India’s Plan To Build Swanky Railway Stations Hasn’t Had Much Success

Poor interest from the private sector and questions over financial viability led to the tepid response, according to railway official aware of the development. He spoke on the condition of anonymity as he is not authorised divulge details. Realty market slowed after the rollout of stricter housing regulations and developers also had concerns over the period for which the national transporter will lease land, the official said.

The nation has the world’s fourth-largest rail network. But infrastructure needs an upgrade. Prime Minister Narendra Modi promised to make travel safer and comfortable for more than 23 million people who travel by the national transporter every day.

The scheme aims to redevelop railway stations through public-private partnerships by commercial use and long-term lease of the transporter’s 2,700 acres land at 400 locations, and ploughing back the surplus into the project. Once completed, the stations would have separate arrival and departure passages, swipe entry, Wi-Fi, pharmacies, ATMs, eating joints, hotels, lounges, large well-lit waiting areas, parkings, conference facilities and ramps for the disabled.

Still, just two stations are under redevelopment. The work is nearing completion at Gandhinagar, Gujarat and Habibganj, Madhya Pradesh. Over 80 percent of the civil work has been completed, the official cited earlier said. The revamped Gandhinagar station will be ready by July, while Habibganj will be thrown open to the public by September, the official said.

While the station at Varanasi, Prime Minister Narendra Modi’s constituency, has undergone a makeover, it’s wasn’t redeveloped with private participation under the scheme.

Suresh Prabhu, then railways minister, had in 2015-16 announced the redevelopment programme costing an estimated Rs 1 lakh to create “best of the breed” stations in the budget. Approved by the cabinet in June 2015, it aimed to redevelop vacant land for commercial use around railway stations.

The cabinet said that 400 stations from two categories—generating revenue of more than Rs 6 crore and Rs 50 crore—will be developed by inviting bids for providing amenities and other services.

To be sure, the government in its replies to Parliament didn’t give a timeframe, citing that it’s the first-of-its-kind project, requiring detailed techno-financial feasibility studies and statutory clearances from local bodies, among others. Still, the response to Ministry of Railways’ initial bids to develop 23 stations wasn’t encouraging, forcing it to seek feedback on term of the lease, restrictions and bid procedures.

In December last year, the cabinet simplified procedures, appointed state-run Indian Railway Station Development Co. Ltd. as the nodal agency, and doubled the lease tenures on railway land to 99 years.

According to the official cited earlier, the changes include:

• Permitting to develop the project through IRSDC.
• Allowing sub-leasing of land.
• Enabling redevelopment of any station compared instead of just the 400 identified earlier.

The focus is on redeveloping about 50 stations, the official said. Five state-run companies—RITES Ltd., Engineering Projects (India) Ltd., Bridge and Roof Co (India) Ltd., MECON Ltd. and National Projects Construction Corp Ltd.—have been entrusted with the project. Some of the stations to be redeveloped include Gurugram, Pune, Ludhiana, Delhi Cantonment, Ajmer, Lonavla and Jaipur, the official said.

The government is also looking at foreign partnerships. It signed an agreement with the French Railway for a joint study on renovation of Ambala and Ludhiana stations. The Korean Railway, according to the railway ministry’s reply in Parliament, expressed interest in the makeover of the New Delhi Station.

That will help the project gain momentum, according to Abhishek Gupta, assistant vice president at ICRA Ltd. In the past one year, state-run NBCC (India) Ltd. was awarded the construction contract for Lucknow (Charbagh), Gomtinagar and Puducherry. Segregation of construction and commercialisation of vacant land is a good step, he said, adding that a single player might not have the expertise to do the both. Gupta now expects 50 stations to be taken up for redevelopment at Rs 10,000-20,000 crore.

Financial Viability

Contracts have been awarded for Gomtinagar and Charbagh stations in Lucknow, according to a ministry statement to Rajya Sabha. Bids for Jammu Tawi, Jammu and Kashmir; Kozhikode, Kerala; Anand Vihar and Bijwasan in Delhi; and Chandigarh are being evaluated. Bids have been invited for Surat and Puducherry stations.

The financial terms need to be friendly for the developer, said Pankaj Bajaj, managing director of Eldeco Infrastructure and Properties Ltd. and Eldeco Housing and Industries Ltd. Bajaj said his group had bid for commercial use of the railways land in Sarai Rohilla station in central Delhi.

“If developers delay instalments for the land, they’re liable to pay interest at 18 percent per annum, but if the railways isn’t able to hand over land parcel to the developer, they will refund the developer’s money with 5 percent interest,” he told BloombergQuint over the phone. “That’s unfair.”

The entire cost of development has to borne by the developer but raising funds with the project as collateral is difficult. The Railways is not allowing developers to offer leased land as a collateral to raise project finance, according to Bajaj. No lender is willing to fund a project without creating a mortgage, he said.

Moreover, while in most cases the land has been the Railways for decades, the local authorities are reluctant to give approval because of absence of proper property records. Besides, there are environment hurdles like cutting trees, he said.

These are too many risks for private developers and the Railways needs to address it, Bajaj said.

Gupta acknowledged the challenge. “Commercial development of real estate will depend on market forces and the real estate market isn’t conducive right now,” he said. “It will take some time,” he said, citing hurdles in commercialisation of the Railways’ vacant land in Delhi as it’s densely populated. “As the property is redeveloped, you can’t do away with the surrounding infrastructure.”