Conference on Public Private Partnership (PPP) in Indian Railways
October 16, 2006, New Delhi

Welcome Address by Mr. Saroj Kumar Poddar, President, FICCI

Shri Lalu Prasad Yadav Ji
Shri J P Batra, Chairman, Railway Board
Dr Amit Mitra,
Senior Government Officials
Excellencies
Members of the Media
Distinguished guests
Ladies and Gentlemen,

It gives me great pleasure in welcoming you all this morning. I am grateful to Shri Lalu Prasad Yadav Ji, our Hon'ble Railway Minister for his kind presence. FICCI is proud to be a partner of your Ministry, for this seminal Conference.

In recent time there has been a marked deterioration of the performance of Indian Railways. For example, the key indicator of Railways efficiency, the operating ratio deteriorated from around 82.6 per cent in 1994-95 to 98 per cent 2001, a year in which the Railways failed to pay a dividend to the government. The share of pensions in working expenses rose from 4.65 per cent in 1980-81 to 19 per cent in 2004-5. Staff wages and pensions accounted for 44 per cent of annual revenues in 2004-5.

This was accompanied by a sustained fall in the market share of Railways in freight traffic, which is the main revenue earner. The result was a financial crisis, no money to invest in augmenting capacity or replacement of over aged assets. Depreciation provision as a proportion of total investment fell from over eight per cent in 1992-93 to less than three per cent in 2003-4. The railways were clearly heading for bankruptcy. This is when the struggle began to reverse these trends.

Shri Lalu Prasad ji assumed leadership of the Railways in this milieu. It was perhaps the most challenging assignment given to any cabinet minister. The rest is history. Over the last two years we have seen the most dramatic turnaround in the history of Indian railways. In a short span of only two years the Railways have demonstrated what committed leadership and out-of-the box thinking can achieve. The operating ratio has been brought down to 83.7 per cent. Consequently, internal resource generation has jumped over fivefold in 2005-6.

This has been achieved by a remarkable acceleration in growth of freight traffic through better leverage of existing assets and sharp reduction in unit costs. The Railways are now reversing sustained loss in market share they suffered at the hands of road transport. Friends, the Deutsche Bank in a sector analysis of commercial vehicles have referred to the threat the CV industry now faces from the turnaround in Indian railways. I quote: " Indian Railways has gained market share for the first time in many years aided by increasing efficiency and prudent policy changes…. In the long run, IR's competitiveness will increase substantially vis-à-vis the road sector."

Obviously, the turnaround of the Railways has now been globally recognized and even the Harvard Business School has adopted this as a case study. The impact of this turnaround at home would be amazing. The Railways have now announced an ambitious investment plan for the 11th five-year plan of a mind-boggling Rs 350,000 crore.

An investment of this size would make huge difference not just to the Railways but also to the Indian economy. Any investment in the Railways has a huge multiplier effect and that is why it has played the role of a leading sector in many economies. An investment of Rs 350,000 crore would increase our GDP by Rs 1400,000 crores or $300 billion over the next five years.

In addition it would also facilitate the global competitiveness of Indian businesses by making available transportation capacity at globally competitive prices if these investment plans are achieved. The Railways alone would be able to raise our GDP growth rate by close to one percentage point per annum. Friends please join me in congratulating the Hon'ble minister for infusing dynamism in this critical sector of our economy.

While all the achievements are commendable, we must recognize as a Nation the urgent need for modernization and upgradation. We must aim for global standards in technology and quality of service to passengers and freight consumers alike. Here, we need to do a lot in terms of improving passenger facilities, comprising coaches, track lines, railway stations as well as designs of wagons for freight movement. Sir, while RITES and RDSO are great institutions, I would urge that private sector be allowed to bring in designs on an exclusive basis subject to clearance of the design by the Railways. Once approved, private sector would be willing to invest provided Railways assure sufficient orders over a five year period to allow for cost plus reasonable returns on investment.

What also needs to change is the tendering system that favours only L1 and also takes considerable amount of time. The system needs to be reformed to reduce the time and also ensure that frivolous bidders who quote artificially low prices are weeded out.

Friends, the good news for us in the private sector about this huge investment plan of the Railways is that a significant part of it would be implemented through Public Private Partnerships and this throws up huge business opportunities for all of us. Let me mention few of the areas where private sector can explore new opportunities. These are:

• Construction of Freight Corridors
  
• Construction of Logistics parks and warehouses
  
• Cargo handling at terminals
  
• Port connectivity works
  
• Modernization and upgradation of passenger terminals
  
• Hospitality and catering
  
• Commercial Utilization of surplus land where private sector can invest in public utilities like food plazas, cyber café, rest rooms.

Henceforth the Railways would focus on their core business of moving goods and passengers and hiving off non-core businesses to the private sector. This is how it should be. Many countries have achieved beneficial results from such reorganization of their Railways. What is encouraging is that even in movement of goods and passengers, Lalu Ji is looking forward to leveraging the competencies and capabilities available with the private sector wherever possible in the true spirit of public private partnership.

Before I end I would like to quote a couplet that the Hon'ble Minister recited in the parliament while presenting the latest Railway budget:

"Ek kadam hum badhe, ek kadam tum,
aao milkar naap de, phasle chand tak."

Thank you.