Investments push spurring growth in railway segment

  • Articles
  • Sep 30,23
With rail infrastructure expecting an investment of Rs 50 trillion by 2030, players in this sector will have abundance of opportunities to scale new heights.
Investments push spurring growth in railway segment

The glass ceiling was broken by Jaya Varma Sinha on September 1, 2023 when she became the first-ever female Chairperson and CEO of Railway Board of the Indian Railways. As the head, Sinha will oversee a significant expansion of Indian Railways - the second-largest network managed by a single entity worldwide.

In the Union Budget 2023-24, the railway sector was the biggest beneficiary. For 2023-24, a record capital expenditure of Rs 2.60 trillion was allocated for railway sector, an increase of 6 per cent over the previous year. Railways’ capital expenditure includes investments for constructing new lines, procuring wagons, doubling of lines, and renewing tracks. The share of capital expenditure in total expenditure of railways has consistently increased in recent years (refer Figure 1). Part of the funds will be used for the Railways' ambitious plan to lay approximately 100,000 km of new track over the next 20-25 years. 

Backbone of the economy
The railway industry is considered to the backbone of India's transportation system and the cornerstone of its economy. After the US, China, and Russia, India has the fourth-largest railway system in the world due to its extensive network of rail tracks that almost over the whole country.

The burgeoning railway segment has attracted attention of many overseas players. The France-based Alstom, which is one of the major beneficiaries of the railway modernisation programme, has an order backlog of over Euro 4.2 billion from its India operations. Alstom has been at the forefront of introducing several breakthrough technologies in India with world-class rolling stock, rail equipment, signalling, services and infrastructure. "Today, India is the third largest market for us, after France and Germany. We have witnessed remarkable growth in India, backed by the buoyant urban market and the strong and promising relationship with Indian Railways. Our turnover is up by 45 per cent as of March 2023, compared to the last financial year," said Olivier Loison, Managing Director, Alstom India, while speaking to media recently. The company has already invested over Euro 200 million in India and has plans to invest more to enhance its manufacturing capacity. 

The government is contemplating a National Rail Plan to enable the nation to connect its rail network with other modes of transportation and create a multi-modal transportation network. The Research Designs & Standards Organisation (RDSO), the research division of Indian Railways, has introduced a 'New Online Vendor Registration System' to have digitised and open systems and processes. Indian Railways claims that these projects have the potential to attract significant investment in the upcoming years.

Investment crosses Rs 1 trn in 4M FY24
The Indian Railways’ investment in several ongoing projects (involving infrastructure and safety) across India crossed Rs one trillion (Rs 1.018 trillion) till the month of July in the financial year 2023-24. Hence, the Indian Railways has ended up investing and utilising nearly 40 per cent of FY24’s budgeted capex amount of Rs 2.6 trillion in April-July 2023 period. In FY23, the total capex utilisation till July 2022 was Rs 638.87 billion, which amounted to 31 per cent of the allocation.

Investment was made in several infrastructural projects such as laying new lines, doubling, gauge conversion, enhancing passenger amenities and improving safety related works. Rs 1 trillion was spend in augmenting capacity network in the entire financial year 2022-23. This mark has been crossed in just the first four months in FY24.

The Indian Railways achieved commissioning of new lines and doubling, multi-tracking of 5,243 km till April 2023. It also electrified up to 6,565 km of track with an investment of Rs 66.57 billion. A total investment of Rs 259.13 billion was made for safety in strengthening tracks, bridges grade separators. 

This year, higher investments in the Dedicated Freight Corridor (Rs 149 billion) and Mumbai-Ahmedabad bullet train (Rs 120 billion) in FY 22-23 were augmented.

High-speed trains in focus
The Indian Railways has recently undergone significant reforms and modernisation initiatives, and has introduced high-speed trains such as the Gatiman Express, Tejas Express and Vande Bharat Express. In FY24, major expenditure has been on Vande Bharat trains. Till April 2023, wagon procurement jumped by 77.6 per cent over previous year to 22,747 wagons. Modern rolling stock of Rs 442.91 billion was procured for better passenger comfort and for augmenting the loading capacity.

To tap the potential of increasing number of Vande Bharat trains, many companies are exploring different strategies for new business avenues. Recently, Hindalco Industries Limited (a subsidiary of the Aditya Birla Group) roped in Italy-based Metra SpA, as technology partner, to bring latest aluminium extrusion technology to India for building rail coaches for the ambitious high-speed Vande Bharat trains. The company plans to invest Rs 2,000 crore for the project and technology tie-ups.

With India’s commitment to introduce new generation trains such as Vande Bharat, Indian firms are partnering global players to contribute in the strengthening of the railway network across the nation. Godrej Tooling, business unit of Godrej & Boyce, has partnered with Renmakch, to collaborate on machinery & plant (M&P) projects for railways and metro rail, offering world-class equipment that is ‘Made in India’. With this alliance, Godrej & Boyce will now be able to offer a complete value chain ranging from design to build for the railways and also bid on larger projects. The company expects to acquire a 20-30% market share in this sector over the next 5 years. Godrej Tooling supplies jigs & fixtures, automation solutions, and workshop equipment for railway workshops & metro depots.