Railway industry looking for higher spending on technology, cargo capacity in Budget for 2024-25, eyeing PLI scheme for railway components

Industry bodies like the PHD Chamber of Commerce and Industry have asked the government to increase capex spending on better technology including rail-road connectivity, IoT, automation, blockchain, cloud computing, AI, and robotics to improve logistics development in the nation.

Also Read: Union Budget 2024 Live Updates

Anurag Gupta, Partner, Deloitte India told Moneycontrol that to increase its cargo carrying market share in India to above 30 percent, the Indian Railways will have to focus heavily on developing the economic corridors announced in the interim Budget.

"Improvement in market share in freight not only requires capacity creation, it also requires realignment. So the Indian Railways will have to align itself with the needs of the cargo market. Right now, Railways views itself as a supplier of rail services. In the future it will have to provide customised logistics solutions to increase its market share," Gupta said.

Safety concerns

In the Interim Budget for 2024-25 Finance Minister Nirmala Sitharaman had allocated Rs 2,52,200 crore to the Railways as gross budgetary support, along with an additional Rs 10,000 crore from extra-budgetary resources.

Along with the capital expenditure the government had announced plans to create dedicated tracks for coal and mineral transportation, improve port connectivity, and address congestion issues to bolster efficiency and capacity.

However, since the interim Budget in February, the Indian Railways has faced another tragic accident with the Kanchanjunga Express crash in June, raising questions about railway safety once again.

Railway experts including former Railway Board chairman Ashwani Lohani have called for making safety the number one priority at railways.

“The Kanchanjunga Express accident like those earlier is not merely a technical failure or lapse, nor can the blame be only apportioned on the human resource; the fact remains that such lapses arise out of the manner in which the organisation is governed,” Lohani said.

Similarly, Swapnil Garg, a former officer of the Indian Railway Service of Mechanical Engineers said that the recent train crashes should serve as a wake-up call, for the Railways and authorities should take a fresh and hard look at the lax safety culture.

However, Garg said he does not expect things to change overnight. The Indian railway system is huge and it will take time to make it safer, but there needs to be a will.

Alok Kumar Verma, who has retired from the Indian Railways Service of Engineers, said the country’s railway network is being neglected, and the consequences have been disastrous.

He said railway is being ignored while airports and highways are being given a huge push.

The Indian rail system, which is the only affordable option for millions of Indians, especially the poor, "ranks low" globally when it comes to safety, Verma said, adding it is comparable to less developed countries, such as the Democratic Republic of Congo or Nigeria.

"Ideally, tracks should be running at 70 percent capacity to factor in maintenance, but on some of the country's busiest routes, they're operating well beyond capacity. Our routes are highly choked. This is a very alarming and worrying situation," Verma said.

PLI scheme

Industry participants also called on the central government to come out with a production-linked incentive (PLI) scheme to boost the production of railway ancillary parts in India.

"It would be encouraging to see the government’s push on PLI, tax rationalisation, and towards equitable contract terms such as price variation conditions," Olivier Loison, Managing Director, Alstom India told Moneycontrol.

Similarly, Vivek Lohia said the introduction of appropriate PLI schemes fosters an entrepreneur-friendly ecosystem for the rail components sector, promoting import substitution, export-led growth, and foreign investments while providing a supportive environment for MSMEs.

"Ancillaries encompass the manufacturing of components and accessories for rolling stock, serving both freight and passenger needs. While many items are already manufactured domestically, there is an opportunity to further strengthen local production, reducing reliance on imports," Lohia said.

Anurag Gupta said the government should consider PLI schemes in the railway industry that encourage foreign railway equipment makers to set up shop in India.

"The Indian Railway ancillary industries do not need PLI schemes to become more cost competitive, rather the industry needs PLI schemes to encourage the creation of R&D (research and development) infrastructure in India," Gupta said.

Global leaders in rail systems and rolling stock, including Alstom, Siemens and Stadler, have a presence in India through manufacturing facilities or joint ventures. A PLI scheme tailored for rail components is anticipated to incentivise these companies to encourage their vendors to set up manufacturing units in India, thereby boosting local and international operations within the railway sector.