India’s railway industry is beset by problems with inadequate infrastructure, safety, and funding. Explain.
Infrastructure is the support system on which the efficient working of a modern industrial economy depends. It not only increases the productivity of the factors of production, but also improves the quality of life of its people. Furthermore, it provides supporting services not only for industrial aRead more
Infrastructure is the support system on which the efficient working of a modern industrial economy depends. It not only increases the productivity of the factors of production, but also improves the quality of life of its people. Furthermore, it provides supporting services not only for industrial and agricultural production, but also for domestic and foreign trade and commerce.
Infrastructure contributes both directly and indirectly to a number of determinants of economic development such as
- Investment: It opens up possibilities of investment by making available a number of necessary inputs and services, opening up the size of the market as well as increasing the supply elasticity and efficiency of factors of production.
- Employment generation: Infrastructure creation plays a significant role in the generation of employment opportunities. Furthermore, it also improves mobility, productivity and efficiency of labour.
- Trade & commerce: Infrastructure facilities play a vital role in the development of trade and commerce. In fact they act as a platform for the expansion of trade and other commercial activities at a rapid speed.
The World Bank suggests that a 1% increase in investment in the stock of infrastructure leads to a corresponding 1% increase in the Gross Domestic Product of a nation. To achieve its cherished dream of becoming a 5 trillion dollar economy by 2024-25, India needs to spend about USD 1.4 trillion on infrastructure. Although India has scaled up investment in the infrastructure sector since the tenth five year plan, there remains a serious gap between the present commitments and requirements of our growing economy. This is because of the following reasons:
- Dependence on Government Spending: Traditionally, infrastructure financing in India has been dominated by the public sector. But the Government funds have competing demands such as, education, health, social security, among others.
- Subdued private investments: Private sector investment is subdued owing to the weak balance sheets in the sector, market volatility, and lack of proper contract formulation capabilities in PPP etc.
- Inadequate commercial bank funding: It is due to a growing concentration of risks/stressed assets in banks in terms of sector exposure and asset-liability maturity mismatch. Further, banks lack the capacity to perform independent credit appraisal of such large projects.
- Lack of a vibrant corporate bond market: An active corporate bond market can facilitate long-term funding for the infrastructure sector unlike the banking sector.
- Aggressive Bidding: Several infrastructure players made aggressive but commercially unviable bids on projects based on speculative assumptions. This reduced their returns and resultantly dampened investment climate in this sector.
- Policy and Regulation: Infrastructure projects being long term are more susceptible to uncertainty related to Policy and Regulatory framework which increases the perceived risk.
- Insufficiency of User Charges: A large part of the infrastructure sector in India (especially irrigation, water supply, urban sanitation, and state road transport) is not amenable to commercialization, affecting the financial viability of the projects.
Considering the limited fiscal space and the substantial scale of investments required in financing infrastructure, the government needs to remove its bottlenecks at the earliest. In this context, revival of PPP projects as per Vijay Kelkar Committee recommendations, recapitalization of banks to strengthen their balance sheets, developing multidisciplinary expert institutional mechanisms to resolve legacy issues etc. become pertinent to reinvigorate the sector.
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India has the fourth largest railway network in the world that runs almost 21000 trains carrying 23 million passengers and 3 million tonnes of freight per day. It also is the largest public sector employer with around 1.3 million employees. Although Indian Railways (IR) have come a long way in termsRead more
India has the fourth largest railway network in the world that runs almost 21000 trains carrying 23 million passengers and 3 million tonnes of freight per day. It also is the largest public sector employer with around 1.3 million employees. Although Indian Railways (IR) have come a long way in terms of the number of trains or the carrying capacity, there still remain wide gaps across the following areas that need a relook:
In this context, a slew of reforms to improve the functioning and redefine the role of Indian Railways must be in order. The government must implement all the appropriate recommendations of the Bibek Debroy Committee, execute safety action plans and other reforms to reinvigorate railway infrastructure in India. Many reforms are already underway such as elimination of all manned level crossings, setting up a Special Purpose Vehicle (SPV), Indian Railway Station Development Corporation (IRSDC), Swachh Rail Swachh Bharat, and modernisation of railway stations and the recent proposal to merge railway services from 2021.
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