Rail Budget 2014: FDI, PPP projects key alternative resource mobilisation options

In his maiden Railway Budget, union minister D V Sadananda Gowda outlined FDI in rail infrastructure besides PPP-led projects, including attracting foreign investment in the proposed high-speed rail project, as the key resource mobilisation planks for the new government.

Referring to the recent decision to hike passenger fares Gowda said it would add revenue of around Rs 8,000 crore: “However, we need more than Rs 9 lakh crore to complete the Golden Quadrilateral Network and about Rs 60,000 crore for introducing one bullet train alone.”

He added that the government cannot depend on hiking fare and freight rates to mobilise resources. “Thus, I need to explore the alternative means of resource mobilisation,” he said.

The minister talked about three options for this including leveraging railway PSU resources, attracting foreign direct investment (FDI) in creating rail infrastructure and using public-private partnership (PPP) model.

In particular he said it is proposed to launch a scheme to bring in investible surplus funds of railway PSUs in infrastructure projects of railways, which can generate attractive returns for them.

Talking about private funding in rail Infrastructure, he said the Ministry of Railways is seeking Cabinet approval to allow FDI in rail sector.

He acknowledged that despite a lot of talk about PPP model for raising resources, railways has not been successful so far in raising substantial resource through this route but added, “Bulk of our future projects will be financed through PPP mode, including the high-speed rail which requires huge investments.”

Though he did not provide details in the passenger amenities, Indian Railways envisages to provide foot-over bridges, escalators and lifts at all major stations including through PPP route.

He also said that to develop network of freight terminals, the policy of Private Freight Terminals on PPP model is being further refined.

The minister proposed to give a boost to rail movement of fruits and vegetables in partnership with the Central Railside Warehousing Corporation (CRWC) by providing requisite facilities of temperature controlled storages at 10 locations in the first phase. This is expected to curtail wastage of perishables.

Gowda also talked about development of identified stations to international standards with modern facilities and passenger amenities on the lines of newly developed airports through PPP mode. Initially, Indian Railways would develop at least 10 major stations of metro cities and important junctions with top facilities, leveraging land and air space in and around the stations. 

Further he said Indian Railways proposes to modernise its logistics operations by setting up Logistic Parks that provide for warehousing, packaging, labeling, distribution, door-to-door delivery and consignment tracking. It would also attract private investment in such projects as the target is to make Indian Railways the biggest freight carrier in the world.

The minister highlighted the poor execution of past projects with data that in the last 10 years, 99 new line projects worth Rs 60,000 crore were sanctioned out of which only one project is complete to date.

Gowda also touched upon the proposed bullet train which figured in the electoral agenda of BJP, the key party in the NDA alliance.

“We propose bullet trains by starting off with an already identified Mumbai-Ahmedabad sector, where a number of studies have been done,” he said.

He also spoke about the proposed Diamond Quadrilateral Network of high speed rail, connecting major metros and growth centres of the country and said a provision of Rs 100 crore has been made as part of initial funding.

Since bullet trains would require completely new infrastructure and would take time to build, the government has decided to increase the speed for existing trains by upgrading the present network.

For the full budget speech and a look at new trains and other proposals click here.


Over all, though the Gross Traffic Receipts grew 12.8 per cent to reach Rs 1,39,558 crore in FY14, it was short of revised target by Rs 942 crore. On the other hand, ordinary working expenses stood at Rs 97,571 crore, which was in excess by Rs 511 crore.

As a result, instead of ending the year with a surplus of Rs 7,943 crore, the surplus was actually Rs 3,783 crore after fulfilling the dividend commitment of Rs 8,010 crore.

In 2013-14, there was a decline in traffic growth compared with revised projections. Expenditure, however, shot up and was more than what was estimated. The operating ratio deteriorated by 2.7 per cent over revised target to touch 93.5 per cent by end of 2013-14 fiscal.

Gowda said so far as our plan expenditure for 2013-14 is concerned, it fell short of revised target of Rs 59,359 crore mainly due to non-materialisation of PPP targets.


Sunil Rohokale, Managing director and CEO, ASK Group

“This budget is a statement of the intention of the government and more directional in nature. They have announced a lot of steps in the effort to make it a profitable organisation but details are missing. For example, there is no clarity on how much FDI and by when. It seems the government is still in election campaigning mode.”

Arvind Mahajan, Partner and Head of Infrastructure and Government Services, KPMG in India

“While there was discussion on PPP and FDI, the budget speech lacked details and the announcements in the coming weeks will be important to understand the specifics. What we missed was any discussion on Railway Tariff Authority as it is critical for attractive private investment in Indian railways. Overall, the railway minister did touch upon key aspects and has shown the intent to turnaround Indian railways into a commercially viable organisation.”

Hemant Kanoria, CMD, Srei Infrastructure Finance

This budget widens the scope of private sector participation which is a welcome step. However, there are certain aspects in this budget which need further elaboration. The minister touched upon restructuring the ministry and I would surely look forward to the specifics of this proposal. I am also curious about how the minister intends to rope in private sector participation. Just opening up this sector to FDI (excluding operations) and wishing for private sector participation may not be enough.

Vivek Gupta, Director – Research, CapitalVia Global Research Ltd.

“As the budget was announced, major railway infra stocks such as Titagarh Wagons, Texmaco Rail and Engineering and Kalindee Rail Nirman reacted in red. But it’s worth noting that all these stocks were rolling from past few weeks and few of them tested their 52 weeks high and this volatile reaction post rail budget can be looked as mere profit booking. Though the budget was very vague, there was nothing negative for railway infrastructure companies. The stocks of these companies shot up in the expectation of good news and they now falling down is mere profit booking.”

He added that announcement of new trains, development and completion of ongoing projects are beneficial for Kalindee and Titagarh.

Motilal Oswal, CMD, Motilal Oswal Financial Services

“Additional revenue mobilisation through improving finance of rail PSUs, encouraging private investment and FDI and through PPP mode are the most obvious choices for railways now. Particularly liked the focus on completing pending projects rather than taking up the new ones.”

(Edited by Joby Puthuparampil Johnson)

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