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BW Businessworld

Why Rail Is Hungry For Private Players, Fund?

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The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a proposal for redevelopment of 400 railway stations on "as is where is" basis by inviting open bids from interested parties who will submit their designs and business ideas, including permitting commercial development of real estate by the zonal railways. This process of bidding is called the Swiss Challenge approach.
Swiss Challenge is a new bidding process to help private sector initiatives in core sector projects.
Explaining the Swiss Challenge process, Finance Minister Arun Jaitley said, "Any person with credentials can submit a development proposal to the government. That proposal will be made online and a second person can give suggestions to improve and beat that proposal."
An expert committee will accept the best proposal and the original proposer will get a chance to accept it if it is an improvement on his proposal. If the original proposer is not able to match the more attractive and competing counter proposal, the project will be awarded to the counter proposal. 
The Swiss method, however, is already in use in states such as Karnataka, Rajasthan, Madhya Pradesh and Gujarat for road and housing projects.
In 2009, the Supreme Court approved the method for award of contracts.
This method can be applied to projects that are taken up on a private-public partnership (PPP) basis but can also be used to supplement PPP in sectors that are not covered under the framework.
The railways alone cannot afford the redevelopment project as its finances are already constrained. At present, the railways has a very high operating ratio of about 91.8 per cent.
The high operating ratio leaves very little financial resources for other essential areas like safety and expansion.
It is expected that private players will bring in the much required funds, technical expertise and professionalism for station redevelopment.
The government has also been scouting for foreign players from France and Japan to take part in its station redevelopment scheme.
Requiring huge resources, the government has already decided to allow foreign direct investment (FDI) in certain segments of the railways, like coach manufacturing, station development, suburban rail and high-speed network.
In its first Railway budget, the Narendra Modi-led government had focussed on passenger amenities and inviting private participation in the modernisation of infrastructure. The government planned to significantly upgrade passenger amenities and make them akin to airport terminal buildings. 
Similarly, the plan to leverage the extensive extent of railway land available has been talked about for years, without much progress being made. Commercial utilisation of railway land could be very profitable, but needs to be done with caution to prevent exploitation or corruption.
The approval to leverage real estate assets is to lure the private sector which kept away from the redevelopment scheme of the previous government.
Experts are of the view that the policy should be framed in such a manner that clearly defines the role of the private sector and the potential leverage they can extract out of the real estate assets.