FDI in Railways

Indian Railways must make some key changes before it becomes attractive to FDI

Jun 20, 2014, 12.10AM IST 

Railway minister D V Sadananda Gowda captures the quandary railways finds itself in well. Stuck with many unfinished projects that were started mainly to earn political brownie points, he has to select a handful that will be completed. To add to his problems, he has to decide if passenger and freight fares will be increased soon as the organisation faces a resource crunch. Gowda should risk unpopular decisions now as a delay would cost India`s economy dear. A poorly managed railways has proved a drag on the economy. This slide needs to be checked right away, with a modernisation programme that takes away some of the freight that is moved by road — as it will make the economy more competitive.

Two years ago a group under Sam Pitroda, appointed by railways, showed that modernising is doable in a span of a few years. It requires a sharp focus on how less than half of existing tracks bear about 80% of traffic. This modernisation project would encompass tracks, bridges and signals, thereby simultaneously improving safety standards.

Gowda's challenge would be to raise resources for a modernisation project. It is important that he forcefully communicates that the prevailing tendency to use railways' profit from freight to provide passengers' subsidies does not eventually help society — in an indirect way, this actually prevents creation of jobs. For instance, China's freight rates are just 58% of India's and that makes it tough for Indian industry to successfully compete and create jobs at home. Gowda hopes to usher FDI into creating infrastructure for railways. This makes sense. But unless the organisation manages its finances better and takes hard-headed decisions on modernisation, it is unlikely to attract money from outside.