Dedicated Freight Corridor on

Indian Railways:
A Catalyst for Industrial Growth
Introduction
The Dedicated Freight Corridor (DFC) project of the
Indian Railways (IR) has been conceived to create
capacity and relieve the congestion on the Golden
Quadrilateral or the high density network connecting
the four metros Mumbai, Delhi, Kolkata and Chennai1.
The golden quadrilateral though constituting
only 16% of the network carries more than 55%
of the freight traffic (Dedicated Freight Corridor
Corporation of India Ltd 2012)1.
The golden quadrilateral also carries a major part of
IRs passenger traffic and since priority is given to
passenger trains, it results in low average speed of the
freight trains. Since freight and passenger trains on the
IR share the same tracks, the speed differential
between the two further impacts the capacity1. To get a
sense of how slow the Indian freight trains are,
average speed of an Indian freight train is
abysmally low at around 25khph as compared to
75kmph in China and 100kmph in USA.

Clogged rail lines slow Indias development

(New York Times June15, 2010)

So, in the current scenario of dismal condition of the

freight trains in India, DFC is being touted as a gamechanger for the Indian Railways.

The DFC would enable segregation of freight

and passenger traffic (Ministry of Railways 2009).

Table 1: Network expansion of Indian Railways

1950-2010
Year

Trackkm
(thousand)

Freight
traffic
(billion
ton-km)

1950-51
59
38
2010-11
114
636
Note: Source- (Indian Railways 2012)

Passenger
traffic
(billion
passengerkm)
67
978

The increase in IRs network capacity through doubling,

gauge conversion, electrification, traffic facility
improvement works etc. has not kept pace with the
freight transportation demand of the Indian economy
which has been on a high growth path. Freight traffic
has therefore gradually shifted to road. Modal share of
railways in freight transport has decreased from
50% in 1960s to 36% in 2007-08 (RITES Ltd 2008),

in contrast to about 46% in China and USA

(McKinsey and Company 2010)1.
If proper inputs had gone into Indian railways,
its market share could have been to the tune of
around 60%, resulting in an annual saving of
Rs.7500crore as rail transport is around 6 times
more fuel efficient than road transport. (Rakesh
Mohan committee report July, 2011).
A situation has arisen wherein road and rail
infrastructure deficiencies have become one of the
major deterrents of Indias competitive position in
terms of manufacturing and trading. India today
ranks 56th in the world Logistics Performance
Index infrastructure rankings (World Bank 2012).
In the present scenario of cut throat competition
resulting from globalization, It is desirable to increase
rail share in national freight transportation from the
economic and logistic costs perspectives, since rail
transport is more energy efficient, environmentally and
Socially sustainable and less resource intensive
compared to road transport. Increased investment is
thus required in railway infrastructure to create
capacity and thereby increase the rail share in freight
traffic2.

Need for Dedicated Freight Corridor (DFC)3

The growing demand for increase in freight transport

capacity has led to the concept of tracks dedicated to
freight services resulting in approvals for dedicated
freight corridors in the eastern and western routes, in
the first instance. The growing need for coal
transportation to power plants all over the country,
booming infrastructure construction and growing
international trade require dedicated freight corridors
and the Government of India took a historic decision to
go ahead on the Eastern Dedicated Freight
Corridor (EDFC- 1760km from Ludhiana in Punjab
to Dankuni in West Bengal) and the Western
Dedicated Freight Corridor (WDFC- 1468km from Dadri
in Uttar Pradesh to Jawahar Lal Nehru port in Mumbai).

Objectives3:
Create additional rail infrastructure to cater to the
increased levels of transport demand.
Introduce time tabled freight services and
guaranteed transit time.
Segregate freight infrastructure for a focused
approach to both passenger and freight business of
Railways.
Reduce unit cost of transportation by speeding up
freight train operations, increasing axle loads and
augmenting productivity.
Increase rail share of freight market by providing
customized logistics services.
Reduce emission of Green House Gases by
encouraging a modal shift from road to rail.

 One of the goals of the Indian Railways in the next

five years is to take its freight loading from the
current 1 billion tonnes to 1.5 billion tonnes, a rise
of 50%.

Benefits3:
Congestion at terminals and junction stations can
be minimized.
Detention time at terminals will reduce.
Higher fuel efficiency due to seamless and
unhindered movement.
Reduced emission of GHGs.
Release of line capacity on existing corridors that
will lead to faster movement of passenger trains.
Reduction in operating staff costs due to fewer
stations and higher speeds.
Unit cost of transportation will get reduced.

Formation of DFCCIL:
For planning and development, mobilisation of
financial resources, construction, operation and
maintenance of Dedicated Freight Corridors,
Ministry of Railways initiated action to establish a
Special Purpose Vehicle (SPV) which led to the
establishment of Dedicated Freight Corridor

Corporation of India Limited (DFCCIL) in October,

20063.
It was envisaged that the DFC would be a surplus
generating activity and have the capability to
provide high service levels to its customers. The
task force recognized that, the DFC presents
a good opportunity to make a beginning by
setting up an independent organization for
its establishment and operation. This would
also provide independence from the dual role
played by the IR, in terms of commercial and social
responsibilities which often compromised
efficiency4.
The task force recommended that the SPV
should be owned jointly by the IR and the
users of bulk freight services like port
operators, shipping companies, commodity
based companies in the oil, coal, iron ore,
steel and power sectors, largely in the public
sector4.
But later the GOM recommended the following
modifications to the task force recommendations:
Initially the SPV may be constituted with
100% equity by MOR. The equity in the SPV
may be offered to PSUs/Government
institutions in case they evince interest in
future subject to retention of majority stake
by MOR4.
As per a version of the Business Plan dated 11
October 2010, it was decided that DFCCIL
would be 100% owned by MOR4.

Project Cost:

The funding requirement, for both the corridors, which

was originally estimated by RITES in January 2007, was
28000crores. This cost was subsequently revised to
37000crores in October 2007 based on the study by
JICA. When revised to 2009 costs, the two corridors are
likely to cost in the region of Rs.54000crores, resulting
in a project completion cost of about Rs.
81000crores in 2017-2018. The cost for the project
will be funded by a combination of debt from
bilateral/multilateral agencies, equity from
Ministry of Railways and PPP (Public Private
Partnership). The capital structure of DFCCIL will
entail a debt to equity ratio of 2:15. Recently, the
CCEA (Cabinet Committee on Economic Affairs)
approved the revised cost estimate of
81,459crores for the Eastern and Western Dedicated
Freight Corridor (DFC) Project, including land costs and
financing plan6.

Traffic Projections:
Traffic on the two corridors will consist of the following:

 Western corridor: It will mostly cater to container

traffic between various ports on the western coast
(JNPT, Mumbai Port, Pipavav, Mundra and Kandla)
and the North Indian hinterland, specifically the
inland container depots (ICDs) located at
Tughlakabad, Dadri and Ludhiana7.

Table 2: Traffic projections on Western DFC as per

RITES report
Direction(millio 2016-17
2021-22
n tonnes/year)
UP
28.5
40.9
DOWN
35.5
49.9
Grand Total
64.0
90.8
Note: Source- DFCCIL, Edelweiss Research.

Eastern corridor: It will mostly cater to coal and

steel movement from Eastern to Northern India as
well of food grains, cement, fertilisers, lime stone
etc., from Northern to Eastern India7.

Table 3: Traffic projections on Eastern DFC as per

RITES report
Direction(millio 2016-17
n tonnes/year)
UP
66.1

2021-22
78.0

DOWN
9.5
13.3
Grand Total
75.6
91.3
Note: Source- DFCCIL, Edelweiss Research.

Project Financing

IR projects are generally financed by Budgetary Support

and internal resources. However IR has resorted to
financing from external agencies in case of very large
projects. The DFC project requires large financial
resources which obviously cannot be financed only
through IRs resources. This project is therefore being
funded through a mix of bilateral and multilateral debt,
equity and private investment. The debt-equity ratio
of the project is 2:1. While the equity component
of DFCCIL is being provided by IR, the debt
component is being arranged by the Japan
International Cooperation Agency (JICA) and the
World Bank. The debt component comprises soft loans
with long repayment periods of 25 to 40 years and
grace period of 7 to 10 years. Apart from the soft
finance, the professional expertise of JICA and World
Bank in project management will strengthens the DFC
project planning and implementation8.

The major features of DFC project funding are as

follows:

 JICA loan for construction of Western DFC is

estimated at 677 billion Yen. The remaining cost of
Western DFC will be borne by IR as equity funding
to DFCCIL. The JICA loan is being provided in
phases: the first phase for the 930 km Vadodara10
Rewari section; the second phase for the 568 km
JNPT-Vadodara section.
World Bank-IBRD funding is proposed at USD 2.7
billion for construction of the 1188 km LudhianaMughalsarai section of the Eastern DFC.
The 122 km Mughalsarai-Sonnagar section of
Eastern DFC is being funded by IRs internal
resources.
The 524 km Sonnagar-Dankuni section of Eastern
DFC will be funded by a public-private partnership
method.
IR will pay DFCCIL track access charges (TAC)
for use of DFCs tracks by IRs freight trains. Track
access charge will have a fixed component
covering all the fixed charges including debt
repayment and variable costs will cover operation
and maintenance expenses.

Table 4: Funding sources of DFC

Western
Corridor
Phase I
Phase II

Funding Source

Eastern
Corridor
Phase I
Phase II

Funding Source

Rewari-Vadodara JICA
Vadodara - JNPT
JICA
and Dadri Rewari
Note: Source- DFCCIL, Edelweiss Research.

Khurja-Kanpur
World Bank
KanpurWorld Bank
Mughalsarai
Phase III
Ludhiana-Khurja World Bank
Phase IV
SonnagarPPP mode
Dankuni
Phase I (a)
MugalSaraiIndian Railways
Sonnagar
Note: Source- DFCCIL, Edelweiss Research.
JICA- Japan International Cooperation Agency, PPPPublic
Private Partnership.

Revenue Projections:
DFCCILs role is primarily that of the infrastructure
provider for the Indian Railways, to enable them to run
trains on the DFC, which are constructed, maintained

and operated by the DFCCIL. The only source of

revenue for the DFCCIL would be the user
charge, termed Track Access Charge (TAC), to be
paid by the Indian Railways in return for services
received. At present, no other operator is allowed to
run train services on the corridor although this may be
permitted in the future. The relationship between the
two parties will be governed by a concession
agreement for a period of thirty years terminating in
20489.

Table 5: Revenue projections of Western DFC

Sources 2018 2023 2028
of
revenu
e
TAC (mn 2524 6242 7453
Rs.)
0
0
0
Breakup
of TAC
30
49
39
.
70
51
61
Variable

2033 2038

2043

2048

8102
0

10423 14723 21949

0
0
0

49
51

60
40

71
29

80
20

0.30

0.33

0.40

0.53

.Fixed%
TAC per
NTKM*

0.19

0.33

0.32

Note: TAC- Track Access Charge, NTKM- Net Ton Kilometer.

Source: IL&FS (2011)
*Estimates based on projected traffic.

Current status of DFC:

The Cabinet Committee of Economic Affairs
(CCEA) approved the revised cost estimate of
Rs. 81459crores for the Eastern and Western
Dedicated Freight Corridor (DFC) project, including
land costs and financing plan on 24 June, 20156.
DFC is a linear project of more than 3300 km;
10537 hectares have to be acquired. So far, 8,874
hectares have been acquired, i.e. 84 per cent
of the land requirement10.
The final revised cost of DFC is
Rs.81460crores, excluding the Sonnagar-Dankuni
section being built on private-public partnership
mode. Of the total, two-thirds was arranged via
debt and the rest via equity of the rail ministry.
EDFC is funded by the World Bank. WDFC is funded
by Japan International Cooperation Agency (JICA).
The World Bank will provide $2.72 billion.
Agreements have been signed for two loan
components for $2.10 billion. The second loan
agreement was signed in December 2014. JICA will
provide loan of 645 billion yen. Expenditure till
April 2015 is Rs.13250crores, including land10.
So far civil contracts for 66 per cent of the length
have been awarded in the eastern corridor and 43
per cent in the western corridor. It is further
planned to award 85 per cent of the contracts by
March 2016 and the balance 15 per cent by June
201610.

 The progress of the on-going works is being

monitored at the managing directors level on a
daily basis and the DFCCIL is confident of
completing the entire EDFC and WDFC by 201910.
A freight consignment today takes two to three
days to move between Delhi and Mumbai. After
completion of DFC, the time will be reduced to less
than 24 hours. Thus, DFC will provide efficient,
reliable and fast transport10.
The average speed of freight trains is
expected to increase to 70 km per hour
against 25 km per hour now. The unit cost of
transport is also expected to reduce 40 per cent
making DFC more economical than other modes of
transport10.

References:
1. Indian Institute of Management, Calcutta- Choosing
the appropriate project management structure, project
financing, land acquisition and contractual process for
Indian railway mega-projects-a case study of the
Dedicated Freight Corridor Project by Bodhibrata Nag,
Jeetendra Singh and Ved Mani Tiwary- WPS No. 715/
October 2012, page no.1.
2. Dedicated Freight Corridor on Indian Railways: A
catalyst for
industrial growth by Jeevan Gupta,
Amrendra Jha and Raja Ray- Rites Ltd, page no. 21.2.

3. Dedicated Freight Corridor on Indian Railways: A

catalyst for
industrial growth by Jeevan Gupta,
Amrendra Jha and Raja Ray- Rites Ltd, page no. 21.321.4.
4. Indian Institute of Management, AhmedabadStructuring the Dedicated Freight Corridor Project A
Lost Opportunity by Sobhesh Kumar Agarwalla and
G.Raghuram- W.P.No. 2012-07-02 July 2012, page no. 67.
5. Indian Institute of Management, AhmedabadStructuring the Dedicated Freight Corridor Project A
Lost Opportunity by Sobhesh Kumar Agarwalla and
G.Raghuram- W.P.No. 2012-07-02 July 2012, page no.
13-14.
6. The Economic Times- 24 June, 2015
http://articles.economictimes.indiatimes.com/2015-0624/news/63782871_1_western-dedicated-freightcorridor-dfc-ccea-okays

7. Dedicated Freight Corridor: Tracking growth by

Edelweiss Institutional Equities.
Parvez Akhtar Qazi- parvez.qazi@edelcap.com
India Equity Research| Construction.
8. Indian Institute of Management, Calcutta- Choosing
the appropriate project management structure, project
financing, land acquisition and contractual process for
Indian railway mega-projects-a case study of the
Dedicated Freight Corridor Project by Bodhibrata Nag,
Jeetendra Singh and Ved Mani Tiwary- WPS No. 715/
October 2012, page no. 9-10.

9. Indian Institute of Management, AhmedabadInfrastructure for Low-Carbon Transport in India: A

Case Study of the Delhi-Mumbai Dedicated Freight
Corridor by Prof. Prem Pangotra and Prof. P.R. Shukla,
August 2012.
10. Business Standard- 23 May, 2015
http://www.business-standard.com/article/economypolicy/dedicated-freight-corridors-to-be-commissionedby-2018-adesh-sharma-115051900525_1.html