FIFTEEN days after outlining the biggest ever five-year plan outlay for Indian Railway (IR) of Rs 1 trillion ($US 16bn) in his budget speech in February, India's railways minister Mr Suresh Prabhu firmed up market borrowings worth Rs 1.5 trillion over the next five years in an arrangement with the state-owned Life Insurance Corporation (LIC), and has promised to generate more funds through extra budgetary resources (EBR) during the next financial year.

In stark contrast with what has been the staple diet of past railways ministers, Prabhu's budget speech of February 26 was conspicuous by its failure to mention popular schemes such as the announcement of new trains or projects. Minister of state for railways Mr Manoj Sinha has even gone on record to say that the government proposed doubling the size of the plan for IR in the next financial year.

All this is largely being interpreted to mean that IR - caught in a vicious cycle of under-investment during past decades - is finally taking the steps necessary to set its house in order.

India-IRThe slant of this year's rail budget is unmistakable with a focus on the bread-and-butter jobs of decongesting the clogged network through track doubling, tripling and quadrupling projects on high-density routes; paying attention to the critical task of building bridges either over or under highways to reduce accidents at level crossings; upgrading technology and modernisation.

IR's statistics are staggering: each day the 65,000km network is used by 19,000 trains transporting 23 million passengers and 3 million tonnes of freight. In 2012, IR joined China, the United States and Russia as a member of the select club of railways with an originating freight volume of just over 1 billion tonnes.

Equally staggering are its challenges. IR's expenditure as a percentage of total transport spending has consistently declined from 56% in the seventh plan period (1985-1990) to 30% in the eleventh plan (2007-2012).

As a result, network expansion and modernisation has not happened at the pace needed to keep up with demand, with the result that 40% of the network is operating at 100% line capacity or above. At the same time IR has accumulated a huge backlog of pending projects worth as much as Rs 4.9 trillion based on their originally-estimated costs. These include 154 new lines, 42 gauge conversion projects and 166 track-doubling schemes.

Over the last seven years, IR's operating ratio has hovered between 90 and 94% compared with North American Class 1 railways which have operating ratios ranging from 63% to 73%.

During the last five years IR's share of national GDP has remained static at 1% and even declined to 0.9% in 2012-13, while road transport's share increased from 4.7% in 2008-09 to 4.9% in 2012-13.

China, which had a smaller rail network than India in 1947, has developed a 10,000km high-speed network, while India's trains run at an average speed of just 55km/h. The premier Rajdhani trains, when launched in 1969, took 17h 10min to compete the 1441km journey from New Delhi to Howrah (Kolkata). After 45 years, the same service is just 10 minutes faster. The average speed of Indian freight trains has remained static at around 25km/h.

The prevailing situation is largely an outcome of IR's inability to fund infrastructure development. The National Transport Development Policy Committee (NTDPC) has estimated that IR needs to invest Rs 900bn in the 12th plan, Rs 1.9 trillion in the 13th plan and Rs 4.6 trillion in the 15th plan to regain its lost share of the transport market.

To take its operations to the next level, IR needs modern coaches and wagons, locomotives with an output of 6.7MW or more, and it needs to invest in expanding and building new tracks and improving signalling.

Later this year, IR plans to launch a project to procure 200 6.7MW locomotives along with setting up maintenance facilities at Rewari in Haryana state. This will be undertaken under a Special Terms for Economic Partnership (Step) loan agreement with the Japan International Cooperation Agency for the Western Dedicated Freight Corridor (DFC) project. A decision to procure wagons from Amsted Rail, United States has also been finalised.

IR intends to float a global tender shortly to acquire trains from European or Japanese vendors. Under Prime Minister Narendra Modi's "Make in India" plan, it is proposed to manufacture the trains in India.

Of the total proposed investment of Rs 8.56 trillion for 2015-2019, it is planned to invest up to Rs 2 trillion to relieve congestion and Rs 1 trillion in the acquisition of rolling stock, while almost Rs 2 trillion has been earmarked for network expansion. During 2015-16 alone, IR proposes to invest around Rs 100bn to fast-track construction of the eastern and western DFCs.

The railways minister wants to increase daily passenger capacity from 22 million to 30 million, increase the size of the network by 20% and expand freight capacity from 1 billion to 1.5 billion tonnes over the next five years. But there are doubts whether funds will be available and good intentions alone cannot bring about the desired turnaround for India's public service transporter.

Past efforts to expand rail operations to meet future demand have produced uninspiring results. A 2013 report by the Comptroller and Auditor General of India on an action plan to decongest high-density routes on the North Central Railway between 2007-08 and 2010-11 found that out of 87 contracts awarded, only four were completed within the stipulated timeframe; 71 were completed with delays ranging from one to 71 months, while 18 contracts were still in progress. Apart from non-availability of funds, the principle reason for the delay or non-completion of projects was attributed to the "frequent freezing and defrosting of the work by the Railway Board."

Around 30% of IR's pending projects are said to comprise "material modification" schemes announced by past railways ministers without the sanction of the Planning Commission. With the continued allocation of nominal sums for these projects in recent years, IR has not only spread its finances too thinly, but has also allowed itself to bleed. As one railway insider put it: if the railways are to be yanked out of their present mess, the new railways minister will need to take the bull by the horns to usher in policy reform measures to professionalise IR.

However, the NDA government seems to be having second thoughts on some of its reformist intentions. Shortly after it assumed office last year, India's rightist coalition appointed economist Mr Bibek Debroy to head a committee to suggest ways to restructure IR. But, under pressure from the unions, and because of the railways minister's other preoccupations, the restructuring plan appears to have taken a back seat.

Likewise, Modi's pet project to build a "Golden Quadrilateral" of high-speed lines is not being pursued with the same vigour as before, as funds have not been allocated in the new budget to develop the initial Rs 631bn 534km Mumbai - Ahmedabad line.

The government has permitted 100% Foreign Direct Investment (FDI) in India's rail sector and even formulated model concessional agreements, but bids for long-pending PPP projects such as plans to build diesel and electric locomotive factories at Madhepura and Marhoura respectively have not been floated so far.

Plans to establish a Rail Tariff Authority to link passenger fares with prevailing market conditions rather than being government-controlled, as well as proposals to address the distortions between freight tariffs and passenger fares, have been put on the back burner.

Despite the lack of progress, the government remains optimistic. "A transformation cannot happen in a day," says Sinha. "We are attempting structural reforms by taking one step at a time. The results will be visible shortly."