ECONOMIC ENGINE

Six ideas that can help Indian Railways transform its mainstay freight business

Quartz india
Quartz india

The hike in railways fares and freight rates has sparked outrage. Political parties (mainly the Congress, but also BJP allies such as the Shiv Sena) are citing it as an example of an anti-people measure. The Modi government would be well served by seizing the narrative and making strong decisions needed to revive the railways. Smart policies now could help make Indian Railways the lifeline of the country, a true economic engine.

Freight services are profitable and account for more than two-thirds of revenues; it is the arm of Railways that allows it to so heavily subsidize passenger fares. And yet development of freight services has been ignored over the years, as rail loses market share to roads. To make the critical segment more efficient, some reforms to consider:

Charge the road more traveled

Railways charges freight on the basis of the shortest route to the destination, not on the number of miles or kilometers traveled. Yet congestion on major routes means that the shortest route is rarely taken. This needs to change, and every cargo booking needs to be made profitable.

Iron out exemptions

Iron ore bookings and the concessional scams around it has been a major area for losses for the Railways. South Eastern Railways has admitted to freight evasion of Rs1875.63 crore ($312 million) in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This will ensure cash flow and check evasions.

Improve freight infrastructure

There is poor capacity of both rolling stock and locomotives for freight. While local leaders and Parliamentarians routinely raise issues facing passengers, freight movers don’t form a constituency and their grievances are not heard. Procurement of locomotives is poor because of dependence on internal manufacturing. Railways need to look at lease and maintenance models to augment capacity. Look at private airlines—they all operate with leased aircraft. Domestic production of wagons have also been inadequate. Options in leasing and financing, as well as imports from China need to be explored. The existing information infrastructure—the Freight Operation Information System (FOIS)—is beneficial to bulk cargo transporters, but is insufficient. It should be expanded to allow bookings on the same platform. Booking a rake should be as simple as buying a passenger ticket.

Small projects are key

Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, at an annualized growth rate of 7.6% during 2012-17, according to Aranca Research. Expansion of infrastructure is not keeping pace with this growth. One gigantic project, the $16.6 billion Dedicated Freight Corridor (DFC), is stuck with land acquisitions and financing issues. Smaller projects—some 800 odd ones—are not getting enough attention because of the obsession with DFC. While DFC was originally slated for completion by 2017, its balancesheet says project execution worth just $400 million has taken place so far. This mindset of all or nothing has to change, incremental capacity is as important and smaller projects between ports and industrial clusters need to be developed as well.

Partnership models have lost steam

Railways has tried the public-private partnership model. The success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance, the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. Even then no progress has taken place on it since then. The policy needs to be revised. All capacity expansion projects should be monitored by the PMO and a status report should be included in the rail budget.

Make railways viable for perishables

Commodity-wise loading models needs to be adopted at major freight terminals so perishables can also consider railways as an alternative. In fact, with a little bit of imagination, this can be connected to the metro networks currently operating in some cities and are coming up in several more. The rolling stock on the metro tracks is designed for passengers, but can be repurposed into late-night freight metro carrying essentials into city centres. It will help cut the logistics cost for vegetable and fruit vendors. Currently they rely on the road and it is expensive. Besides, most cities restrict the entry of trucks till late night, increasing the waiting period and energy consumption in refrigerated trucks. Railways can complement this with a last-mile cold chain system for vegetables and fruits. Availability of fresh vegetables, eggs and other essentials at metro railway station will be a major convenience for returning home from work.

Follow Yatish on Twitter at @yatishrajawat. We welcome your comments at ideas@qz.com.

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