Private investment needed to get Indian Railways back on track

A morning commute turned to tragedy for some of Mumbai's residents late last month, when a stampede broke out on a footbridge at one of the city's busy railway stations killing 23 people. The crowds had gathered to shelter from a monsoon downpour.

Thousands lose their lives in railway-related accidents every year in India because of the network's outdated and unsafe infrastructure.

But the poor state of the country's state-owned and operated railways, which are running into heavy losses, means there are significant opportunities for privates companies and foreign investment in the sector to deliver much-needed improvements, analysts say.

"Indian railways face multiple challenges," says Sandeep Upadhyay, the managing director and chief executive at Centrum Infrastructure Advisory, an investment banking firm based in Mumbai. "It would be imperative to enhance the private sector involvement in operation and maintenance. The sector offers immense investment opportunities across all elements including capacity, debottlenecking, redevelopment and improving passenger amenities."

Last month, India's prime minister Narendra Modi launched the country's first bullet train project during the visit of his Japanese counterpart Shinzo Abe to the state of Gujarat. The $17 billion high-speed train, which will use Japanese Shinkansen technology, will run between Ahmedabad, a commercial hub in Gujarat, and Mumbai with the project largely funded by a low-interest loan from Japan.

This stands in dramatic contrast to the country'sexisting trains.

India's railway network is often referred to as the lifeline of the country or the backbone of the economy.  One of the world's largest railway network's, it was largely built under British rule; its 110,000 kilometres of railway track carry more than 23 million passengers and 3 million tonnes of freight a day, according to government  data. It employs more than 1.3 million people.

The government is keen to upgrade the infrastructure, earmarking more than $20bn to spend on the network in the current financial year, which runs until the end of March.

“There is an increase of private and foreign company participation in Indian railways,” says Aaron Solomon, a partner at Solomon & Co, a law firm based in Mumbai. “We have seen a recent increase in activity related to railway station redevelopment, security systems at stations, catering and housekeeping services on trains, Wi-Fi and communication services on trains, LED screens and other similar facilities. There is certainly tremendous scope for companies to participate in the growth and upgradation of the Indian rail services.”

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But swift development is needed, commuters say.

Shilpa Jain, a teacher from Mumbai, says she often feels unsafe travelling on the trains because of overcrowding.

“We have no choice but to travel by train to get around the city, so we should have a decent and safe system,” she says.

Many others have expressed similar sentiments and  some have raised questions about why India is moving ahead with a high-speed train route when its basic infrastructure is crumbling.

“We need to have good basic local and national trains before we go ahead with a bullet train, which we don't even need,” says Saurabh Chandan, an administrative officer in Mumbai. “I've seen people being pushed out of trains.”

But the bullet train could bring significant economic benefits, Mr Modi said during the launch of the project, including improving trade between the states of Maharashtra and Gujarat. It would also create thousands of jobs, including in the construction sector, and give a significant boost to India's high-tech manufacturing capabilities.

“This technology will benefit the railways along with many technicians, vendors and manufacturers and the entire railway network will have to move in a new direction and thus reap benefits,” Mr Modi said.

Japan's Kawasaki Heavy and India's Bharat Heavy Electrics have agreed to join forces to build the rolling stock for the project.

Reliance Group chairman Anil Ambani recently announced that Reliance Infrastructure will participate in the development of the bullet train.

“A stunning transport infrastructure is certainly essential for any city to become a global destination,” says Gulam Zia, the executive director, advisory, retail and hospitality, at the property consultancy Knight Frank India.

With India's metro projects also expanding in the cities, it offers significant opportunities for private firms, with French companies Thales and Alstom among those involved in such projects, along with Montreal-headquartered Bombardier.

However, despite Indian Railways losing money, the government has ruled out the idea of privatisation.

"This cannot be done in India," said Suresh Prabhu, speaking earlier this year when he held the position of railways minister, according to the Press Trust of India new agency. "I think the railway is a mode of last resort for common people for transportation and we will have to bear that burden as well as the responsibility. You cannot say the railway's problems will be solved by privatisation.”

He add that private companies would not be interested in buying Indian Railways because the public service element would be so important, therefore making it a financially unattractive proposition.

Nevertheless, there is still scope for investment.

“Not only are existing rail networks being upgraded and expanded, new high-tech locomotives are being tested for introduction, new metro lines are being implemented, bullet train projects are proposed, railway stations are being re-developed, escalators are being installed at multiple stations and there is an increased focus on services such as security, technology, catering,” says Mr Solomon. “The Indian government has also realised the potential of redeveloping railway stations into transit oriented developments, with integrated commercial, residential, hospitality, entertainment and other facilities. All of these new initiatives create significant business opportunities for Indian and international companies.”

The journey may not be easy but there are opportunities for companies to reap rewards in India's railway system back on track.

“The Indian railways continue to be archaic, but there is a realisation of the need to quickly upgrade the network and facilities to international standards,” says Mr Solomon. “It is this change which creates huge potential for private players and investors in the Indian rail sector.”