India Intelligence Report

Railway Freight Corridor in 11th Plan


The Indian Railways is negotiating a deal with the Planning Commission to construct an exclusive freight corridor that would cost USD 111 billion in the 11th (2007-12) financial plan up from a budget of USD 13.33 billion in the 10th. With the Indian Railways becoming profitable last year with USD 2.5 billion, there is renewed confidence that the largest railways in the world can afford a dedicated freight corridor.

The Railways plans to implement the project itself—a cash reserve of USD 2.8 billion, profit of YSD 2.5 last year, and a plan to raise USD 22 billion through a special purpose vehicle with a combination of debt and equity. World Bank and Asian Development Bank have been identified as sources who will loan money for the project. Indian Railways has the largest land holdings in India and it has plans to develop hotels, shopping arcades, etc using those lands that have been largely under-utilized.

The freight corridor as a concept is an excellent idea. With an official growth rate of 8% a year planned for the 11th plan (and a black market growth of at least 4%), the demand for transportation of materials will only increase. Given the cost of oil, state of Indian roads, and quality of Indian trucks, spread of sexually transmitted diseases (including AIDS) by truck drivers, the use of railways to for trans-regional transport of goods is a remarkable idea with large direct and collateral benefits. 


However, the plan is flawed as conceived. 

Firstly, there is a mammoth project underway and extremely inefficiently laid called the East-West and North-South road corridor [Insert Feb 15 news summary] that visualizes a 5,565 kilometers of roads. However, only 232 kilometers have been laid at a cost of USD 3 million per kilometer making it the most expensive road in India (a corporation level road costs less than USD 10,000 a kilometer).

Secondly, the shortage of water in the south and river water flooding in the North and North East has sparked a large debate on river linking. Estimates to build such a system range from USD 100 billion to USD 1 trillion. Apart from political sound bites, there has been no further dialogue on this issue.

Both these projects as well as the new railway corridor project would essentially solve many similar problems. Land rights, optimal passage, right of way, asset protection, acquisition legality, forest management, environmental considerations, construction access, contract negotiation, etc. The question is why aren’t the three projects being considered in one shot but financed differently. After all, it is very likely the principal players involved in the construction will be the same. Instead of creating one authority that will oversee these projects and reduce overhead, the National Highway Authority of India, the Agricultural Ministry, Indian Railways, have to do the jobs thrice over.