India to invest R1.57 trillion to improve its rail network
INDIA’S government yesterday unveiled plans to invest $137 billion (R1.57 trillion) in its decrepit rail network over the next five years, heralding Prime Minister Narendra Modi’s aggressive approach to building infrastructure needed to unlock faster economic growth.
Over the next year, India will increase investment by about half a trillion to 1 trillion rupees (R185bn), including funds raised by market borrowing.
To meet the five-year target, investment will have to speed up even more after that, leaving economists questioning where the money would come from as the government has to rein in its fiscal deficit.
Presenting the rail budget two days before India’s federal budget – also expected to hike infrastructure spending – Railway Minister Suresh Prabhu shied away from hiking passenger fares to finance the upgrades, but raised freight rates.
He said the budget “set the direction of a long and difficult road of reform”.
Modi, who called the rail budget “a paradigm shift” is expected to use tomorrow’s federal budget to lay out an economic vision focused on building the roads, power and technology needed to make India a leading global economy.
Prabhu, one of Modi’s trusted economic aides, said he would raise funds from multilateral lenders, infrastructure and pension funds, as well as “monetising” railway assets.
He said the railway would not be privatised.
While India has the world’s fourth largest rail network, it has been outstripped by China, which now has more than six times as much track following an intensive expansion and modernisation of its network over the past two decades.
Providing jobs for 1.3 million people, the railway is India’s largest single employer, and reform is politically sensitive.
Successive governments have shied away from modernisation, preferring instead to use the system to provide cheap transport and create jobs.
Economists welcomed the minister’s decision to break with a populist budget tradition of announcing dozens of new trains for politically sensitive regions, but said they would like to see more explanation of how the investment will be funded.
The rail budget – a relic of India’s British colonial past – said the share of rail revenue available for investments would rise to 11.5 percent in the fiscal year starting on April 1, up from 8.2 percent in the current fiscal year.
Excluding market borrowing, the amount projected for investment in 2015/16 is up by 31 percent, signalling an increased commitment to infrastructure from federal funds.
State-run Indian Railways has more funds available thanks to a sharp drop in the price of diesel fuel that powers most Indian locomotives.
The finance ministry increased federal funding for the railway to 400bn Indian rupees from 301bn Indian ru- pees budgeted in 2014/15.
Passenger fares are subsidised by freight revenues that are high compared to other countries.
Prabhu raised rates further, with a 6.3 percent hike for coal transport.
He said he planned to raise the amount of freight carried to 1.5bn tons a year, from 1bn tons at the moment.
The minister said spending would be focused on improving and expanding existing railway lines, many of which are operating at more than full capacity, with the average speed of the country’s best trains a sluggish 70km/h.
Accidents are common and trains, platforms and toilets on the network are often filthy. – Reuters