Railways can complement rather than compete with roads: Suresh Prabhu

New Delhi: Suresh Prabhu, Union minister for railways, outlined the major focus areas for the railways at the “Infra Ministerial” event organized by CNBC TV 18 and Mint in New Delhi on 21 March.

Edited excerpts of his address:

Falling freight revenue

Two-thirds of rail revenue comes from freight and the railways’ share of freight has been falling consistently for years. In fact, for the past 10-15 years, experts have been saying that railways’ finances are in crisis. Even globally, freight has fallen considerably.

Locally, the low demand for steel, cement and iron ore—major cargo handled by the railways—has impacted it. These are all externalities and when the externalities are affecting you, the only thing you can do is reduce expenditure, rationalize costs. So, we are defying market logic. Thus, we went for open bidding, which significantly resulted in cost savings on energy. The next step will be to do something similar for diesel—we are already carrying out energy audits and we plan to buy diesel from the international markets as well. We have also cut administrative expenses.

Diversifying sources of revenue

The recent trade initiatives of the government have helped the steel industry. But we will not depend on just those measures. We have decided to diversify our basket. We are appointing account managers for each of our major customers, something that has never been done before. We have already issued the first tender for land monetization, three more are in the offing. But to put it on a higher scale, we are trying to do a few things like signing joint venture agreements with state governments; so, even they can become partners in railway development, and taking local permissions becomes easier. We are also thinking about government-to-government partnerships and countries like Japan and Korea have shown interest. We are also giving a few stations for development by public sector units.

Japan as partner

The Japanese government will give us money for the development of high-speed railways. The loan of $16 billion at an interest rate of 0.1%, a 15-year moratorium and 50 years for repayment is the best one can get. This is not free but better than free. Eighty-five percent of the project will be made in India.

Customer-centric budget

The rail budget this year was customer-centric, not passenger-centric, as there is a difference between the two. Railway customers are of two kinds—one-third of revenue comes from passengers and two-thirds from freight. Segmentation of customers needs to be done to identify a segment which will be willing to pay for services. This is important as we have lost a segment to budget airlines.

R&D in railways

We have created SRESTHA (Special Railway Establishment for Strategic Technology and Holistic Advancement) for research and development (R&D) in the railways. Apart from this, a new ₹ 50 crore fund has been created to ensure innovation in railways. We are even tying up with Japan for R&D.

Future ready

It is high time we do a life cycle assessment of any new infrastructure development. Green-proofing of infrastructure is critical as transportation of goods and people will only increase with time and all of it can’t be on the roads.

Moreover, our network has to be aligned with future centres of growth. It has to be completely tuned to the market. Global trade is bound to increase and port development will be a major focus area. Rather than competing with road, we must complement roads, say like the parcel business, where both can work hand in hand.