Indian Railways hauled its highest-ever freight load of 1,223 million tonne in fiscal 2019, yet its modal share in transportation of surface freight was about 33 percent, marking a precipitous plunge from 85 percent over six decades.

A strategic vision document prepared by the public transporter has aimed for at least 50 percent modal share of freight traffic by 2030.

That would tantamount to 10-12 percent compound annual growth rate (CAGR) in freight traffic over the next 10 years. A daunting task, given that the run rate in the past decade was 3.7 percent.

But six crucial steps can help railways move closer to the goal, if not achieve it. These are.

Target key industrial clusters

Container Corporation of India (CONCOR) needs to ensure there is an inland container depot (ICD) or a multimodal logistics park (MMLP) within 50 km radius of each industrial cluster.

The ICDs/MMLPs would act as hubs, providing state-of-the-art integrated logistics establishments with mechanised loading/ unloading facilities, intermodal transfer arrangements (road to rail and rail to road) and customer-centric warehouses. In future, these facilities can even offer value-added services such as packaging, labelling, distribution and re-processing, as per customer need.

This would allow Railways to enhance its freight basket to newer categories such as fast-moving consumer goods, consumer durables, containerised cargo, chemicals and automobiles, reducing its overdependence on coal, which currently contributes about 50 percent of freight traffic.

Considering Railways’ fiscal constraints, some of these MMLPs can be developed in association with Ministry of Road, Transport and Highways under the Logistics Efficiency Enhancement Programme. Private participation should be encouraged.

Focus on DFCs

Dedicated freight corridors (DFCs) are a cost-effective way of adding freight capacity. With higher speeds and enhanced design features, these can help Railways provide a cheaper alternative to transport by road.

Indeed, estimates suggest that once the western and eastern DFCs commence full-fledged operations, the two parallel corridors (existing Railways track and DFC track) would capture 150-200 million tonne incremental traffic.

These two DFCs have the potential to substantially improve Railways’ profitability. This would boost its internal accruals, which, along with funding from multi-lateral agencies, can be used to achieve the target of commencement of three new freight corridors (Mumbai-Kolkata, Delhi-Chennai and East Coast) by 2030, as announced in the Rail Budget for fiscal 2017.

Build supporting infrastructure

Along with the DFCs, it is important to develop supporting infrastructure, including port connectivity and development of feeder/ last-mile routes.

Under Sagarmala programme, Indian Railways and the Indian Port Rail Corporation Ltd are executing as many as 40 projects, which are expected to complete by 2023. These projects, especially in northwest and western hinterland, will help Railways gain modal share in container traffic from just 18 percent today.

Various smaller ports or other private parties should also be encouraged to enhance last-mile railway connectivity. This can be done through participatory models such as non-government-railway and joint venture, including running of trains and terminals.

Reintroduce freight working timetable

Railways should look at reinstituting the ‘freight working timetable’ that was available at a division level until the 1980s. This can be done with the help of analytics tools and algorithms of the Centre for Railway Information System for controlling trains.

With capacity enhancement in the network, railways should target a minimum speed of 40-50 km/ hour against the current speed of 22km/ hour for freight trains. Punctuality, predictability and reliability of service would be key.

Improve availability of rakes

Historically, a major reason for freight shifting to roads has been inadequate availability of rakes – something major customers such as Coal India and the Fertiliser Corporation of India have complained about in the past.

The constraint has eased a notch of late, but the problem is far from over. And demand for rakes is only likely to increase with the commencement of DFCs.

Ideally, there should be a commodity-wise assessment of wagon requirement to address the demand-supply gap. A CRISIL estimate shows there is a leasing potential of about 35,000 wagons through 2030.

Given this, private sector participation becomes imperative to reduce over-dependence on Indian Railways.

Over the years, a number of schemes – General Purpose Wagon Investment Scheme, Own Your Wagon Scheme, Liberalised Wagon Investment Scheme, and Special Freight Train Operator, to name some – have been launched to encourage private participation. However, these have not been able to realise their full potential.

To make these schemes more effective, Railways should delink 10 percent rebates on general purpose wagons from Indian Railway Finance Corporation lease payments, enabling better return on private investments.

Further, the Research Design and Standards Organisation’s approval process should be streamlined and made time bound.

Rationalise freight tariff

Historically, Railways’ pricing model has involved passengers underpaying and freight overpaying. India has the lowest fare-to-freight ratio (the ratio of passenger fare and freight rates), at 0.24, compared with Japan (1.9), Germany (1.5) and China (1.2).

Several Economic Surveys have indicated Railways’ freight traffic has declined owning to non-competitive tariff. Without rationalisation in freight tariff, meaningful impact in modal share will be hard to achieve.

To sum up, all these measures are aimed at optimising the logistics cost for customers and improving reliability of service – two aspects that can help Railways fast-track freight traffic growth and recapture lost modal share.

Jagannarayan Padmanabhan is Director and Practice leader – Transport and Logistics, CRISIL Infrastructure Advisory.