India needs to drastically restructure, monetise and privatise the railway sector for boosting investment rates. Railways carry only around 7 percent of passenger traffic and passenger numbers are now declining in absolute numbers. It is also losing freight traffic steadily.

Railways should and can see investments in excess of over Rs 5 lakh crore a year for many years but ends up making only about a third of this requirement -- a large part of that is also paper investment. Moreover, railways project and financial management is of extremely poor quality, putting considerable pressure on fiscal resources as well.

Here are some suggestions to put Indian Railways back on the growth track:

Railways fairs need to be rationalised to make these commercially competitive and raise resources for investments. Railway passenger fares for non-air-conditioned classes should be raised in periodic small doses to compete with non-AC bus fares in a period of two years. Fares of sub-urban and locals in cities should also be raised in small doses/ gradually to achieve 2/3rd of full cost recovery over a three-year period. Fares of air-conditioned services should be brought competitively to air-conditioned bus fares over a period of two/three years raised in quarterly instalments. Freights should be competitively priced to road sector -- even 5-10 percent lower on routes where there is spare capacity. Dependence of railways on freight income from coal transportation needs to be reduced by diversifying its freight business.

Station Development Programme in Railways needs to put on an accelerator. Railways should identify 100 stations, out of a total of about 8,000 odd stations which it has, where the real estate value of the station building and the land appurtenant thereto offers very good possibility of monetisation by improving customers’ experience. These stations should thereafter be developed on the pattern of AAI’s model used for giving the six airports on concession which has brought the best potential value of city side development.

Railways passenger services should be reorganised by giving these on 20-25 years’ concession basis for the private sector to invest in refurbishing existing train sets and invest in new train sets. The privatisation process can begin with specialised train services like Vande Bharat, Rajdhani, Shatabdi, Duranto being offered first. Railways/Regulator should specify the minimum service standards and set formula for fare fixation. Non-premium services can be privatised on regional/state/ sub-state basis, with improved standards of services being specified. This can be done in second phase. Running the trains by handing over to IRCTC is no privatisation. After 10 years, railways should not be operating any passenger trains on its own.

India should aim to develop 10,000 km of high speed and semi-high speed passenger rail network/corridors by 2030. These corridors should be constructed on PPP basis with Railways bidding these out for 40-50 year concession on viability gap basis. The viability gap costs to be borne by Railways, supported by the government, can be partly recovered by concessioning the passenger services on these tracks. Railways would be earning income by charging for use of tracks and stations.

India should develop 10,000 km dedicated freight corridor rail network by 2030. These corridors, concessioning the freight movement, should be constructed by bidding it out in PPP concession and viability gap basis. Alternatively, these can be constructed on hybrid annuity model of the road sector or a mix of hybrid annuity and EPC mode.

Railways should identify from all residential land parcels and housing complexes it has, select land partials and existing housing complexes for redevelopment, on the basis of an agreed criterion relating to size and the necessity of having a railways residential/ office space. These identified pieces should be offered on 50-60 years concessions to the private sector on a modified NBCC model for getting redeveloped space and cash monetisation. Over the ten year period till 2030, the Railways should modernise and redevelop all such identified land parcels/residential complexes. Railways can create one or more land monetisation and management corporations for this purpose.

Railways finances, which are in complete mess, should be placed on stronger and stable footing. Railways are now increasingly raising larger short term and costlier finances. Likewise, expenditure sanctioning processes are very outdated and not conducive to sound financial management. This needs to be reformed by vesting the powers to sanction revised cost estimates in a committee headed by the expenditure secretary, bringing the borrowings of the Railways as part of the government borrowing programme and controlling the misuse of pricing methodologies for rolling stock and other assets acquired by financing from corporation like IRFC. Resources raising also requires market orientation.

Railways should hive-off/ privatise most of non-core (other than passenger and freight transportation) business/ activities. After making the terms and conditions of licence/concession between Container Corporation of India and the private players similar, sale of majority or complete stake in Container Corporation of India. The departmental undertakings manufacturing rolling stock should be corporatised and hived off from the Railways. These can be either privatised or best technology partners inducted with majority equity stake and technology transfer for manufacturing rolling stock on competitive terms and also export. Research Design and Standards Organisation (RDSO) can be hived off into a separate independent organisation with no mandatory testing work from Railways. RDSO can also work for other Railways of the world. Food supply in Railways should be completely privatised with all popular brands being allowed to set up their kitchen in appropriate places (including outside railways premises wherever appropriate) and supply to the consumers of railways on demand. Prices should be also deregulated with competition ensuring that there is no artificial hike in prices. Ticketing, like airlines ticketing, to begin with for air-conditioned service, should be allowed to be done by the agents. IRCTC should be disinvested. Hospitals need to be hived off in a separate entity.

Subhash Chandra Garg served as Economic Affairs Secretary and Finance Secretary of India. Garg, a 1983-batch IAS officer, demitted office on October 31, 2019. The former senior bureaucrat, who also served as an Executive Director in the World Bank, had prepared a note that listed major economic, financial and governance policy reforms India needs to adopt to build a $10 trillion economy by early 2030. CNBC-TV18 is publishing a series of articles based on this note. This is the fifth article in the series.

Follow the series here.