green Energy’ bonds. [/su_pullquote]

In order to create new sources of funding IR has been actively trying to tap the capital markets through its finance arm, Indian Railways Finance Corporation Limited (IRFC). One such initiative is the creation of a corpus of ? 1.1 trillion to be used for upgrading the dilapidated railway infrastructure. While a portion of the fund would come from within the government, the remainder of the fund would come through a cess levied on bookings. Another fund raising initiative by the IR is to generate ? 1.5 trillion over a period of five years through the sale of bonds to institutional players and another ? 3.29 billion through the sale of tax free bonds to the public. To finance its clean energy initiatives such as the setting up solar and wind energy plants, the IR is planning to float ‘Green Energy’ bonds.       

Figure 5: Aspects of Sustainable Funding

While the government has taken innovative steps to tap sources of funds without which these projects would have been a huge burden on the public coffers, there is still much to be done. Funds from international organizations such as the World Bank Group, Organisation for Economic Co-operation and Development (OECD) or other multi-and-bilateral grants can be used for activities such as mitigating risks, supporting crucial tasks, etc., thus enabling these funds to act as a magnet for pulling in participation from the private sector.

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Sources

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2. Das, S. (2015, October 27). LIC to buy corporate bonds worth Rs 2,000-cr from Indian Railways – The Economic Times. Retrieved December 9, 2015, from http://economictimes.indiatimes.com/markets/bonds/lic-to-buy-corporate-bonds-worth-rs-2000-cr-from-indian-railways/articleshow/49545756.cms
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6. World Bank Approves $650 Million for the Eastern Dedicated Freight Corridor Project, India. (2015, June 30). Retrieved December 9, 2015, from http://www.worldbank.org/en/news/press-release/2015/06/30/world-bank-approves-650-million-for-the-eastern-dedicated-freight-corridor-project-india