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Railway modernisation presents big opportunity for SMEs
Articles- Oct 30,23
During a virtual discussion forum on railways, organised by the FIRST Construction Council (FCC), an infrastructure think-tank, industry experts highlighted business opportunities for industry (especially for SMEs) in the developing rail infrastructure segment
Indian Railways - the second-largest network managed by a single entity worldwide - has been undergoing modernisation programme with consistent increase in capital expenditure in recent years. Part of the funds is being used for the Railways' ambitious plan to lay approximately 100,000 km of new track over the next 20-25 years. With rail infrastructure expecting an investment of Rs 50 trillion by 2030, this sector will present abundance of opportunities for industry players.
To know more about growth potential in the railway & metro rail sector, FIRST Construction Council (FCC), an infrastructure think-tank, hosted a virtual discussion forum with three industry experts - Rajesh Gupta, Director (Infrastructure Connectivity Division), NITI Aayog; UJM Rao, MD, AP Metro Rail Corporation Ltd; and Karun Raj Singh Sareen, Partner, Major Projects Advisory, KPMG - sharing their views on the future trends. The event was moderated by Rakesh Rao, Executive Editor, Asapp Info Global Group.
Railway with its highest capex budget
With over 22,593 active trains and a daily passenger count of 24 million passengers and 203.88 million tonnes of freight, India has the fourth-largest railway network in the world. The target capital budget for Railways is Rs 2.6 lakh crore in 2023–24, an increase of 6% from the previous year. In recent years, despite a small income surplus, the proportion of capital investment in Railways' overall spending has steadily climbed.
This expenditure will be carried out for upgrades and the decongestion of existing lines and around one lakh kilometres of tracks are going to be laid in the next 20-25 years. If metros and rapid Rail transport systems are included, we get an 80 per cent increase in the capex from the last fiscal, stated Rajesh Gupta, Director (Infrastructure Connectivity Division), NITI Aayog.
Gupta added by saying that the railway is undergoing overhaul and modernisation building new projects like the high-speed Rail (bullet train), Rapid Rail Transport Systems and 27-28 metros are being constructed. Moreover, Indian Railways is assisting other countries with building rail infrastructure and has new avenues open in the form of the Middle East Corridor which was announced in the recent G 20 Summit held in New Delhi.
The NITI Aayog Director concluded by noting, “This is an exciting time because not only the Indian Railways capex budget has been enhanced multifold, but also because the entire sector if we take it as a giant tree in which Indian Railways is one big trunk, we have got so many others the DFCS, the state corridors, the metros and of course, the overseas projects. So, in the times to come, the demand for rail infrastructure projects emanating from India is going to grow exponentially.”
Metros: The growth engines of cities
Underlining the crucial role of metro systems in cities, UJM Rao, Managing Director, Andhra Pradesh Metro Rail Corporation Ltd (APMRCL), highlighted their significance in promoting seamless connectivity, alleviating road congestion, and enhancing productivity.
Speaking on the matter, Rao revealed that the APMRCL is actively engaged in developing four major projects within the state. These projects encompass two metro systems in Vishakhapatnam and Vijayawada, a metrolite system in Vishakhapatnam that will connect the city's outskirts to the seafront, and a high-speed suburban rail network set to traverse in and around the state's new capital, Amaravati. The suburban rail will offer connectivity to adjacent towns and cities.
To facilitate these transformative projects, Andhra Pradesh is slated to incur an expenditure of Rs 40,000 crore, with approximately Rs 21,200 crore earmarked for investment over the next 5-6 years. This financial commitment is designed to not only construct these transit systems but also equip them with cutting-edge technology, ensuring that they are efficient, eco-friendly, and passenger-friendly.
Rao further expounded on the advantages of metro systems, describing them as one of the most cost-effective modes of public transportation. He stressed the ability of metros to provide seamless and affordable connectivity to commuters, effectively reducing the burden on road networks.
Highlighting the success of the Delhi Metro, Rao underscored its role as a model for smaller cities like Lucknow and Pune that have embarked on their own metro projects. He added that, as urbanisation and population growth continue to drive people from rural areas to urban centres in pursuit of employment opportunities, the need for new metro systems and the expansion of existing lines becomes ever more critical.
He stated that the metros in these cities initially incur losses but overtime with an increase in ridership, population growth and expansion of routes, the lines make up for their losses. Additionally, he said, “According to our research, we have witnessed a 2-3 times growth in the GDP in the cities that have successfully implemented metros.”
Exploring investment opportunities in rail
Karun Raj Singh Sareen, Partner, Major Projects Advisory, KPMG, discussed the plan to expand the metro rail network in India by 5000 km over the next 25 years. He highlights that this will involve substantial investment and mentions specific cities where a metro network is planned.
He shed light on the immense opportunities that lie ahead for various sectors within the industry. With investments projected to reach a staggering 50 trillion by 2030, there's a multitude of avenues opening up for businesses and professionals in this sector.
Sareen emphasised the significant role of civil contractors and rail system contractors, given the extensive civil work required for upcoming projects. The demand for steel and cement is set to rise, providing ample business opportunities for manufacturers and suppliers in the rail sector. Logistics and Operations and Maintenance (ONM) players will also see substantial growth prospects.
Moreover, as funding may pose a challenge at the state level, private-sector developers are likely to play a more prominent role. The increasing involvement of private investors in railway infrastructure projects is expected to spur further growth in the sector. Additionally, technology players will play a vital role in ensuring the successful implementation and operation of these projects.
Sareen's insights reflect the dynamic and evolving landscape of the railway infrastructure sector, which is set to undergo significant transformations and present a wealth of opportunities for a wide range of stakeholders.
In response to questions about dedicated freight corridors, Sareen noted that these corridors are an essential component of the national rail plan for 2030. Currently, the eastern and western freight corridors are nearing completion after over a decade of construction. Plans are underway to develop new corridors, including north-south, east-west, and southwest routes. These dedicated freight corridors are crucial for increasing the modal share of railways and decongesting the existing lines, which are reaching their capacity limits.
While investments in passenger rail systems and high-speed rail projects have been receiving significant attention, Sareen highlighted the long-term sustainability and efficiency of freight corridors. He emphasised the need to maintain focus on developing more dedicated freight corridors to ensure a robust and sustainable rail network in the future.
Participation of SMEs in railway investment
Rajesh Gupta highlighted the potential for small and medium-sized enterprises (SMEs) to expand and grow into large manufacturing enterprises (LMEs). The sector is poised for significant growth, with an estimated investment of Rs 50 trillion over the next decade.
The opportunities within this colossal investment can be divided into three main categories, he said. Firstly, new projects include the railway, Regional Rapid Transit System (RRTS), and metro projects. Secondly, the renewal of existing lines and infrastructure is crucial, as many components of the railway system have exceeded their operational life. Lastly, numerous smaller opportunities for upgrading specific aspects of the rail network are available.
The director pointed out that despite the focus on passenger rail systems, significant investments are also directed towards improving freight infrastructure. He cited examples of plans to upgrade loop line speeds and raise maximum speeds on various rail corridors. “The development of Amrit Bharat stations and the modernisation of goods sheds are additional areas of opportunity. These stations and infrastructure require continual enhancements, creating ongoing opportunities for SMEs,” said Rajesh Gupta.
Furthermore, the installation of CCTV systems at over a thousand stations is underway, and expansions at stations, including escalators and lifts, will continue, necessitating further opportunities. Rolling stock and facilities like coach washing plants and laundries offer potential areas for SME involvement, he added.
He concluded, “I think the maximum opportunity for SMEs lies in the second and the third basket, that is, the upgradation and maintenance of the existing infrastructure; whereas the large players have an immense role to play in the new project. But there is nothing stopping SMEs from growing bigger out of this sector, bringing in new technologies, expertise, ideas and innovations.”
A report by Pranay Maniar
Rajesh Gupta, Director (Infrastructure Connectivity Division), NITI Aayog
The development of Amrit Bharat stations and the modernisation of goods sheds are additional areas of opportunity. These stations and infrastructure require continual enhancements, creating ongoing opportunities for SMEs. Rolling stock and facilities like coach washing plants and laundries offer potential areas for SME involvement.
Karun Raj Singh Sareen, Partner, Major Projects Advisory, KPMG
The demand for steel and cement is set to rise, providing ample business opportunities for manufacturers and suppliers in the rail sector. Logistics and Operations and Maintenance (ONM) players will also see substantial growth prospects.
UJM Rao, MD, Andhra Pradesh Metro Rail Corporation Ltd
To facilitate the transformative metro rail projects, Andhra Pradesh is slated to incur an expenditure of Rs 40,000 crore, with approximately Rs 21,200 crore earmarked for investment over the next 5-6 years.
FIRST Construction Council
Indian railways
metro rail
railway sector
Rajesh Gupta
NITI Aayog
UJM Rao
Andhra Pradesh Metro Rail Corporation
Karun Raj Singh Sareen
KPMG
Rakesh Rao
bullet train
Rapid Rail Transport Systems
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