#RailBudget2016: In Indian Cities, Railways & Affordable Housing Strategies Go Hand In Hand

A report by the Bibek Debroy Committee on the Indian Railways recently showed the entity lacked information on how much did it spent to run each of its trains. While the panel did not suggest complete privatisation of the entity, it recommended greater private participation in publicly-run railways. The panel said that even if the railways was run for social objectives, everything should be quantified and funded out of the Railway Budget. The panel, which recommended commercial accounting for the railways, also thinks that the government should quantify the objectives and results and see whether the railways meets all its promises in the Budget.

As the Railway Budget 2016 will be announced on February 25, PropGuide looks at how the Indian railways can ensure that improvement of its services and affordable housing strategies in Indian cities are compatible.

The cost-benefit analysis

With 459,000 hectares of land, the Indian Railways is among the three largest land owners in India. Of all the resources that the railways consumes, land is the most expensive, and this itself has a major impact on housing in urban areas.For the proper function of Indian cities, better accounting practices and alignment of the railway network with demand for land is necessary. 

Any business enterprise, public or private, cannot ignore the costs and benefits of various methods of running their operations, and the railways is no exception.Even though many economists think that it should be privatised, they think that even without privatisation, they could be run on commercial principles. Now, if the railways does not know how much it costs to run every train, knowing whether a trip recovers the cost is difficult, too. While there could be possible ways to decide the nature, length and timing of these trips, how would the government know whether it meets the needs of its people in Indian cities if the analysis is not based on cost benefits?

For example, if a trip within Mumbai more than recovers its costs, this possibly means that there is more than sufficient demand for the services of the railways on a specific route. A cost-benefit analysis also suggests whether the services of the railways are rightly priced or not. If the services are rightly priced, demand is not likely to vastly exceed supply. Indian trains, especially in large Indian cities, are overcrowded and this is partly because the services are underpriced. In fact, surveys done in Indian cities like Mumbai suggest that people are quite willing to pay more for traveling in trains. For the Indian Railway to be profitable, it cannot ignore real estate prices, housing consumption and commercial development in Indian cities.

However, as the railways is a public monopoly, this would make the cost-benefit analysis difficult. There is no competitor with which the Indian railways can be compared with. For example, if the dairy product major Amul is the only provider of milk, the company would be able to make profits even if it is not doing the best-possible job.

Aiming high

In Indian cities, railway stations should be near areas where there is great need for floor space, and hence, a great density of population. As this is not so in India's urban areas, there is less alignment between the transportation needs of people and the existence of railway stations.

Various state and central governments, however, are arguing in favor of transit-oriented development, a model that allows dense residential and commercial development around metro and railway stations in large Indian cities. For example, in Delhi, a proposal is to raise the FSI from 2.5 to 4 near metro stations. If this happens, the number of people who can live near metro stations will rise by about 60 per cent.

In fact, it is the low FSI near railway and metro stations which often lead to low usage of public transport in many cities. So, instead of allowing higher FSI around railway stations, the Indian Railways should build stations around high-density areas, and allow a much higher FSI in those areas simultaneously. In other words, instead of trying to develop demand for public transport, public transport corridors should be located where there is great demand.