Indian Railway

Indian Railways 2.
0
Reclaiming pole position
in freight transport
January 2021
Analytical contacts
CRISIL FICCI
Jagannarayan Padmanabhan Ms Neerja Singh
Director and Practice Leader - Transport Senior Director – Infrastructure (Transport and Urban)
CRISIL Infrastructure Advisory (Roads and Highways, Ports and Shipping, Railways,
Tel: (D) +91 22 3342 1874 | (M) +91 9930 335 832 Urban Development, Real Estate and Smart Cities)
Email: jagannarayan.padmanabhan@crisil.com Tel: +91 11 2348 7326
Email: neerja.singh@ficci.com
Golesh Gupta Ms Komal Sharma,

Manager - Transport Deputy Director – Infrastructure
CRISIL Infrastructure Advisory Tel: +91 11 2348 7519
Tel: (D) +91 124 6722361 | (M) +91 8454 920 822 Email: komal.sharma@ficci.com
Email: golesh.gupta@crisil.com
Shashank Dhingra Ms Nikika Goyal

Senior Consultant - Transport Research Associate – Transport Infrastructure
CRISIL Infrastructure Advisory Tel: +91 11 2348 7414
Tel: (D) +91 22 3342 1960 | (M) +91 9972370133 Email: nikika.goyal@ficci.com
Email: shashank.dhingra@crisil.com
Contents
Message from the Minister ................................................................................................................ 5
Foreword from FICCI .......................................................................................................................... 6
Foreword from CRISIL ........................................................................................................................ 7
Executive summary ........................................................................................................................... 8
Introduction ..................................................................................................................................... 13
Overview of freight transport and logistics in India.......................................................................... 16
IR’s freight segment......................................................................................................................... 19
IR’s initiatives for freight business .................................................................................................. 33
PPP and private investments in the rail freight sector ..................................................................... 37
Recommendations and the way forward .......................................................................................... 44
3
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4
Message from the Minister
5
Foreword from FICCI
Mr BVN Rao
Chairman, FICCI Committee on Transport Infrastructure and
Business Chairman (Transportation & Urban Infra), GMR Group
I am happy to share with you the FICCI-CRISIL white With this background, FICCI – CRISIL has prepared a
paper on “Indian Railways 2.0: Re-claiming Pole comprehensive background paper on “Indian
Position in Freight Transport” to be released at the Railways 2.0: Re-claiming Pole Position in Freight
Future of Rail Transport – 3rd edition of SMART Transport”. The objective of this report is to study
Railways Conclave organized by Federation of Indian the rail freight transport in India. It analyses the
Chambers of Commerce and Industry. initiatives being undertaken and examines key
issues and challenges in the freight segment.
The Indian Railways is a symbol of a nation on the
move. It is in a dynamic phase of growth with new I hope you will find this report useful. We welcome
initiatives offering world-class services in both your suggestions and feedback.
freight and passenger transportation. The recently
launched National Rail Plan builds emphasis on
enhancement of infrastructural capacity along with
strategies to chalk out a well-laid plan to increase
railways market share in freight transportation from
current 28% to 44% by the year 2051.
6
Foreword from CRISIL
Jagannarayan Padmanabhan
Director and Practice Leader - Transport
CRISIL Infrastructure Advisory
A modern and cost-efficient transport and logistics the past few years to increase rail’s share in freight
infrastructure network is the crucial cog on which transportation modal mix.
India’s vaunted ambition of becoming a global
Notably, the capital outlay for railways has
manufacturing destination rests.
increased substantially from Rs 1,099 billion in fiscal
And it is impossible to imagine such a network 2017 to Rs 1,608 billion in fiscal 2021 and is
without the country’s transportation behemoth – expected to remain elevated in coming years.
Indian Railways (IR), which carries ~8.4 billion of Specific measures have also helped the IR tackle
passengers and 1.2 billion tonne of freight annually challenges, especially the one heaped by the
– living up to its moniker ‘lifeline of the nation’. ongoing Covid-19 pandemic.
Currently, the country’s logistics cost, estimated at In this report, we have undertaken a comprehensive
~14% of the gross domestic product (GDP), is study of the Indian rail freight segment, the key
significantly higher than other comparable challenges and initiatives, and opportunities for the
economies, acting as a barrier for competitiveness of private sector, and recommended steps that can
domestic products. ensure Indian Railways is able to achieve its target of
44% share in freight transport by fiscal 2051.
One of the major reasons for the high logistics cost is
the skewed freight transport modal mix in the Our key recommendations include enhancing rail
country, which is dominated by costly road modal share for existing cargo and capturing new
transport. If the country is to become a global cargo categories; leveraging DFCs; establishing an
manufacturing destination, it is imperative that independent regulator and enabling private
logistics costs decrease substantially. investments in rolling stock.
The good part is, Indian Railways is cognisant of this I am sure you will find the report informative.
requirement, and has taken multiple initiatives over
7
Executive summary
Overview of rail freight in India With freight transport being eclipsed by costly
modes, i.e. roads, the higher logistics cost for the
A robust transportation and logistics infrastructure economy can be partly attributed to the sub-optimal
is crucial for economic development. To be sure, a share of rail, given that transportation alone
modern, cost-efficient transportation infrastructure accounts for ~61% of the cost incurred in the
not only ensures an economy’s competitiveness, but logistics value chain in India.
also provides the springboard for high industrial
The National Transport Policy Development
growth.
Committee, 2014 took cognisance of this aspect and
In India, railways has been the proverbial ‘lifeline’, estimated that the modal share mix for rail and road
given that Indian Railways (IR) carries ~1.2 billion needs to shift to 50:50 by fiscal 2032.
tonne of freight and ~8.4 billion passengers,
Realising the importance of aggregate level
annually.
planning, the Ministry of Railways has formulated a
However, over time, the railways has lost Draft National Rail Plan, outlining strategies to
considerable ground to other transportation modes, achieve a freight modal share of ~44% by fiscal 2051
especially roads. Notably, within the freight from the 32% in fiscal 2019.
segment, the share of railways was ~32% in fiscal The ministry has introduced several initiatives in
2019 vis-à-vis ~52% in fiscal 20081 (considering recent years to tilt the scale, taking note that if the
traffic with over 300 km of lead distance). country is to become a global manufacturing
This shrinkage in the railway’s share can be destination, it will require a cost-efficient and
attributed largely to progression of road modern transport infrastructure.
infrastructure and road transport industry, which One of these initiatives is the Dedicated Freight
gave a boost to road transportation, as well as Corridors (DFCs). The project, conceived last decade,
changes in consumer behaviour and industrial and has been fast-tracked and the rail transport sector
consumption patterns, which have increased the is expected to undergo a paradigm shift once it is
need for faster transit, service reliability and commissioned. Also being pursued are capacity
predictability. The situation has been further augmentation, modernisation, operational changes,
aggravated by capacity constraints in the railways, and organisational reforms.
along with non-flexible policies, high tariff rates, and
limited commercial and marketing initiatives, among The National Rail Plan also reiterates the need of
others. diversifying the railway’s freight mix in order to
achieve the target.
The deterioration in the share of rail in the freight
modal mix is worrisome for not only the IR, but also
Overview of IR’s freight segment
for the economy.
The IR’s freight basket has been dependent on select
Markedly, logistics cost in India, at ~14% of gross
commodities, such as cement, coal, fertilisers, food
domestic product (GDP), is significantly higher than
grains, iron ore, and steel, which constitute over 75%
comparable economies, such as North America (8%)
of the total rail freight volume. Notably, coal alone
and Europe (9-10%).
1
Draft National Rail Plan, December 2020
8
accounts for ~50% of the freight volume and containers and iron ore, though, rose a healthy ~7%
revenue. on-year each, followed by raw material for steel
plants, pig iron, and finished steel, which expanded
The dependence on select commodities for freight
~6% on-year, each.
traffic outlines the inherent risk from demand
shocks from end-users of these commodities. In the initial months of fiscal 2021, traffic volume
Further, it has been observed that while the share of and revenue declined because of issues owing the
rail is high in conventional bulk commodities, its play Covid-19 pandemic. However, with measures taken
is considerably low in high value and unconventional by the IR and continuing restrictions in road
commodities. transportation, traffic volume as well as revenue
surpassed pre-pandemic levels in August and
For instance, for coal, the rail coefficient is ~65%,
September 2020, respectively.
and for fertilisers, it is ~87%.
On the other hand, high value and unconventional Key challenges for IR’s freight
commodities such as steel (52%), containers (24%),
and cement (37%)2 have a much lower rail
segment
coefficient. The freight segment of the IR, though growing in
Further, various zones of the IR have different shares absolute terms, is constrained by several issues. The
with regard to their contribution to freight volume. major issues are infrastructure and capacity. Both
The East Central, East Coast, South Eastern, and passenger and freight trains run on a common
South East Central railway zones can be considered network. With the IR prioritising passenger trains
‘leaders’ among all zones, contributing in excess of over freight trains, transit time and transit time
10% freight volume individually to the IR. reliability of freight trains are significantly affected.
But, as per a World Bank report, while ~60% of the
The Central, Eastern, South Central, and Western capacity of the rail network is deployed for
zones can be considered ‘challengers’, each passenger transport, the segment contributes only
contributing 5-10% of the IR’s freight volume. ~30% to IR’s freight revenue.
The remaining nine railway zones can be considered Another major issue for the freight segment of the IR
‘followers’, contributing less than 5%. is the price competitiveness vis-à-vis road transport.
Notably, all these railway zones have different This is also due to additional costs pertaining to
commodity profiles, and, hence, a customised first- and last-mile connectivity in the case of rail
strategy is imperative for further improvement in transport. Moreover, stakeholders cite IR’s
freight volume. uncompetitive freight charges as a key reason for
the shift of freight from rail to roads, which can be
Trend of rail freight traffic partially attributed to extensive cross-subsidisation
of passenger ticket prices by freight.
Rail freight traffic in volume terms logged a
compound annual growth rate (CAGR) of 2.3% Further, IR’s freight segment is highly dependent on
between fiscals 2016 and 2020, to 1,210 million a handful of commodities, primarily coal. Notably,
tonne, with revenue totalling Rs 1,232 billion. A coal, which contributes 48-50% of freight volume for
higher trajectory was cut short by a decline of 3% the IR, is expected to log lower growth in the future
on-year and 6% on-year in coal and cement traffic, owing to the emergence of renewable energy and the
respectively, in fiscal 2020. During the fiscal, rise of pit head power plants.
2
9
Therefore, diversification of the freight basket by
focussing on non-conventional and high value
commodities is imperative for the IR.
IR’s initiatives for freight business

IR has been constantly undertaking measures to
garner incremental freight volume. These include the
recent launch of Freight Business Development
Portal, setting up of zonal/divisional business
development units, introduction of Vyapar Mala
Express and Kisan Rails, and measures to provide
first- and last-mile connectivity.
The IR also introduced short-term measures in the

current fiscal to tackle challenges posed by the
pandemic-induced lockdowns and economic
downturn. These initiatives include tariff and non-
tariff measures, such as waiver of stabling charges
for container and automobile trains, withdrawal of
surcharge on two point/mini rakes, discount on
loaded containers and round trip traffic, long and
short lead concessions, reduction of BCN rake size,
relaxation in distance restrictions for mini rakes, and
two point loading.
Further, infrastructure augmentation and

modernisation have been among the top agendas of
the IR in recent years. The capital outlay of the IR
has increase 10% CAGR over fiscals 2017 to 2021.
Furthermore, allocation of budgetary support in the
capital outlay has risen 11% CAGR during the period.
Owing to the increased outlay, major infrastructure

works, such as gauge conversion, new lines, and
doubling and tripling projects, have also registered
significant uptick in the last few years.
PPPs and private investments in rail

freight sector
The IR has been cognisant of the importance of
private sector participation in the development of
the rail freight sector. Here, it has been rolling out a
number of initiatives to facilitate private
investments.
10
The participative models for rail connectivity
projects have been garnering significant interest
from the private sector. Notably, Mundra Port rail
connectivity, Dhamra Port rail connectivity, Kutch
Rail Company, and Pipavav Port rail connectivity
projects have been undertaken under these
participative models.
Further, in order to enhance rail’s share in container

transport, in 2006, the IR allowed public and private
players to obtain licences for operation of container
trains.
The investments by container train operators have

been remarkable, and these players have been able
to increase their rail share on the routes, by
providing integrated logistics solutions, low
transport costs/ short transport times, greater
reliability, and customised solutions. However,
continuous support will be needed by container train
operators on various fronts to further make rail
competitive for container transport.
Apart from these initiatives, the IR also took

significant steps to attract private sector
investments in rolling stock. In this regard, schemes,
such as Liberalized Wagon Investment Scheme,
Wagon Leasing Scheme, Automobile Freight
Operator Scheme, Special Freight Train Operator
Scheme, and General Purpose Wagon Investment
Scheme have been introduced over the last few
years. These schemes have undergone revisions and
amendments on the basis of stakeholder concerns
and suggestions, in order to make these further
investment friendly.
Similarly, the IR has been promoting development of

private freight terminals, rail sidings, and port
sidings, among other terminal infrastructure,
through private investments. Moreover, the
Dedicated Freight Corridor Corporation of India Ltd
(DFCCIL) is planning the development of multimodal
logistics parks along the alignment of the DFCs,
which can be a potential area of investment by the
private sector.
11
Recommendations and way forward Establishing an independent regulator: Setting up of
an independent regulator has been a long-pending
The IR is on a transformative journey, and is demand of the industry. The constitution of an
undertaking various initiatives to provide a fillip to independent regulator can be instrumental from two
its freight segment. The recent Draft National Rail key perspectives: (i) rationalising the freight tariff by
Plan is one step in this direction, providing strategies determination of optimum level of cross-
for augmenting freight volume and modal share. subsidisation of the passenger segment with freight,
and (ii) facilitating private participation by ensuring
Some of the other steps the IR can consider for
protection of their interests, and transparent
fortifying its freight segment are:
dispute resolution at an arm’s length from the IR.
Enhancing modal share in existing commodities and
A cue can be taken from the airports sector, where
capturing new cargo categories: The first step
numerous public-private partnership (PPP) projects
towards increasing the IR’s freight volume will be to
have been undertaken successfully after the setting
enhance volume of the existing commodities, by
up of the Airports Economic Regulatory Authority of
increasing the modal share. Some of the
India.
commodities that can be targeted are automobiles,
cement, containers, and steel. These products will Enabling private investments in rolling stock: The IR
require targeted and customised interventions to has been actively undertaking measures to facilitate
make rail competitive vis-à-vis road transport for the private investment in rolling stock. Though the
consignors. industry has shown considerable interest in these
schemes, and many players have inducted rakes by
Capturing new cargo categories: The IR should
leveraging on these schemes, the results have not
target new cargo categories through a multi-pronged
been commensurate with the potential of the
strategy to generate higher freight volume and
schemes. One of the major objectives behind some
revenue. Some of the steps that can be taken in this
of the schemes was to enable introduction of new
context are:
design wagons that are capable of handling cargo
 Improving existing infrastructure and operations that the IR traditionally does not cater to. Various
through participation of logistics players players have also cited the desire to induct such new
 Facilitating first- and last-mile connectivity design wagons. However, as per feedback received
 Rejigging the parcel business strategy from players, the approval process for new design of
wagons by the Research Design and Standards
Leveraging DFCs: IR’s DFCs are expected to be a Organisation (RDSO) is not streamlined, and at times
game-changer for the freight sector. The IR may unpredictable. Therefore, to facilitate private
consider the following to harness its full potential: investments in rolling stock, and to enable induction
 Passing on the cost benefit to customers of new design wagons on its network, the IR may
through reduction of tariffs consider streamlining the RDSO approval process,
with stipulated requirements and timelines.
 Accelerating industrialisation along the corridors
 Developing logistics infrastructure along the IR can also consider decoupling the rebates provided
corridors for investment in wagons from the cost incurred by it
for similar wagons, and coming up with a single
 Allowing private players to operate trains on the
policy for wagon investments by merging the existing
DFCs, thereby leveraging the Track Access
policies for private investments in wagons.
Charge Mechanism
12
Introduction
13
freight transport is worrisome for the sector and the
Sub-optimal rail freight share hurts
economy. Notably, in 2015, logistics costs in India
India’s economic ambitions were estimated at 14% of GDP), compared with
North America’s 8% and Europe’s 9‐10%7 .
Transportation infrastructure is crucial for overall
economic growth and plays a catalytic role in the The higher logistics costs in the country can be
transition from middle- to high-income economy, as partially attributed to the sub-optimal modal share
established through various empirical studies. 3 of IR in the freight modal mix. Therefore, a balanced
modal share is critical to support nation-wide
Notably, the Indian transport sector’s contribution to
logistics optimisation and fortify the economy and
the economy has been significantly higher than the
associated freight volumes.
proportion of expenditure undertaken for the
sector’s improvement and maintenance.4 The National Transport Policy Development
Committee, 2014, estimated the modal share mix of
Indian railways (IR) – often called the ‘lifeline of the
rail: road needs to shift from 35:65 in fiscal 2017 to
nation’ – is the backbone of the country’s
50:50 by fiscal 2032. In an optimistic scenario, where
transportation infrastructure. Carrying ~1.2 billion
both transportation modes excel in their respective
tonne freight and ~ 8.4 billion passengers annually,
domains, i.e., rail serving medium and long‐distance
IR plays an unparalleled role in meeting the
(above 300 km) high‐volume traffic, and road serving
country’s transportation demand and supporting its
low-volume short-distance traffic in a
economic growth.
complementary role, rail and road share could reach
However, the rising competition from other 52% and 49%, respectively.8
transportation modes, especially roads, has
adversely impacted IR’s market share in the Why is railway freight declining?
passenger and freight segments. Notably, the modal
According to the Economic Survey, 2017-18, the
share of railways in passenger segment has
increasing competitiveness (tariff) of other modes of
gradually declined from ~75% in 1950-51 to below
transport, mainly road, slowed down railways freight
20% in the current scenario.
traffic. Road freight movement has grown
Further, the modal share of railways’ freight enormously in recent times with improved
transportation (for lead distance beyond 300 km), infrastructure, and initiatives such as GST,
dwindled to ~32% in fiscal 2019 from ~52% in fiscal electronic toll collection, and increase in axle loads
5
2008. for commercial vehicles. Moreover, road transport is
preferred by consignors in several cases, even for
Also, the demand elasticity for rail freight transport
long-distance hauling services.
– estimated by Indian Railways6 at ~1.2x of the gross
domestic product (GDP) growth – has remained at The progression in the industrial consumption
0.8-1.0x in the recent past, indicating a decoupling patterns has also changed the dynamics of freight
of IR’s freight traffic growth and GDP. transport, refocussing it towards faster transit,
service reliability and predictability, and smaller
That said, the sub-optimal share of railways in
parcel sizes.
3
IMF, 2015
4
http://www.oecd.org/derec/adb/39066399.pdf
5
6
UNEP – A Case Study of the Delhi-Mumbai Dedicated Freight Corridor
7
World Bank – Unlocking India’s Logistics Potential, Policy Research Working Paper, 2018
8
Erstwhile Planning Commission, 2008 – Chapter XI
14
Moreover, capacity constraints on rail trunk routes, current 32%.9
non-flexible policies, limited financial resources to
The National Rail Plan estimates the freight
maintain/develop new infrastructure, higher tariff
contribution from conventional commodities, which
rates, and the lack of commercial and marketing
currently contribute ~65% of the rail freight traffic,
initiatives stand among other reasons for the decline
to reduce in the evolving transport ecosystem. 10 For
in railways freight.
instance, coal, which contributes 48-50% of IR’s
freight volume and revenue, is expected to log lower
Indian Railways 2.0 - reclaiming
future growth due to the introduction of pit head
market share, optimising modal mix power plants and increasing contribution of
renewable energy, in line with the government’s
The Ministry of Railways has come up with several
commitment towards sustainable development.
reforms in recent years, realising India's aspiration
Similarly, there is a limited scope of growth in rail
of becoming a global manufacturing hub and the
freight traffic from iron ore, petroleum, oil and
need for a cost-efficient freight transport
lubricants (POL), and food grains due to inherent
infrastructure. These initiatives cut across various
features of these commodities, changing dynamics,
facets, including the creation of new infrastructure
and cost competitiveness from other transport
and improvement/capacity augmentation of the
modes. For example, slurry pipelines for iron ore,
existing one; modernisation, optimisation of the
pipelines for POL movement, and small parcel size
energy mix for operations; operational changes,
movement of food grains through road transport.
organisational reforms, freight marketing, tariff
rationalisation, and facilitation of private That said, IR needs to focus on non-conventional
investments in rail infrastructure. commodities, such as containers, and ‘balance other
goods’, and high-value commodities, such as steel
Among other initiatives, implementation of Western
and cement, to achieve the desired modal share.
and Eastern dedicated freight corridors (DFCs),
Improvement in service quality, transit time
which were conceptualised in the past decade
predictability and reliability and reduction in
anticipating a quantum leap in rail freight transport
logistics costs are expected to be key imperatives to
demand, has been fast-tracked.
capture the potential from these commodities.
Creation of this seamless new freight-oriented
This report specifically studies the Indian rail freight
infrastructure is expected to be a game changer for
transport, identifies key issues and challenges in the
railways and the country’s logistics paradigm. While
rail freight segment, elaborates key initiatives, and
some sections have already been commissioned in
provides key recommendations in the direction of
recent years, the project is expected to complete in
IR’s vision of achieving 44% share in freight
the next couple of years. The ministry has planned
transport by 2051.
further more DFCs to provide seamless and efficient
rail logistics services across the major locations in The report identifies various zonal railways as
the country. leaders, challengers and followers, based on their
contribution to freight volumes and revenues, and
IR has come up with the Draft National Rail Plan,
provides an overview of the potential areas to
with an ambitious target of achieving a freight
strengthen their positions in the freight business.
transportation share of 44% by 2051 from the
9
10
For leads beyond 300 km11 Considering modal mix on overall freight basis. Railway’s modal share is ~32% for freight plying beyond 300
km
15
Overview of
freight transport
and logistics in
India
16
Figure 2: Key features of freight logistics in India11
Efficient freight transport and
Modal share (%)
logistics imperative for economic
development 27
A competent system for freight transport and

logistics services has proven to have a domino effect
5
on the overall economy, triggering various economic
64 2
mechanisms. Below is a schematic representation of 2
these triggers:
Figure 1: Domino effect of efficient freight transport

and logistics on economy Road Rail Coastal shipping IWT Pipeline
Enhanced efficiency and effectiveness of Indian

freight logistics
Distribution of logistics costs (%)
1
Reduction in trade costs
25
2
Increased competiveness
3 Improved exports + increased

investments 10
61
4 More jobs and better income
opportunities 4
5 Freight forwarding Value added logistics

Higher economic growth
Transportation Warehousing
Source: World Economic Forum, CRIS analysis
Per tonne km cost for various modes (in INR)

While the Indian freight logistics sector has evolved
considerably, a set of interconnected issues still 1.5
need to be addressed. Among these issues,
substantially higher logistics cost in India (~14% of 1
GDP), than that in developed nations, hurt the
competitiveness of Indian businesses. One of the 0.5
major reasons behind high logistics cost in India is a
skewed modal mix, wherein road transportation has
the lion’s share, followed by rail and waterways.
Costs per tonne km
Notably, the transport cost constitutes around 61% Road Rail Water
in the logistics cost value chain, and the dominance
Source: National Rail Plan, Philip Capital, CRIS analysis;
of road transport largely results in high overall
Modal share on an overall basis
logistics costs in the country.
11
Considering modal mix on overall freight basis. Railway’s modal share is ~32% for freight plying beyond 300 km
17
What twisted the modal mix? industry. Intense competition, limited regulation on
overloading, and increased limit for axle loads for
IR was once the largest freight transport carrier in commercial vehicles resulted in low freight rates for
India, but gradually lost ground to roads. Road road transportation. In addition, heavy government
freight transport bloomed with increased subsidies on diesel promoted a shift of freight to
investments and improvements in road road14.
infrastructure, while insufficient investments in rail
infrastructure for capacity augmentation skewed the Further, as per a World Bank Report, the railway
modal mix. pricing works on the principle of “what the traffic
can bear” rather than “cost of service”, resulting in
The road length in India increased at a CAGR of ~4.16 cross‐subsidisation from high‐ to low‐value traffic to
% between 1951 and 2017, whereas the rail track support government policies. The growth in road
length increased at a mere ~0.7% CAGR. Railways transport, with an associated shift of high‐value
used to handle ~89% of total freight in 1950-51, traffic to road, restrained this practice, increasing
which gradually decreased to ~33% in 2007-08, and losses for railways, as low‐value goods were
~27%12 in 2018-19. In the past six decades, rail transported below‐cost through rail transport.
freight loading has grown ~1,344% and passenger Decreasing operational surplus, in turn, curtailed
kilometres ~1,642%, while railway capacity, investments, further impacting railways’ ability to
measured in route‐kilometres, has grown only 23%.13 serve its customers.
Amid the poor state of rail and the associated Further, the declining cost of road transportation,
regulatory environment, a highly fragmented coupled with the rising issues of rail transportation,
trucking industry emerged, amplifying road including capacity constraints, high tariffs due to
transportation. Around 77% of the truck owners have cross-subsidisation, and limited freight marketing
a fleet size of five vehicles or less. Further, there are initiatives, altered the modal mix.
approximately 5,000 intermediaries in the freight
12
On overall freight volume basis - National Rail Plan and National Transport Policy Development Committee Reports
13
Phillip Capital, 2016
14
World Bank – Unlocking India’s Logistics Potential, Policy Research Working Paper, 2018
18
IR’s freight
segment
19
transportation demand of the economy, especially
Overview
bulk commodities, such as cement, coal, iron ore,
IR is among the world’s largest rail networks, fertilisers, petroleum, and food grains. The
catering to transportation needs of the country’s schematic below provides the trend in IR’s freight
huge population. It caters to the freight segment by volumes and composition:
Figure 3: IR’s freight basket trend (million tonne)

Growth rates
(FY16 – FY20)
1,104 1,109 1,162 1,223 1,210 Others* 2%
11% 11% 13% Container

11% 11% 13%11% 13% 7%
4% 4% 5% 5% 5%
6% 6% 7% 6% 7% Iron and
5% 4% 4% 4% 4% steel 6%
4% 4% 4% 3% 3%
10% 9% 10% 10% 9% Fertilisers
0%
11% 12% 12% 11% 13%
Food grains -5%
Cement 1%
50% 48% 48% 50% 48%
Iron ore 7%
Coal 2%
FY 16
FY16 FY 17
FY17 FY 18
FY18 FY 19
FY19 FY20
Source: Indian Railways Statistical Statements, CRIS analysis
IR’s freight composition has remained dominated by from the thermal power, cement and steel sectors.
bulk commodities, making it vulnerable to demand
The below chart indicates IR’s high dependence on
shocks from end users of these commodities.
conventional commodities and limited presence of
Notably, coal alone contributes around 48-50% of
high-value and unconventional commodities.
freight traffic volumes for railways, indicating the
high dependency of railway freight on coal demand
Figure 4: National freight transport demand across commodities and corresponding rail coefficient (2018-19)
2,000 100%
87%
1,800 90%
1,600 80%
65% 65%
1,400 70%
56%
1,200 52% 60%
1,000 50%
37%
800 40%
600 16% 24% 30%
18%
400 1,863
4% 20%
200 966 59 289 207 358 337 113 272 232 10%
- 0%
Coal Fertilisers Foodgrains Iron Ore RM for Steel Cement Steel POL Balance Containers
other goods
National Transport Demand (in MTs) Rail Coefficient
Source: National Rail Plan
20
The existing rail coefficient is significantly low in These railway zones are divided into three
high-value commodities, such as steel and cement, categories, based on their contribution to total
and unconventional commodities, such as freight volumes:
containers and balance other goods. 15  Leaders: >10%
The analysis of freight traffic distribution among 17  Challengers: >5% and <10%
railway zones describes their positioning in terms of  Followers: <5%
their dependence on various commodities for traffic
and competitiveness.
Figure 5: Geographical spread of IR zones
Railway zones of the Railway zones

Indian Railways Central CR
NR
Eastern ER
East Central ECeR
East Coast ECR
NER Northern NR
NWR
NCR NEF North Central NCR
ECeR North Eastern NER
WCR ER NE Frontier NEF
WR SeCR
SER North Western NWR
KR ECR Southern SR
CR South Central SCR
South Eastern SER
SCR
South East Central SECR
SWR South Western SWR
Western WR
West Central WCR
SR
Konkan KR
Source: CRIS analysis
Figure 6: Relative position of various railway zones in the freight segment

25.00%
Bubble size indicates contribution to freight traffic
20.00% N. Eastern
15.00% Leaders Followers Challengers

Traffic growth
10.00%
N. Central E. Central
5.00% Central S. Eastern

S. Central E. Coast
W. Central Western
Eastern
Konkan
0.00% Southern
0% 5% Northern 10% 15% S.E. Central 20%
N. Western
-5.00%
N.E. FrontierS Western
Contribution to freight revenue

-10.00%

-15.00%
15
Includes automobiles, stones, non-ferrous minerals and other miscellaneous goods
21
more than 10% of freight volumes individually. These
The leaders
zones together account for ~56% of total freight
East Central Railway, East Coast Railway, South volumes and ~54% of freight revenues. The
Eastern Railway, and South East Central Railway fall schematic below provides an overview of the freight
under the category of leaders, as they contribute composition of these zonal railways:
Figure 7: Freight composition for leaders

100% 250
80% 200
194.34
60% 150
167.81 168.2
149.32
40% 100
20% 50
0% 0
S.E. Central East Central East Coast South Eastern
Coal RM for Steel Plants Iron Ore Cement Foodgrains
Fertilisers Mineral Oil Container Service Other goods Total
These four players are frontrunners in terms of the government’s climate change initiative. That
freight volumes, having a high dependency on coal said, these players need to focus on other essential
and iron ore traffic. Notably, the South East Central commodities in future to stay as leaders.
Railway, East Central Railway and East Coast
Railway have coal contributing 77%, 90%, and 58% The challengers
to total freight volumes, while iron ore contributes
As depicted in figure 6, four railway zones, i.e., the
60% of total freight volumes for South Eastern
Central, Eastern, South Central, and Western can be
Railways. These railway zones have been leading
considered challengers in the freight segment,
freight loading due to the geographic dividend
contributing 5-10% of IR’s freight volumes. They
(proximity to the mining areas). However, the high
account for ~26% of volume and revenue in the
dependency on coal outlines the potential future
freight segment. Figure 8 provides an overview of the
risks from decreased coal consumption from the
freight composition of these zones:
thermal power sector due to increased
establishment of pit head power plants and rising
contribution of renewable power sources, in line with
22
Figure 8: Freight composition for challengers
100% 120
80% 100
105.29
80
60%
77.01 60
40% 62.53 65.41
40
20% 20
0% 0
Central Eastern South Central Western

While these zones have the potential to drive railway

The followers
freight volumes and revenues, apart from Western
Railway, the others in this category depend on coal, As depicted in figure 6, nine railway zones i.e., the
which has a limited potential for high growth. The Northern, North Central, North Eastern, North East
Western Railway has a diversified freight portfolio Frontier, North Western, Southern, South Western,
with only 12% dependence on coal. The zone is a West Central, and Konkan Railways can be
leader in container transport and accounts for ~35% considered followers, contributing less than 5%
of the container volumes handled by IR. Further, individually to IR’s total freight volumes. Collectively,
together with the Central Railway, it accounts for these railway zones contribute ~18% volume and
~51% of total rail container traffic. The South 20% revenue to the freight segment. Figure 9 below
Central Railway, leveraging its proximity to cement provides an overview of the freight composition of
manufacturing clusters, has attained ~25% of these zonal railways:
freight volumes from cement traffic.
Figure 9: Freight composition for followers
100% 60
50.2
80% 50
35.67 37.69
31.11 40
60%
30
40% 14.74 14.34 20
20% 7.25
2.41 2.12 10
0% 0
Northern North Northern Northeast North Southern South West Central Konkan
Central Eastern Frontier Western Western
23
These zonal railways require focused and an analysis of major commodities that are handled
customised strategies to drive railway freight by IR.
volumes and revenues. Of these zones, the Northern,
Southern, South Western, and West Central Railways Rail freight traffic trends
already contribute significant volumes and have Rail freight traffic increased at a 2.3% CAGR by
relatively diversified freight portfolios. Building on volume between fiscals 2016 and 2020. The subdued
the existing freight volumes can be a workable performance from coal and cement that declined 3%
strategy for these zones. and 6%, respectively, in fiscal 2020 applied the
brakes. Containers and iron ore grew a healthy ~7%
Performance review of the freight over the period, followed by raw material for steel
business plants and pig iron and finished steel that expanded
at ~6%.
This section provides an assessment of the
performance of IR’s freight segment in terms of
traffic volume and revenue. Further, it also provides
Figure 10: Rail freight traffic volumes trend
1400 1223 1240

Balance other goods
1210 1220
1200 Container services
1200
Mineral oil (POL)
1000 1180
1162 Fertilisers
1160
800 Foodgrains
1140
Cement
600 1109
1104 1120
Iron ore
400 1100
Pig iron and finished steel
1080
RMSP
200
1060 Coal
0 1040 Total revenue earning traffic
FY16 FY17 FY18 FY19 FY20
Source: Indian Railways Statistical Statements, CRIS analysis, Fig. in million tonne
Indian Railways has fixed a freight target of 1,267 MT surpassed the 2019 levels from August, 2020.
for fiscal 2021 as per the budgetary estimate. There Overall, the total revenue-earning traffic in August,
was significant on-year downfall in terms of traffic September and October of fiscal 2021 was ~12%
volumes in the initial period of the current fiscal due higher compared with the same period in the
to the Covid-19-induced downturn and lockdown. preceding year. Figure 11 depicts the traffic volumes
However, freight traffic gradually revived and trend vis-à-vis the previous year:
24
Figure 11: Traffic volume picking up gradually in post-pandemic scenario
120 108
101 105 101 100 102
100 95
80 93 95 91 94
88
82
60
65
40
20
0
April May June July August September October
FY20 FY21
Source: Indian Railways Statistical Statements, CRIS analysis, Fig. in million tonne
To achieve the higher freight loading in fiscal 2021

Rail freight revenue trends
vis-a-vis fiscal 2020, IR has prioritised market
outreach, held multiple consultations with Freight revenue of Indian Railways increased at a
stakeholders/customers and provided incentives ~3.1% CAGR between fiscals 2016 and 2020.
and concessions to boost traffic. IR is also coming Revenue growth was hit in fiscal 2020 due to the
up with ‘Kisan Rail’ services along various routes to ~1% decline in traffic. Among all commodities, per-
capture the traffic of agricultural and perishable tonne revenue from iron ore grew at a healthy 7%
commodities. CAGR over the period, while per-tonne revenue from
other commodities, barring coal and food grains,
followed a downward trajectory.
Figure 12: Rail freight traffic revenue trends
1,400 1,300 Balance other goods

1,253
1,232 Container services
1,200 1,250
Mineral oil (POL)
1,200
1,000
Fertilizers
1,130 1,150
800 1,093 Foodgrains
1,100 Cement
600 1,046
1,050 Iron ore
400 Pig iron and finished steel
1,000
200 RMSP
950
Coal
- 900
Total revenues
FY16 FY17 FY18 FY19 FY20
Source: Indian Railways Statistical Statements, CRIS analysis, Fig. in INR billion
25
Further, in fiscal 2021, freight revenues were hit
initially with traffic declining on the back of the
pandemic-induced downturn and lockdown. Coal, COAL
predominantly moved by railways, dipped, but this
was compensated via the carriage of other bulk
commodities such as steel.  The largest freight commodity transported by
IR, both in volume and revenue
However, along with the traffic, revenue has picked
up gradually. Largely reaching the pre-pandemic  In fiscal 2020, coal contributed to ~48 % of the
level, it is expected to surpass the level in the total freight traffic and revenues
coming months. Notably freight revenue in
Contributing to ~48-50% of the total freight revenue
September and October of fiscal 2021 was ~24% and
and traffic, coal acts as a key enabler for achieving
~19% higher, respectively, when compared with the
the target revenues and freight traffic for IR. The
comparable period in fiscal 2020. Figure 13 provides
coal traffic for rail is primarily driven by thermal
an overview of the trend in freight revenues in the
power plants (more than 65%), and other users such
post-pandemic scenario.
as cement plants (~23%) and steel plants (~9%). Any
Figure 13: Revenues picking up gradually in post- disruption in the demand from these end-user
pandemic scenario industries affect the rail traffic for coal.
120
100 97 97 101 The high dependency on coal highlights inherent
100 93 91 91
risks for rail traffic growth in future. Notably, the
80 government’s push towards renewable energy is
87 88 83 85
60 78
73 expected to lead to lowering of coal demand from
40 57
the thermal power sector in future. Furthermore, the
20 falling power plant load factors (PLFs), emergence of
0 pit head power plants and coal-linkage
August
June
April
May
September
October
July
rationalisation has led to a significant drop in the

average distance of coal transported to thermal
power plants, hence impacting railway revenue
FY20 FY21
streams.
Source: Indian Railways Statistical Statements,
CRIS analysis, Fig. in INR billion Figure 14: Traffic and average lead distance for Coal
700
Factors affecting railway freight in 600
500
India 400
300
Coal, iron ore, cement, containers, food grains, and
200
iron & steel, comprising ~80% of the total IR traffic,
100
are among the key drivers of railway traffic in India.
0
The associated dependencies of these commodities FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
define the key factors affecting railway freight. The Coal - average lead (Km) Coal -traffic (MT)
commodity-wise analysis in this respect is detailed
in the subsequent section. CRIS analysis, Fig. in INR billion
26
Indian Railways has responded to the falling lead smaller parcel sizes to keep the inventory costs low.
distance of coal by raising coal freight charges at a Notably, road transport has an edge over railways in
higher rate than other commodities to offset the transportation of cement in small parcel sizes and
decline in coal revenues. Notably, the rail logistics this can affect the share of IR in cement freight
cost in India is significantly higher than comparable traffic. Further, the last and first-mile costs incurred
economies. For instance, revenue per NTKM (net in case of rail logistics for bagged cement makes it
tonne kilometer) for coal in India for fiscal 2018 was less competitive vis-à-vis road transport. As per the
INR 7.07 compared with INR 1.77 in Canada, INR 1.09 National Rail Plan, the total logistics costs for
in Australia and INR 1.15 in the United States bagged cement for rail are 18-22% higher than road
16
(adjusted for purchasing power parity) . This may transport.
work for railways in the short run. However, in the
Figure 15: Traffic and average lead distance for
long run, it will risk the end-user, especially thermal
Cement
power plants, who will either find delivered coal
120 570
prices more expensive than alternatives such as
115 560
renewable energy or start preferring other modes of
550
transportation such as trucks. Other areas of risks 110
540
include power plants in coastal regions that import 105
530
coal, or the rise of long-distance power
100 520
transmission, especially via high-voltage DC (HVDC)
95 510
that will lead to setting up of more pit head thermal FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
power plants in future.
Cement - traffic (MT) Cement - average lead (Km)

CRIS analysis, Fig. in INR billion
CEMENT
However, going forward, the government’s push

 A major freight volume and revenue towards infrastructure development depicted by the
contributor for Indian Railways National Infrastructure Pipeline, programmes such
 In fiscal 2020, cement contributed to ~9% of as 'Housing for All', ‘Bharatmala Pariyojana’ and
the freight basket and 7% of IR’s freight 'Smart Cities Mission', and expected pick up in real
revenue estate segment, would likely enhance cement
Globally, India is the second largest producer for demand and thus have a positive impact on cement
cement after China. In fiscal 2020, cement traffic for rail. However, IR will need to make
contributed INR 89 billion to the railways towards significant efforts to encourage bulk transport of
freight as opposed to INR 100 billion in the previous cement that is comparatively competitive for rail vis-
year. The demand drivers of cement in India are à-vis road transport.
primarily sectors that declined in fiscal 2020, i.e.,
the housing & real estate, public infrastructure and
industrial development. The slow growth in cement
demand generally leads to the capacity utilisation of
cement plants declining, affecting profitability and
encouraging the players to transport cement in
16
Draft National Rail Plan, Indian Railway
27
commodities is primarily driven by the steel industry
with iron ore exports traffic amounting to only 5-11%
IRON ORE AND
of the total traffic plying on rail. Because of its
IRON & STEEL
capability to handle high loads over a longer haul,
rail becomes a key mode of transportation for both
 Second largest freight volumes and revenue iron ore and the finished and steel products,
contributor to Indian Railways over the past currently catering to ~17% of the rail freight
five years volumes. Though rail has been the preferred mode
 In fiscal 2020, iron ore and iron & steel for transportation for bulk iron ore, road
contributed to ~17% of the total freight basket transportation has been able to capture significant
and revenues for IR volumes of finished products such as steel. This is
even in cases where leads exceed 500 km owing to
factors such as costly handling and additional last-
The iron ore, raw material for steel plants and iron mile costs associated with rail transportation as well
and steel traffic is the second largest revenue and as competitive freights offered by road
freight volume contributor for IR. Traffic from these transportation service providers.
Figure 16: Traffic and average lead distance for iron ore, iron and steel
400 200 1200 60
350 1000 50
300 150
250 800 40
200 100 600 30
150 400 20
100 50
50 200 10
0 0 0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Iron ore - average lead (Km) Iron ore - traffic (MT) Iron and steel - average lead (Km) Iron and steel - traffic (MT)
Source: Indian Railways Statistical Statements, CRIS analysis,
As per the Draft National Rail Plan, an analysis of multiple headwinds due to slow down in these
total freight costs incurred by Rashtriya Ispat Nigam sectors. Indian steel demand for this fiscal is
Limited for transport of steel products across projected to decline by a sharp 20%17 after growing
locations (1000+ km) revealed that the cost of rail 1.4% in fiscal 2020 to 100-MnT, mainly due to the
transport is 7-40% higher than road transport. This adverse impact of the lockdown. However, going
scenario requires significant initiatives from IR to forward, steel demand is expected to pick up riding
bring down the costs of steel transportation through on infrastructure investments by the government
rail to achieve a higher modal share. and pent-up demand release, especially in
construction and infrastructure, thereby providing
The steel industry is primarily driven by
an opportunity for rail to attract higher freight
construction, consumer durables sectors such as
traffic.
automobile, the capital goods sector, and other
manufacturing. Of late, the steel sector has seen
17
Research study by ICRA
28
According to the Department of Agriculture,
Cooperation and Farmers Welfare’s Third Advance
Food grains Estimates for fiscal 2020, total food grain production
in India is estimated at a record 295.97 million
tonnes,18 compared with 285.21 million tonnes
 In fiscal 2020, food grains contributed ~3% to during fiscal 2019. Compared with average food
the total freight basket and 5% to IR’s freight grain production over the last five years, i.e. fiscal
revenue 2014 to fiscal 2019, food grain production is
 Food grain traffic for rail is primarily driven by expected to be ~25.89 million tonnes higher in fiscal
the demand from the public distribution 2020. The major reason attributed to this higher
system production is the cumulative higher rainfall in fiscal
2019.
IR’s food grain traffic is expected to increase in fiscal

IR handles pan-India food grain transportation — a
2020 on account of the surge in public distribution
key commodity that contributed 5% to IR’s freight
because of Covid-19. However, in the long term, it is
revenue in fiscal 2020. Punjab, Haryana and Madhya
expected to remain flat.
Pradesh account for ~90% of wheat produced in
India. Similarly, Punjab, Haryana and Chhattisgarh
account for ~76% of procured rice. As a result, most
of the food grain traffic originates from Punjab and Containers
Haryana and is routed to south and north-east India.
Considering the significant lead distance between
the source and consumption centres, rail is better  In fiscal 2020, container volume contributed to
suited for transportation. However, decentralised around 5% of the total freight basket and 5%
procurement in different states has affected IR’s of IR’s freight revenue
food grain traffic as it has largely relied on food grain
traffic originating from north India.
IR’s container traffic comprises export-import (Exim)
Figure 17: Traffic and average lead distance for containers and domestic containers. Exim container
various food grains traffic is largely driven by international trade
1450 60 whereas domestic container traffic is dependent on
1400 50 domestic demand for goods such as fast moving
1350 40 consumer goods (FMCG) and white goods that are
1300 30 often containerised for domestic transportation.
1250 20 Exim accounts for around 80-82% of IR’s container
1200 10 traffic, while domestic accounts for 18-20%.
1150 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Food grains - average lead (Km) Food grains - traffic (MT)
18
Press Information Bureau, GoI - https://pib.gov.in/PressReleseDetailm.aspx?PRID=1624044
29
Figure 18: Traffic and average lead distance for container traffic
Containers (Domestic) – Traffic and Average Lead Containers (Exim) – Traffic and Average Lead Distance
Distance 1200 60
2000 14
1000 50
12
1500 10 800 40
8 600 30
1000
6
400 20
500 4
2 200 10
0 0 0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Containers (Domestic) - Average Lead (Km) Containers (Exim) - Average Lead (Km)
Containers (Domestic) -Traffic (MT) Containers (Exim) -Traffic (MT)
Exim container traffic on IR’s network has registered In fact, the DFCCIL expects port and ICD rail traffic
a healthy growth rate of ~9.7% over fiscals 2017, share to increase to 31% from 25%, as double-stack
2018, 2019 and 2020. However, as per the Dedicated operations, assured transit times, and faster speed
Freight Corridors Corporation of India (DFCCIL), IR is will increase container movement on DFCs.
estimated to have a modal share of only 22-25% in
container traffic originating from ports and ICDs The rail freight segment’s key
currently. This is largely because of higher tariffs for challenges
containers in case of rail vis-a-vis road transport on
many of the origin and destination pairs and the Infrastructure and capacity constraints
unpredictability of transit time that often cause the
The sub-optimal modal share and stunted traffic
consignors to choose road over rail. Furthermore, the
growth of the rail network can be largely attributed
lead distance for containers declined ~4% over
to capacity constraints, coupled with the extensive
fiscals 2017, 2018, 2019 and 2020.
development of roadways — a competing mode that
After factoring in the growth potential of container has captured much of the freight share from
traffic, IR undertook measures such as opening up railways. Moreover, capacity constraints have
the rail-based container traffic movement to private further aggravated congestion as the same rail
operators in 2006. Although such measures saw an network is shared by freight and passenger trains.
initial increase in rail container traffic volume
Given that IR prioritises passenger trains over freight
between 2007 and 2010, there has been limited
trains due to its common network, the transit time
growth in rail container traffic volumes thereafter.
and transit time reliability of freight trains are
DFC is likely to emerge as a game changer for IR and affected significantly. Notably, in fiscal 2020 until
alter India’s container transportation dynamics in January, average speed of freight trains across
the near future. The double-stacking of containers various railway zones was ~17-30 kmph, while that
on the WDFC and doubling of length of trains from of passenger trains was ~31-52 kmph19.
700m to 1,500m is expected to handle more Furthermore, as per a World Bank report, around
containers and reduce transit time for longer 60% of the capacity of rail network is deployed for
distances, thereby setting off its modal advantage. passenger transport, which contributed only ~30%
19
Monthly Evaluation Reports, Statistics & Economics Directorate, Indian Railways
30
to IR’s freight revenue. The commissioning and operations of the WDFCs and
DFCs, currently under development, would be
The issues related to the IR’s network’s capacity
instrumental in alleviating IR’s capacity-related
constraints and the resultant congestion are major
challenges in the freight segment.
headwinds for busy routes, especially the Golden
Quadrilateral, which links the country’s four key
Transit time reliability
metropolises, Mumbai, Delhi, Chennai and Kolkata.
In terms of rail transport, the Golden Quadrilateral The time component of the logistics supply chain is a
spans only ~9,100 km (16% of track length), but primary factor influencing the modal choice in
carries ~58% of freight and 52% of coaching freight transportation. IR has been unable to provide
20
traffic . The congestion on these routes has led to timely delivery of services, which is one of the
longer lead times for container and dry-bulk reasons for the shift of short lead bulk traffic
movement, resulting in lower efficiency and higher (cement, steel products and containers) or in some
logistics costs for consignors. cases long lead traffic (such as automobile and
parcels) to roadways. Due to infrastructure
Among the key routes on the Golden Quadrilateral, constraints and low priority vis-à-vis passenger
the Delhi-Mumbai rail route, which links the trains, freight trains’ transit time is elongated and
northern hinterland with the ports of Gujarat and unpredictable.
Maharashtra, is one of the busiest, with a capacity
utilisation of ~115-150%21. Similarly, the Delhi- If the transit time becomes predictable, there is a
Kolkata route, which connects the coal mines in the significant opportunity for a modal shift in
east with the power plants in the north has been unconventional cargo (non-bulk cargo, agro-produce
facing issues due to congestion. and e-commerce) and time-sensitive cargo
(containers traffic, parcel) towards rail. Furthermore,
In terms of building adequate infrastructure, to attract such commodities, it is necessary to
acquiring land for this purpose is a significant increase the speed of freight trains along key
building block. Land acquisition is difficult in major corridors. Average speed of freight train, which
urban centres because of high cost and multiple albeit improved in fiscal 2014 to 23.7 kmph, declined
land regulations. Moreover, as acquiring land falls over subsequent years. According to IR’s annual
under the purview of state regulations and multiple statistical summary, the average speed of goods
authorities, the process is long-drawn, thereby trains decreased at a CAGR of 1.6% from 25.5 kmph
making it difficult for operators to get big chunks of in fiscal 2013 to 23.2 kmph in fiscal 2019. However,
land for commercial purposes. As most facilities for the average speed of freight trains increased
the maintenance of container freight wagons are gradually on-year to 45.03 kmph in July 2020 from
available only at some places (and are government 23.22 kmph, as the number of passenger trains were
owned), utilising these locations efficiently is a reduced amid Covid-19 restrictions. Notably, IR was
significant challenge. Furthermore, most IR goods able to cater to significantly higher freight traffic
sheds are in a dilapidated condition and abandoned, during this period, thereby underlining the
leading to inefficiencies in the overall supply chain. effectiveness of transit speed in attracting freight
volume.
20
https://pib.gov.in/PressReleasePage.aspx?PRID=1514320
21
Sagarmala National Perspective Plan, April 2016
31
Figure 19: Average speed of goods trains transit through roadways have enabled road
26.5 transporters to operator at lower cost and offer
25.9
26.0 competitive rates compared with railways.
25.5 Furthermore, the fragmented structure of the road
25.0
24.5
transport industry allows consignors to negotiate
24.0 23.8 23.7 better rates with road transport service providers.
23.4 23.3 23.2
23.5 However, going forward, the development of DFCs is
23.0
expected to help railways to become more cost
22.5
22.0 competitive (if tariffs are revised) and provide it an
FY14 FY15 FY16 FY17 FY18 FY19 opportunity to stimulate a modal shift towards
Source: IR, CRIS analysis railways.
Price competitiveness vis-à-vis competing Inadequate diversification of freight

modes portfolio and limited play in high value and
unconventional cargo categories
Compared with its biggest competitor – road
transport – IR’s tariff rates are on the higher side IR is highly dependent on coal and other bulk
due to additional costs pertaining to first- and last- commodities as they account for a major share of its
mile connectivity. The following example illustrates revenue. They generally comprise ~60-65% of IR’s
cost to transport a 40-feet container from freight revenue and even a higher share in its
Jawaharlal Nehru Port(JNPT) for a distance of 500 operational surplus.
km over rail or road as a mode of transportation.
The Government of India’s commitment to its
Table 1: Cost comparison via road or rail for a 40- sustainable development goals and its focus on
feet container from JNPT to a distance of 500 km developing renewable sources of energy are
(INR) expected to reduce coal demand in the near future.
This will disrupt coal generation and drive the share
Cost component Railways Roads
of renewable energy proportionately in states with
Haulage charges 12,000 15,000
significant solar and wind energy resources. Most of
Charges for first/last mile road 7,000 NIL these states (that have abundant solar and wind
transportation and handling at
origin and destination points
energy resources) are far from coal mines, thereby
reducing long-haul cargo transportation for IR.
Total cost 19,000 15,000
Source: FICCI Furthermore, high-voltage DC (HVDC) technologies
have made it more efficient and cheaper to transmit
Table 1 shows that because of the higher cost for rail
electricity than transport coal by railways. Industry
first and last mile connectivity, IR loses its
sources suggest that the cross-subsidisation model
advantage of being a cheaper mode of
(currently used by IR) would, in the near future,
transportation. Moreover, stakeholders cite IR’s
result in freight rates rise that would make
uncompetitive freight charges as a key reason for
transporting coal (and thus thermal electricity)
the shift of freight from railways to roads. Similar
uncompetitive. There is, thus, a need for diversifying
scenario can be observed in other commodities such
the historic commodity basket of railways and
as cement, and steel as explained in preceding
increase focus on other non-conventional/non-bulk
sections having a negative impact on
cargo such as parcel, roll-on-roll-off, e-commerce,
competitiveness of rail vis-à-vis road transport
retail and white goods, and FMCG to increase IR’s
An improvement in road infrastructure and faster freight modal share.
32
IR’s initiatives for
freight business
33
IR has been consciously ramping up the rail modal Initiatives and policies for
share in freight transport by introducing several
initiatives to drive rail freight traffic. While it
stimulating the freight segment
undertook many initiatives during the general course IR has undertaken several policy initiatives and
of business, it undertook select ones in the wake of measures to stimulate rail freight demand and tap
the pandemic. This section highlights IR’s initiatives new cargo categories. These measures include
to stimulate and facilitate rail traffic growth under concessions/incentives to customers, new services,
both these categories. infrastructure development and other planning
initiatives at the organisational level. Some of the
key initiatives are listed in Table 2.
Table 2: IR’s key initiatives to stimulate the rail freight segment

Sr. No. Key initiatives
1 Launch of Freight Business Development Portal: IR launched the Freight Business Development Portal in
January 2021 as a one-stop solution for new and existing rail freight customers
2 Zonal/divisional business development units (BDUs) to increase freight traffic: Under the directions of the
Railway Board, Zonal Railways are setting up BDUs to encourage industry and business establishments to
use IR’s freight service. These units will be vital for increasing traffic along with strengthening IR’s share in
traditional commodities such as iron, ore, coal, and other metals
3 Vyapaar Mala Express trains: This is a special type of cargo service, where traders can book part of the goods
carrying rake as per their requirements or supply orders. The first Vyapar Mala Express left from Kishanganj
station (in Delhi) of Northern Railway on August 1 to Jirania station in Tripura under Northeast Frontier
Railway (NFR). The train covered a distance of 2,360 km in 68 hours
4 End-to-end logistics services in parcel business: IR plans to gradually move away from leasing parcel space
in trains and will introduce online booking of parcel space in trains of choice (on a first come first serve basis
at pre-determined freight rates). Identification of terminals for conversion into dedicated parcel terminals is
underway. Pilot project launched with ‘Department of Posts’ to provide door-to-door service to customers
5 Last- and first-mile connectivity: Zonal Railways appointed service agents to provide first and last mile
service to customers. The list of such agencies will be available online to be chosen by customers
6 Timetabled parcel trains: In a major boost to the supply chain across the country, IR introduced unhindered
services of time tabled parcel trains for nationwide transportation of essential commodities and other goods.
This is expected to boost the availability of vital goods required for citizens, industry and agriculture
7 Kisan Rail: IR introduced the first Kisan Rail from Devlali to Danapur . This will be a game changer as it will
ensure fast transportation of agriculture produce across the nation. Kisan Rail across other routes were also
introduced during the current fiscal.
8 Improvement of goods shed infrastructure: 55 priority goods sheds have been taken up for major
improvements. Efforts are underway to attract private players for the development of goods sheds as modern
terminals
9 Allowing Lift On – Lift Off at Group I&II goods sheds/stations with permission from PCCM
10 Opening up of export traffic to Bangladesh for Parcels and Containers – July 10, 2020
11 Opening up of export traffic to Bangladesh for automobiles – August 12, 2020
12 Doubled the speed of freight trains from 23 kmph to 46 kmph22
13 Restrictions on co-using private sidings removed - 1,079 private sidings allowed to become private freight
terminals effectively
22
https://pib.gov.in/PressReleseDetail.aspx?PRID=1647330
34
capital outlay for the IR increased at a CAGR of 10%
Infrastructure development
over fiscals 2017, 2018, 2019, 2020 and 2021.
After factoring in capacity constraints, IR has been Furthermore, budgetary allocation within the capital
prioritising infrastructure development, as evident outlay increased at a CAGR of ~11.5% over the same
from the significant increase in the capital outlay for period.
asset creation in the past few years. Notably, the
Figure 20: Capital outlay of Indian Railways (FY17 to FY21 BE, Rs billion)
120% 1,608 1,800

1,564
1,600
100% 1,334
41% 43% 44% 1,400
44%
80% 40% 1,200
1,099 1,020 1,000
60%
800
40% 600
48% 57%
54% 53% 52% 400
20%
200
11% 3% 3% 3% 5%
0% -
FY17 FY18 FY19 FY20 RE FY21 BE
Internal resources Extra budgetary resources Gross budgetary resources Total
Source: Ministry of Railways – Demand for Grants 2020-21
projects in the past few years. The below schematic

Increased investments in infrastructure
provides an overview of investments in these
works
projects that registered a significant uptick in the
Indian Railways has ramped up investments in new past few years.
line, gauge conversion, doubling and electrification
Figure 21: Investments in new line, gauge conversion, doubling and electrification projects
Investment in new lines (Rs billion) Investment in gauge conversion (Rs billion)
200 50.0 40.6

143 34.5 36.2 37.7
150 132 40.0
27.8 28.8
82 94 30.0
100 64
56 20.0
50 10.0
0 0.0
FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19
Investment in doubling (Rs billion) Investment in electrification (Rs billion)

200 80 65
152
150 112 60 43
105
91 32
100 40 25
30 39 13 14
50 20
0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19
35
The infrastructure development projects related to combinations for the steel sector. Some other
new line, doubling and gauge conversion accounted relaxations on restrictions were provided, including
for 2,226 km in fiscal 2020, about ~50% higher than facilitating smaller parcel sizes by reducing BCN
the average annual work in the past five years. rake size from 57 to 42, and distance restrictions
Further, the total expenditure incurred on these being relaxed from 400 km to 1,500 km for mini-
projects in fiscal 2020 has been INR 398 billion, rakes and from 200 km to 500 km for two-point
which has been recorded as the highest-ever yearly loading.
expenditure in the history of Indian Railways.
Some other measures that have been implemented
The result for most of these developments, such as in the freight segment include:
increased traffic volume, better operating efficiency  Relaxation for loading of steel pipes through
and shorter time delays, is expected to be realised in Indian Railways – This scheme is meant to relax
the coming years because of high gestation period of the criteria for loading of steel pipes with a
these projects diameter of less than 16 inches. The charging is
for 50 tonne only or actual weight, whichever is
Initiatives for ease of business during more, and for pipes with a diameter more than
the pandemic 16 inches, the charging will be for a maximum of
63 tonne (61 tonne for accepted CC + 6 routes) or
Amid the challenges of Covid-19, Indian Railways actual weight, whichever is more, per wagon.
focussed on increasing freight operations  Freight Incentive Scheme for loading of fly ash –
significantly throughout the country. Freight loading This scheme aims at generating additional
had returned to pre-Covid-19 levels in August, with a loading of fly ash and ensuring improved
total loading of 81.33 million tonne in August 2020, utilisation of rolling stock. A 40% concession on
4.3% higher than the last year for the same month normal tariff rate of applicable class for fly ash
(77.97 million tonne). To boost freight operations in loaded in open and flat wagons is provided. But,
the wake of Covid-19, Indian Railways took a series the customer has to give undertaking on F/Note
of tariff and non-tariff measures. giving consent for loading in open and flat
wagons, and that they should be willing to bear
Tariff measures: Some of the tariff related measures
the full risk of damage/pilferage of consignment.
by Indian Railways to stimulate freight movement
include waiver of stabling charges for private  Relaxation for loading of pet coke through Indian
Railways – This scheme deals with the charging
container and automobile trains until October 31,
of pet coke. This scheme is permitted for loading
2020, withdrawal of the busy season charge of 15%,
in BOXN, BOXNH and BOXNHS wagons. The
withdrawal of 5% surcharge on two-point/mini
tonnage for these wagons would be – BOXN: 63
rakes, a 5% discount on loaded containers, and
tonne; BOXNHL 68 tonne (66 tonne for excepted
discounted rates for round-trip traffic (RTT).
CC + 6 routes); BOXNHS 63 tonne.
Additionally, lead concessions were also introduced
for customers with a long lead concession of 15-20%
for coal, iron ore, and steel sectors, and short-lead
concession of 10% to 50% for all sectors (except
coal and iron ore).
Non-tariff measures: Some of the non-tariff

measures taken by Indian Railways to boost freight
traffic include, allowing two-point unloading for
automobile traffic, and opening 23 more two-point
36
PPP and private
investments in the
rail freight sector
37
Recognising the need for an overhaul of rail freight over years, while others are expected to be rolled out
transportation system in the country and to serve soon. The introduction of participative models for
the potential quantum leap in freight transportation private investments in rail connectivity, private
demand in future, Indian Railways has been operations of container trains, private investments
considering the need for private investments in the in wagons and development of terminal
rail freight sector. Numerous initiatives in this infrastructure are some of the major initiatives
direction have already been taken by Indian Railways undertaken by Indian Railways.
Figure 22: Major initiatives to catapult PPPs and private investments in rail freight sector
 Private Siding Rail  Participative model of  Dedicated freight  Private container

Connectivity Policy rail connectivity and corridors (DFCs) trains operations
 Private Freight domestic and foreign  Private investments in  Developing goods
Terminal Policy direct investments multimodal logistics sheds as modern
 Port Rail Terminal  Wagon investment terminals terminals through
Connectivity Policy schemes  Last mile and mine private participation
connectivity projects
Innovative investment Augmenting freight Restructuring freight

Policy interventions
models infrastructure operations
Catapulting PPPs and

private investments in
the rail freight sector
Further, in view of the capacity constraints of the rail place. Moreover, substantial interest from private
network, Indian Railways has already embarked players has been registered for private freight
upon a long-term plan to develop high-capacity and terminals, private sidings and port-rail connectivity
high-speed dedicated freight corridors (DFCs) along projects, among others.
the Golden Quadrilateral. Although the majority of
works have been carried out on an EPC basis for the Participative models for investments
two DFCs, Eastern Dedicated Freight Corridor (EDFC) in railways
and Western Dedicated Freight Corridor (WDFC),
significant private investments and PPP In December 2012, with the objective of attracting
opportunities prevail and would further open up with private capital to boost rail infrastructure, Indian
the upcoming four new DFCs (East–West Corridor, Railways issued the policy for participative models
North-South Corridor, East Coast Corridor and for rail connectivity and capacity augmentation to
Southern Corridor). further the development of last-mile connectivity.
The policy provides five models for implementation
Various other initiatives in the form of policy of various types of rail-connectivity and capacity
support, such as the Private Siding Rail Connectivity augmentation projects as provided in the table
Policy, the Private Freight Terminal Policy and the below:
Port Rail Terminal Connectivity Policy, are already in
38
Table 3: Participative models for rail-connectivity projects facilitating domestic and foreign direct
investments in rail projects
Non-
Item governmental Joint venture Build, operate and Customer-funded BOT annuity
description railway private model transfer (BOT) model model model
line model
Project By developer and By Indian By Indian Railways By Indian Railways By Indian
development examined by Railways (appraisal as a PPP Railways
Indian Railways project)
Project Developer to Indian Railways Developer to enter into Customers to Developer to
structure enter into an or its PSU to hold concession agreement provide advance enter into
agreement with a minimum 26% with Indian Railways payment for project concession
Indian Railways of equity in the cost agreement with
on its own or as a JV Indian Railways
JV with infra
finance and
development
institutions
Funds Mobilised by Debt to be raised Mobilised by the Customer to provide Mobilised by the
project proponent through project developer advance to IR developer
finance route
without any
guarantee from
the Central
government
Land Acquired by the Acquired by IR at Land acquisition to be Land acquisition to Land acquisition
developer, Indian JV’s cost or by JV done by IR at its own cost be done by IR at its to be done by IR
Railways’ land itself; Ownership own cost at its own cost
may be provided of land to rest
on lease/licence with IR
basis; Ownership
of land to rest
with developer
Construction By developer with By JV with By developer with By IR By developer with
certification from certification certification from IR certification from
IR from IR IR
Revenue Indian Railways Revenue stream Base tariff applicable at Indian Railways will Payment to
model to pay user fee for of JV to be the RFQ stage, to be pay up to 7% of the concessionaire
using the established escalated at a rate linked amount invested will be through
infrastructure; through revenue to WPI. Ministry of through freight. annuity, which is
95% of the apportionment Railways to pay 50% of Rebate on freight determined
revenue to be from freight apportionment freight volume moved on through
shared after operation revenue as user fee. The the project every competitive
deduction of ministry will guarantee year until the funds bidding
operation and 80% of projected revenue provided by the
maintenance during any year. In case project beneficiary
costs the actual user fee in are recovered with
particular year is in excess interest at a rate
of 120% or 150% of equal to the
projected revenue, 50% or prevailing rate of
75% of excess revenue, dividend payable by
respectively, will be paid Indian Railways to
to the ministry by the general exchequer
concessionaire. This at the time of
39
Non-
Item governmental Joint venture Build, operate and Customer-funded BOT annuity
description railway private model transfer (BOT) model model model
line model
system has inbuilt signing of the
incentive for the agreement
concessionaire to bring
more traffic
Concession No concession 30 years, subject 25 years, may be extended 15-20 years, NA
period period and to both upward up to 30 years in case of depending on
transfer of assets and downward revenue shortfall feasibility
reduction,
depending on
shortfall/excess
of traffic
Source: Indian Railways, CRIS analysis
Three of the aforementioned models (private line, JV existing and anticipated traffic volumes of ports.23
and customer-funded) involve participation of
Figure 23: Key categories of licences for private
private players as strategic investors and two other
container train operators
(BOT and Annuity models) are pure PPP models. The
 Rail corridors serving the routes from JN Port /
Mundra Port rail connectivity project and Dharma
Mumbai Port to National Capital Region area.
Category I
Port rail connectivity project are examples of This includes existing and future terminals
falling in Delhi area linked to JN / Mumbai port.
successful projects under the Non-Government
Railways Model. Further, the Pipavav Port rail  Rail corridors serving JN Port and its
Category II hinterland, other than
connectivity project and the Kutch Rail Company
Delhi area
Limited are the successful examples of projects
executed on the joint venture model.  Rail corridors serving ports of Pipavav, Mundra,
Category III Chennai / Ennore, Vizag, Kochi, and their
hinterlands
Container train operations
 Rail corridors serving ports of Kandla, New
In January 2006, in a landmark initiative to introduce Category IV Mangalore, Tuticorin, Haldia/Kolkata, Paradip,
competition in the container operations segment, Mormugao, and their hinterlands
the government allowed the entry of private and

public sector operators to obtain licences for The investments and achievements by container
running container trains on the IR network. Until train operators have been remarkable, and these
then, the Container Corporation of India, a subsidiary players have been able to increase their rail share on
of Indian Railways, was the monopoly operator of the above routes by providing integrated logistics
container trains in India. This initiative was the first solutions, lower transport costs/shorter transport
significant move of its kind where private parties times, greater reliability, and customised solutions.
were allowed to make entry into the domain of However, continuous support from Indian Railways
railway operations with direct customer interface. on various fronts would be needed for success of
The entire network of Indian Railways was classified this model. Operators should be liberally allowed to
and grouped into four categories, based on the pick up entire containers from trains and drop them
off on container trucks —‘lift-on, lift-off’ operations.
23
http://www.wctrs-society.com/wp-content/uploads/abstracts/lisbon/selected/02200.pdf
40
Permitting ‘lift-on, lift-off’ would promote Wagon investment schemes
multimodal movement of cargo and also enable
door-to-door operations. At present, Indian Railways IR has been rolling out various wagon investment
permits such operations in 245% of the 258 container schemes to attract private investments in rolling
terminals. From the remaining terminals, operators stock. In 2012, the first scheme to facilitate private
are supposed to load and unload cargo (packets or investments in the wagon leasing market in India
sacks) from within the containers, while they are was launched. The scheme broadly has four major
atop the wagon on the train. stakeholders, namely wagon manufacturers, wagon
leasing companies, IR and end users. The
interrelationship between the stakeholders is
presented below.
Figure 24: Inter-relationship of various parties in wagon leasing arrangements
Wagon supply Wagon lease

Wagon Wagon leasing
Customer
manufacturers company
Lease rentals
Regulator Freight charges

less rebate
Service provider Indian Railway

Indian Railways
(locomotive and workshops
 Regulator of rail networks track capacity)
 Provider of freight transportation  Maintenance and repair of all
 Provider/owner of rail infrastructure rolling stock on the Indian
 Provider of locomotives, tracks, signalling to private players Railways network, including
that of private players
The scheme’s introduction further strengthened IR’s the schemes in place for private investments in
ambitious goals of attracting private investments in rolling stock include (following amendments) the
rolling stock. Apart from the wagon leasing scheme, Liberalised Wagon Investment Scheme (2018), the
IR also has other schemes for attracting private Wagon Leasing Scheme (2014), the Automobile
investments in rolling stock customised for a Freight Train Operator Scheme (2014), the Special
specific category of investors. These schemes have Freight Train Operator Scheme (2018), and the
seen a number of changes over the years based on General Purpose Wagon Investment Scheme (2019).
the feedback received from the industry. As of now, A glimpse of these schemes is as given below:
24
Web sources; News articles
41
Figure 25 Overview of various wagon investment schemes
• The scheme strives to attract private investments in high-capacity (2 tonne higher Status as of
Liberalised than the payload of extant wagons) and special-purpose (for a specific commodity or March FY19
Wagon group of commodities) wagons to be run in pre-approved closed circuits
Investment • To attract players investments, the scheme provides 12% rebate on base freight and 84 rakes
Scheme (2018) 0.5% for each additional tonne of payload for high-capacity wagons for 20 years; 15% approved,
rebate is granted for special-purpose wagons for 20 years 51 inducted
• This scheme allows induction of rakes on a lease basis through the PPP route. As per
the scheme, procurement of wagons through the leasing route is permitted for only 137 rakes
Wagon Leasing special-purpose wagons, high-capacity wagons, general-purpose wagons, and wagons approved,
Scheme (2014) for container movement
48 inducted
• Leasing companies lease out rakes to end-users, logistics service providers
Automobile • The scheme permits procurement and operation of special-purpose rakes by private
parties 59 rakes
Freight Train
approved,
Operator
19 inducted
Scheme (2014)
• The scheme was introduced to increase Indian Railway’s share in non-conventional

traffic by introducing high-capacity and special-purpose wagons
Special Freight • Under this scheme, select commodities are allowed with different registration charges 28 rakes
Train Operator according to the commodity approved,
Scheme (2018) • To attract private players, the scheme provides 10% rebate on base freight and 2% for 7 inducted
increase in throughput by 10%, capped at a maximum of 10% for high-capacity
wagons for 20 years; 12% rebate is granted for special-purpose wagons for 20 years
• This scheme allows investments by private players in general-purpose wagons,

General addressing issues of wagon unavailability 77 rakes
Purpose Wagon
• Wagons to be run on approved routes; freight rebate of 10% for 15 years, capped to approved, 2
Investment yearly and cumulative lease payments to be made to IRFC for similar wagons, and to inducted
Scheme (2018) recovery of capital cost of the rake
the Amritsar-Kolkata Industrial Corridor (AKIC) and

Developing terminal infrastructure EDFC were conceived. Various logistics parks and
through private investments rail-junction facilities have been proposed along
these corridors. The industries and logistics parks in
Development of terminals through private
the vicinity would have better access to DFCs, which,
investments would play a critical role in augmenting
in turn, will garner traffic from these developments,
freight transportation facilities and services. For
creating a win-win situation for all. The progress of
instance, both IR and private players can benefit if
these industrial corridors, development of logistics
industries and logistics parks are set up in the
parks and other private sector initiatives will be
vicinity of DFCs. Based on this concept, the Delhi-
critical for the success of DFCs.
Mumbai Industrial Corridor (DMIC) and WDFC, and
42
Figure 26: Private freight terminals, railway sidings and port connectivity projects along DFCs
Greenfield MMLP/ PFT
Brownfield MMLP/ PFT
Greenfield Good shed
Brownfield Good shed
Port / Sidings
Nabha TPP
AMTEK Sadhoogarh
New Khanna GS New Pilkhani GS
New Mandigovindgarh GS New Kalanaur GS
New Shambhu CONCOR Dadri
CONCOR, Khatwas DMIC MMLP, New Dadri
CONCOR PFT, Pirthava
HSIDC MMLP, Nangal Choudhary New Meerut GS
Jawahar TPP (2021)
CONCOR PFT, Phulera
New Tundla GS
Auriya TPP IWAI MMLP, Varanasi
CONCOR RTH, Swaroopganj MMLP Kanpur New Mughalsarai GS
BPCL Mughalsarai
DMICD Sanand Meja STPP
New Mirzapur GS
CONCOR ICD, Varnama
Ultratech cement, SAIL
Hazira Infrastructure Pvt Ltd Dankuni
Nargol Pvt Ltd

Navkar Terminal PFT
EDFC Dankuni coal complex
SFA logistics
JSW Nandgaon port
JNPT New Nilje GS
WDFC
Source: CRIS analysis; DFCCIL
Moreover, long-haul and point-to-point delivery In 2018, 58 units were notified as private freight
challenges are hampering the movement of certain terminals handling 15 million tonne (MT) of cargo 25.
perishable commodities such as fruits and Further, 100% FDI is allowed under the prevailing
vegetables. Currently, railways plays a small part in policy in this segment and expected to attract
the supply chain. The agri supply chain faces private capital from foreign investors as well.
multiple challenges such as lower shelf life and cold
Moreover, the recent initiative to upgrade goods
chain requirements for storage and transportation,
shed with modern handling facilities is also expected
among others. Hence, to increase the share of
to provide immense opportunities to private
agricultural traffic, including perishables, it will be
investors in IR projects.
pertinent to create facilities at railway siding,
provide tailor-made containers for handling such
kind of perishables and offer an assortment mix.
25
India: Evolution of Integrated Logistics, JLL 2019
43
Recommendations
and the way
forward
44
IR has taken a number of initiatives to improve its Further, given that bulk transport of cement is cost
freight traffic and revenues. This section outlines competitive vis-à-vis road transport, IR should
key recommendations that IR can implement to establish bulk cement terminals and promote
accentuate rail freight traffic and modal share in investments in bulk carrier wagons. It should be
India. noted that commissioning of WDFC could accentuate
freight traffic due to its alignment along the cement
Enhancing modal share in existing cluster.
commodities and capturing new Steel

cargo categories India is currently the second-largest crude steel
As discussed in the preceding sections, the stagnant manufacturer in the world. Generally, steel is
freight portfolio is one of the key bottlenecks for IR’s considered to have a high rail coefficient due to rail’s
high traffic growth. Though there is a significant capability to handle high loads over long haulage
leeway in terms of an improvement in modal share distances. However, it is estimated that IR currently
and traffic volumes from many existing transports significantly low volumes of the total
commodities, IR has to capture new cargo streams steel and related products. Given that railways has
to achieve its target of gaining 44% modal share by the capability to provide specific wagons for steel
2051 and doubling freight volumes by 2040. loading and private players have also invested
Therefore, IR could consider the following measures: significantly in specialised wagons for steel loading,
there are significant opportunities for railways in
Improving rail modal share for existing commodities terms of steel traffic. For instance, IR can consider
in the freight basket allowing and scaling mini rakes and multi point
The first step towards increasing IR’s overall freight loading for steel to capture traffic from MSMEs,
volumes would be to enhance volumes in existing offering long and short lead discounts, and
commodities by increasing the modal share. Some of facilitating proliferation of 25-tonne axle loads,
the commodities that can be targeted are given among others.
below: Containers
Cement Given that containerised transport has registered
Cement accounts for ~10% of freight volume and significant growth in terms of international trade as
~7% of freight revenue for railways, highlighting its well as domestic freight transportation (primarily for
significance. However, the rail lead distance for FMCG and white goods), this segment can offer an
cement has declined over the past few years. opportunity to railways. As of now, IR moves around
Notably, railways statistics and data from the 61MT of container traffic annually of which around
Cement Manufacturers Association suggest that 18%-22% are domestic containers. Currently, IR’s
there has been an increasing shift in cement traffic share in export-import (Exim) container movement is
from rail to roads. The cement industry has often estimated to be only 22%-25%. The consignors have
cited various factors including high haulage costs, often cited reasons such as high tariffs, issues in
issues of multiple handling, and lack of wagons for first and last mile connectivity, higher and
carrying their loads for moving away from rail. Given unpredictable transit times as major reasons for rail
this scenario, IR should undertake extensive not being the preferred mode for transportation of
consultations with the cement industry to identify containers. During the lockdown, there was a
key measures to attract cement traffic. significant shift of container traffic from road to rail
observed at India’s largest container port JNPT.
45
Notably, this provides a testimony of the possibility has formed a committee to formulate a policy for
of shifting container traffic from roads to rail. modernisation and privatisation of these good
Therefore, in consultation with industry participants, sheds. It aims to operate these good sheds as
IR should develop a strategy for making rail the private freight terminals (PFTs) or dedicated parcel
preferred mode for container transportation. These terminals. IR should involve logistics operators as
consultations should include all participants strategic partners in its efforts to transform these
including logistics operators, consignors and ports, goods sheds into multimodal terminals. The move
among others. Further, railways should also focus on will not only enable railways to develop these
enhancing domestic container volumes that have facilities as per their requirements but also help
grown at only 2.8% between fiscals 2013 and 2020. divert traffic from road to rail.
Domestic container transport can enable the
Ensuring first- and last-mile connectivity
movement of FMCG products and white goods by
railways. However, shorter and predictable transit The railways has recently announced two key
times and last mile connectivity will be a key to spur initiatives for providing last mile and first mile
growth in domestic container volumes. services to the consignors. The first one is a pilot
project with the Department of Posts at select
Automobiles
locations and the second one is the listing of first
The Indian automobile industry is largely present in and last mile services providers online to be chosen
the form of clusters primarily in Haryana, by the consignors. These initiatives could enable
Maharashtra and Tamil Nadu. However, transport of railways to capture new high-value cargo categories.
manufactured vehicles is undertaken across all
The railways may also consider collaborating with e-
parts of the country. IR came up with the Automobile
commerce companies, logistics players/cargo
Freight Transported Operator scheme to capture this
aggregators (already started to some extent in parcel
cargo stream. However, the scheme has failed to
trains started during lockdown) for this purpose. The
achieve critical mass. Therefore, IR should identify
collaboration with logistics players/cargo
key measures to capture the traffic from this high
aggregators shall enable last mile connectivity to the
potential segment. It could also make changes in the
railways that shall be essential for multiple cargo
design of BCACBM wagons to enable the movement
categories. In the long run, this is also an
of two wheelers, SUVs and LCVs and enhance the
opportunity for railways to showcase its capability to
capacity of wagons for double decker movement.
serve non-traditional sectors and understand as well
Capturing new cargo categories - transformation as resolve bottlenecks in provision of services to
from transport service to logistics service provider such sectors.
IR should target new cargo categories through a Parcel business strategy

multi-pronged strategy to generate higher freight
The share of railways in overall parcels movement in
volumes and revenues. IR could take some of the
the country is minimal, with a majority of parcel
following key steps to capture new cargo streams:
traffic routed through road transportation.
Improving existing infrastructure and operations Additionally, there has been a consistent decline in
through participation of logistics players parcel movement growth on IR over years. Some
major issues for parcel movement through railways
The railways has ~1,000 goods sheds, which are in a
include non-availability of space in trains for
poor state and require rehabilitation. Also, most
carriage of parcels; over-carriage of parcels; no prior
sheds do not have adequate infrastructure to handle
intimation regarding arrival of parcels; damage
all types of goods and commodities. The railways
during transit; and no segregation of space for parcel
46
loading/unloading at different originating and particularly with respect to addressing capacity
destination stations. In addition, handling of parcels constraints and on-time delivery. One of the major
in passenger area obstructs free movement. For benefits that DFCs will yield to IR will be a reduction
development of the parcel business, the passenger in operating costs. For instance, double-stacking of
business should be separated from it. There should containers on WDFC and doubling of length of trains
be specific parcel vans and collaboration with key from 700 meters to 1,500 meters are expected to
players to ensure timely intimation and aggregation reduce IR’s per-unit operating cost significantly.
of parcels to ensure full parcel rake(s). Further, the use of electric traction, instead of diesel
traction, will also result in savings on energy costs.
The railways recently announced a number of
Overall, DFCs are expected to lower the operating
initiatives for its parcel business segment. However,
cost of rail freight transport by about 40%. This will
ensuring a short lead time and predictability of
provide significant leeway to railways for
transit time shall be of paramount importance for
rationalisation of tariffs, potentially engendering a
capturing the parcel business from roads. Further, to
significant modal shift from road to rail.
capture traffic from this segment, pick and drop
kiosks can be developed at various major stations. With state-of-the-art technology and design, DFCs
will enable freight trains to operate at speeds as
Leveraging DFCs high as 100 kmph. Hence, the average transit time
for freight movement is expected to shorten
IR’s DFC project is often considered a game changer
drastically, enabling faster movement of goods.
for rail freight transportation in India. DFCs can
provide multiple benefits to the rail freight sector,
Figure 27: Benefits envisaged from dedicated freight corridors
Key features of dedicated freight corridors
Faster movement of Enabling introduction Higher carrying Freeing up of capacity

goods and enhanced of new and improved capacity of trains to on the Indian
time reliability of designs of rolling help railways save on Railways network for
transit stock operational costs passengers
Improved passengers’ travel

Enhancement of railways’ Reduction in operational costs for
experience due to increased
competitiveness for freight railways
capacity on traditional rail network
47
The MoR/DFCCIL may consider certain elements to
harness the full potential of this world class
infrastructure project. These include:
Passing on the cost benefits to customers – The

resultant savings on operational costs due to
commissioning of DFCs is expected to help railways
immensely on the financial front. However, railways
may consider passing on some of the cost benefits
to customers through lower tariffs. The reduction in
tariffs will not only enable railways to have a
competitive advantage over other modes but also
help the industry reduce logistics costs through a
reliable and cost-effective mode of transport.
Accelerating industrialisation along the corridors –

If industries are set up in the vicinity of DFCs, both
railways and the industries will benefit. Recognising
this, the Delhi-Mumbai Industrial Corridor (DMIC)
and WDFC and the Amritsar Kolkata Industrial
Corridor (AKIC) and EDFC were conceived. Though
DMIC was approved in 2007 and AKIC in 2014,
progress on these corridors has been limited. To
leverage the full potential of DFCs, work on both the
industrial corridors should accelerated in tandem
with commissioning of DFCs.
Developing logistics infrastructure along the

corridors – DFCs are expected to enable one of the
most important features for a mode of
transportation i.e., punctuality. This feature of DFCs
can help railways tap unconventional cargo
segments such as express logistics and perishables
in the future to offset an expected decrease in coal
requirements for power plants owing to expansion of
renewables. This is notable in case of EDFC that
expects 50%-55% of coal traffic.
However, to tap these segments, aggregation

infrastructure shall be required that can amass
goods at specific loading points and help in their
transition to rail. Though logistics parks and
facilities have been planned along the corridors,
progress on their development has been limited.
DFCCIL and DMIC are currently in the process of
developing such logistics parks at some of the
locations.
48
To explore this area holistically and strategically,
DFCCIL may consider identification of specific
locations across the entire alignment and
development of build to suit logistics facilities
therein, preferably through the PPP mode. This shall
be instrumental in capturing agricultural cargo due
to the element of seasonality and the resultant
change in origins and destinations.
Also, to be an end to end-logistics services provider

to its customers, DFCCIL may consider joining hands
with some private sector logistics players to offer
last mile connectivity and end-to-end solutions.
Allowing private players to run trains on DFCs – As

per the institutional arrangement envisaged for
operations of DFCs, IR will be the sole customer for
DFCCIL, which will provide the infrastructure for the
operation of trains. IR will pay a track access charge
(TAC – user fee) to DFCCIL and other
customers/freight operators shall be routed through
it. To enhance competition in the sector and service
levels, and leverage private sector capital for
induction of world class rolling stock, IR may
consider allowing private players to run freight trains
on the DFC network by paying track access charge to
DFCCIL. This is one of the models followed in many
countries and several players operating
internationally maybe interested in investing and
operating in this area.
Establishing an independent
regulator – spurring PPPs and tariff
rationalisation
An independent regulator for the railway sector has
been a long pending demand from the industry.
Notably, the establishment of the Rail Development
Authority was approved by the Union Cabinet in
2017. However, there has not been much progress on
institutionalisation of the authority. The independent
regulator shall enable growth of the railways through
the following measures:
49
Rationalisation of freight tariffs Enabling private investments in
One of the major issues that has been plaguing the rolling stock
railway freight sector is high tariffs because of cross
IR has been actively undertaking various initiatives
subsidisation of the passenger segment through
to facilitate private investments in rolling stock. In
freight. Notably, India has among the lowest
this regard, various schemes have been introduced
passenger rail tariffs and the highest freight tariffs
from time to time including the Own Your Wagon
in the world, negatively affecting the
Scheme, Liberalised Wagon Investment Scheme,
competitiveness of rail as a mode of freight
SFTO scheme, AFTO scheme, Wagon Leasing
transport. This is further corroborated by the fact
Scheme and the recent GPWIS scheme. Though the
that the operating ratio in fiscal 2018 for the freight
industry has shown considerable interest in these
segment was ~58% vis-à-vis 192% for the passenger
schemes and many players have inducted rakes
segment. Though cross subsidisation of the
leveraging these schemes, the results have not been
passenger segment through freight has merits, the
commensurate with the true potential of these
extent of subsidisation is always debatable.
schemes. One of the major objectives behind some
Therefore, an independent regulator that has a
of the schemes in these categories was to enable
mandate to determine tariffs and the level of cross
introduction of new design wagons in the railways
subsidisation shall help IR achieve competitiveness
network that are capable of handling cargo that IR
as a freight logistics service provider.
traditionally does not cater to. Various players have
Facilitating public-private partnerships also cited the desire to induct such new design
wagons. However, as per the feedback received from
IR requires significant investments to relieve itself
various players, the approval process for new design
from capacity constraints and upgrade and
of wagons by the Research Design and Standards
modernise its infrastructure. Notably, the National
Organisation (RDSO) is not streamlined and
Infrastructure Pipeline alone identified investment
sometimes unpredictable. Therefore, to facilitate
requirements to the tune of ~INR 12 trillion in the
private investments in rolling stock and enable
next five years. Given the inability of IR to generate
induction of new design wagons on its network, IR
internal resources and budgetary support, private
may consider streamlining the RDSO approval
investments shall be imperative. However, given that
process with stipulated requirements and timelines.
the railways is a monolithic organisation with all
This shall enable private players to invest in new
functions including policy making, infrastructure
design wagons in accordance with their needs. IR
development and maintenance, transport service
may also consider decoupling the rebates provided
operators integrated within a single entity, private
for investments in wagons from the cost incurred by
investors (especially foreign investors) are often
it for similar wagons and coming up with a single
sceptic about protection of their interests and
policy for wagon investments by merging the existing
dispute resolution.
policies.
This scenario in itself merits constitution of a rail
sector regulator. Apart from fixing tariffs, the
regulator can also play an independent role in
promoting PPP in the railway sector. A cue can be
taken from the airports sector where numerous PPP
projects have been undertaken successfully after
the establishment of the Airports Economic
Regulatory Authority of India.
50
Notes
About FICCI
Established in 1927, FICCI is the largest and oldest apex business organization in India. Its history is closely interwoven with India’s struggle for
independence, its industrialization, and its emergence as one of the most rapidly growing global economies. A non-government, not-for-profit
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sector firms. We help shape public policy and enable infrastructure development. Our services span a wide array of infrastructure development
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Indian Railways 2.

Golesh Gupta Ms Komal Sharma,

Shashank Dhingra Ms Nikika Goyal

Foreword from FICCI .......................................................................................................................... 6

Foreword from CRISIL ........................................................................................................................ 7

Executive summary ........................................................................................................................... 8

Overview of freight transport and logistics in India.......................................................................... 16

IR’s freight segment......................................................................................................................... 19

IR’s initiatives for freight business .................................................................................................. 33

PPP and private investments in the rail freight sector ..................................................................... 37

Recommendations and the way forward .......................................................................................... 44

IR’s initiatives for freight business

The IR also introduced short-term measures in the

Further, infrastructure augmentation and

Owing to the increased outlay, major infrastructure

PPPs and private investments in rail

Further, in order to enhance rail’s share in container

The investments by container train operators have

Apart from these initiatives, the IR also took

Similarly, the IR has been promoting development of

A competent system for freight transport and

Figure 1: Domino effect of efficient freight transport

Enhanced efficiency and effectiveness of Indian

3 Improved exports + increased

5 Freight forwarding Value added logistics

Per tonne km cost for various modes (in INR)

Figure 3: IR’s freight basket trend (million tonne)

11% 11% 13% Container

Source: Indian Railways Statistical Statements, CRIS analysis

National Transport Demand (in MTs) Rail Coefficient

Source: National Rail Plan

Figure 5: Geographical spread of IR zones

Railway zones of the Railway zones

Source: CRIS analysis

Figure 6: Relative position of various railway zones in the freight segment

15.00% Leaders Followers Challengers

5.00% Central S. Eastern

Contribution to freight revenue

Source: Indian Railways Statistical Statements, CRIS analysis

Figure 7: Freight composition for leaders

Source: Indian Railways Statistical Statements, CRIS analysis

Coal RM for Steel Plants Iron Ore Cement Foodgrains

Source: Indian Railways Statistical Statements, CRIS analysis

While these zones have the potential to drive railway

Figure 9: Freight composition for followers

Source: Indian Railways Statistical Statements, CRIS analysis

Figure 10: Rail freight traffic volumes trend

1400 1223 1240

To achieve the higher freight loading in fiscal 2021

Figure 12: Rail freight traffic revenue trends

1,400 1,300 Balance other goods

rationalisation has led to a significant drop in the

Source: Indian Railways Statistical Statements,

However, going forward, the government’s push

Source: Indian Railways Statistical Statements, CRIS analysis,

IR’s food grain traffic is expected to increase in fiscal

Food grains - average lead (Km) Food grains - traffic (MT)

Source: Indian Railways Statistical Statements, CRIS analysis

Source: Indian Railways Statistical Statements, CRIS analysis

Price competitiveness vis-à-vis competing Inadequate diversification of freight