Greater Public Investment in Railways to Boost Growth and Manufacturing in India
 

The Economic Survey 2014-15 presented in the Parliament today recommends that greater public investment in the railways would boost aggregate growth and the competitiveness of Indian manufacturing substantially. Discussing the specific role of Indian railways in driving future Indian growth, the Survey says that there is merit in the case for reviving public investment as a key engine of growth in the short run - not to substitute for private investment but to compliment and promote further private investment. The Survey says that public investment in an efficient rail network can have positive effect on both manufacturing and aggregate output and the effects are permanent. It advocates that there is a need for bold, accelerated programme of investment in dedicated freight corridors (DFCs) that can parallel the Golden Quadrilateral in the road sector alongwith associated industrial corridors. The present government can do for the neglected railways sector what the previous NDA government under the then Prime Minister Atal Bihari Vajpayee did for rural roads. This impetus has the potential to boost greater private investment and do so without jeopardizing India’s public debt dynamics. Such an initiative will transform Indian manufacturing industry with “Make in India” becoming a reality. With the separation of freight traffic, passenger trains can then be speeded up substantially with marginal investments, the Survey analyses.

The Survey calls for large public investment in railways as there is a strong case for channeling resources to transport infrastructure in India given the widely known spillover effects of transport networks to link markets, reduce a variety of costs, boost agglomeration economies, and improve the competitiveness of the economy, especially manufacturing which tends to be logistics -intensive. Today, the ‘lifeline of the nation’ operates over 19,000 trains carrying 23 million passengers and over 3 million tonnes of freight per day while employing over 13 lakh people. In part, these large gains derive from the current massive under-investment in the railways.

The Survey indicates that successive plans have allocated less resources to the railways compared to the transport sector and the share of railways in the total plan outlay is currently only 5.5% vis-à-vis about 11% for the other transport sectors and its share in overall development expenditure has remained low at below 2% over the past decade. China invests eleven times as much in per capita terms and underinvestment in the Indian Railways is also indicated by congestion, strained capacity, poor services, and weak financial health. Greater public investments once utilized efficiently can help the railways to overcome some of these problems.

In the long run, the railways must be commercially viable and public support for the railways should be restricted to (i) equity support for investment by the corporatized railways entities and (ii) for funding the universal service obligations that it provides. In the interim, there is scope for public support of railways, including through assistance via the general budget.

However, any public support should be clearly linked to serious reform: of the structure of the railways; of their adoption of commercial practices; of rationalizing tariff policies; and through an overhaul of technology, recommends the Economic Survey 2014-15.

Public investment in railways should be tied to structural, commercial and technological reforms to boost manufacturing competitiveness. The Survey recommends large public investment in railways, including a programme of dedicated freight corridors, to boost growth and manufacturing; interim public support may fund equity for corporatized railway entities and universal service obligations, but any public funding must be explicitly linked to structural reorganization, adoption of commercial practices, tariff rationalization, and a technology overhaul to achieve long term commercial viability.