Catalyst Role of Indian Railways in Empowering Economy: Freight or Passenger Segment is on the Fast Track of Expansion or Exploitation?

Development of railways is important for the long run development of the country as it is sustainable both from logistics and cost to the economy aspects. However, at present the modal mix shows that railways are increasingly losing out to the road sector. The present research work examines the long run structural relationships of tonne-kilometer (TKM) and passenger-kilometer (PKM) for the freight and the passenger segments of railways with various economic variables in India. The authors make an attempt to understand the variables that affect the long run dynamics of this sector so that policy prescriptions are set in the correct perspective. Empirical analysis using cointegration and vector error correction analysis has been conducted and the relationship shows that there seems to be a long run relationship in TKM and PKM with the select economic variables. The adjustment mechanism for both the parameters is around 20-25%. The results also show that unlike our hypothesis, the industrial growth as captured by Index of Industrial Production does not granger causes our key parameter tonne-kilometer. The passenger-kilometer is however, determined by the gross domestic product and mineral oil price index.