High Speed Rail (HSR) is an expanding mode of travel which offers a high capacity, safe, fast, reliable, and an environmentally sustainable manner of transportation to the society. However, the service offerings come at substantial costs which are incurred using public funds.
An investment in HSR is typically a government decision which is primarily dependent on a number of factors, such as current and projected traffic, expected saving in time, and a reduction in accidents due to a modal shift, reduction in environmental externalities, ease in congestion in existing modes, and the average willingness of the users to pay.
HSRs lead to time-saving by providing reliable and time-bound journeys for passengers. They help in alleviating congestion on existing alternative travel modes, especially road and air. The requirement of land for large traffic volumes is substantially reduced due to the high carrying capacity of HSRs. The environment externalities are also reduced due to savings in vehicular emissions when passengers shift from other modes to HSRs. The investment boosts regional development and creates employment (direct, indirect and induced). HSRs reorganise connecting cities, towns, and areas by enhancing their reach.
There are broadly four types of costs in developing an HSR infrastructure. These costs are related to land, planning, infrastructure, and superstructure. The land cost is incurred on land acquisition, administrative, and legal fee. Planning costs include costs incurred on licences, permits, statutory approvals, feasibility studies, technical design, etc. The building of platforms, stations, viaducts, bridges, and tunnels constitute the infrastructure costs, which essentially depend on the terrain characteristics.
Superstructure costs involve expenditure on catenary, communications systems, electrical equipment, safety equipment, signalling systems, tracks, rail sidings, etc. Once the HSR infrastructure is built and starts functioning, there are overhead operational costs (such as power and labour costs) and maintenance costs.
Investment in HSR Infrastructure
Investment in HSRs, though usually supported by the governments, is evaluated through an economic approach, keeping in mind the demand volumes on existing alternative modes, existing capacities in rail, road and air modes, savings in travel time and accident costs due to modal shift, source of electricity proposed to power the HSRs, and expected economic agglomeration of the areas through which the proposed infrastructure shall pass.
Economic analysis assesses whether the associated potential benefits of an HSR infrastructure compensates the costs incurred on its infrastructure and operations. The quantitative parameter for an economic analysis is the economic internal rate of return (EIRR) which discounts the associated economic benefits of the HSR against its construction and maintenance costs. EIRR is used as a benchmark by multilateral agencies and is compared with the social discount rate of the country. An EIRR, at least equal or more than the social discount rate of the country, provides an economic justification to stakeholders for funding HSR projects.
HSRs in India
Indian Railways (IR) Vision 2020 document emphasises the need for increasing the speed of trains on its network. The document envisages the planning or implementation of at least four HSR projects.
Based on reports, we understand that a feasibility study for the Mumbai-Ahmedabad HSR Project, undertaken recently, is being reviewed by the authorities . Among other projects, a pre-feasibility study of the Delhi-Chandigarh-Amritsar corridor is reportedly in progress, while a detailed project report (DPR) is in progress for the Delhi-Chennai corridor; we understand that a feasibility study for the Chennai-Bengaluru-Mysore corridor is in progress as well.
A few requirements for the successful implementation of HSRs in India include the development of a specific policy framework appropriate to HSR, appropriate funding mechanisms, funding sources, land acquisitions, socio-economic viability and technology selection. Besides these, there is an existing shelf of railway projects, including new line projects, gauge-conversion, and track doubling, many of which will improve the average speed of trains, but require significant funds for implementation.
In light of the above constraints, it may appear that there is a trade off in investment decisions related to increasing the speed of the existing trains or implementation of HSRs. However, while the development of a conventional network and the completion of stalled projects is undoubtedly a priority on one hand, looking forward to new technological advancements in HSRs, we believe, is equally important. Hence, a thorough yet conscious analysis can be crucial in setting the rationale for implementing big ticket projects like HSRs in India.
This article has been authored by Biswanath Bhattacharya, Partner, KPMG in India. The information contained herein is of a general nature and is not intended to address the specific circumstances of any particular individual or entity. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in India.