Vision 2020 - Transportation Research Group of India

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CHAPTER-II Government of India Ministry of Railways (Railway Board) 2. National Growth Trajectory, International Comparison and Indian Railways 2.1 Macro-economic environment Performance of IR is closely tied to the overall macro-economic environment and growth of GDP in the country. Goldman Sachs in their research paper (Global Economics Paper:99,2003) had predicted that with a steady rate of annual GDP growth at 5-6% Indian GDP will overtake that of France and Italy by 2020 and would be well on course to overtake that of U.K. and Germany by 2025 making it the fourth largest economy of the world. Given that our economy has been growing at a rate close to 8% in the last six years, the prediction may be realized sooner. There is a great deal of confidence and optimism that the Indian economy would continue to grow at 8% or more for several years ahead. At this rate, by 2020 the per capita income would more than double from the US$ 2972 (in PPP terms) in 2008-09. Simultaneously, the proportion of the population living in urban areas is set to increase from 27.8% in 2001 to around 41% by 2030 (India: Urban Poverty Report, 2009, Government of India and UNDP). Industrial sector's share as a percentage of GDP will also grow in line with increasing global integration, rising prosperity and sophistication of the Indian industry. As per Government of India's trade policy, India's share in international trade is targeted to rise from the present level 1.5% to 5% by 2020. Quality of infrastructure will be a key determinant in the realization of these projections. Therefore, investment on infrastructure is likely to witness a major step-up. All these macro-economic developments would have a positive impact on the growth of travel and transport in general and railway transport in particular. 2.1.1 GDP and Transport Demand for transport is directly and positively correlated to GDP growth. It has been established that in developing economy like ours, the elasticity of transport to GDP is around 1.25. GDP growth of 9% would, therefore, translate into increase in demand for transport to the tune of 11%. How much of this growth could be captured by Railways? This would obviously depend on the capacity and quality of Indian Railway's infrastructure and services to measure up to the expectations of the customers. If these aspects are taken care of (which the Vision Document seeks to do), Indian Railways will have the opportunity to launch into a phase of high growth in the next ten years. 3
Government of India Ministry of Railways (Railway Board) 2.1.2 Railway traffic growth vis-à-vis GDP Period Table-1: GDP growth vis-à-vis growth in Railway Traffic (Figures in %) Average GDP growth Potential for growth of Railway traffic @ Average growth in freight traffic of Average growth in originating elasticity of transport railways passengers of 1.25 1991-92- 5.6 7 3.9 2.4 2001-02 2002-03- 7.9 9.9 7.2 4.6* 2008-09 Note: 1.Based on Economic Survey, 2008-09 and Ministry of Railway's data on Railway traffic growth. *This includes an average growth of 7% in non-suburban and 3% in sub-urban segments. Growth of Passenger Kilometres (PKMs) has been more impressive at 9.7% in the recent period (2004-2005 - 2008-2009). In recent years, the performance of the railways has exhibited a marked departure from the earlier long-term trend of trailing GDP growth by a large margin (Table-1 above). While the upward shift in the trend of traffic growth is unmistakable, the figures in table also reveal the extent of underachievement vis-à-vis the potential. Further, the improved results are attributed to the certain operational initiatives such as flexible tariffs and optimization of the loading/carrying capacity of rolling- stock, as well as efficiency of use of asset, expansion of capacity in passenger services. While these have played a useful role, a completely different strategic approach would be required to reap the full potential and achieve a quantum jump in growth. This document seeks to prepare a road-map for Indian Railways to take the fullest advantage of the opportunities unfolding in the economy so that it is able to expand and grow consistently at the rate of 10% p.a. in line with the expected growth of our GDP at 9% per annum. 2.1.3 Transport landscape for the future: Competition (a) Road Transport Railways face stiff competition from road transport in both freight and passenger businesses and from aviation sector in respect of the premium-class passenger business segment. Given the massive scale of expansion of the National Highway network, build-up of huge capacity in the highly competitive trucking industry and entry of modern multi-axle commercial vehicles, competition from road carriers will intensify. However, Railways score over other competing modes by virtue of the minimal impact on environment and efficiency of land use. Given the density of population in our country and the pace of urbanization, road networks will face severe congestion. The 4
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Vision 2020 - Transportation Research Group of India

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