A reopened Okehampton route would provide an alternative for Plymouth and Cornwall, but not for south Devon which one of these days will be cut off when another massive storm eventually forces the abandonment of the Dawlish route. A inland route between Exeter and Newton Abbot will be needed, built to mainline standards.
The building of the route through Okehampton could actually make the business case for the DAL (Dawlish Avoiding Line) better by increasing capacity, and therefore demand, between Exeter and Plymouth.
If we accept the need for a second route to Plymouth, why would we build one via okehampton when we could build a high speed line from Exeter to Plymouth that would revolutionise travel in the south west
The IEPs are supposed to be good for 140mph after all
In part because there's no capacity for more services, unlike if Crossrail 2 is built and run services from Waterloo to Plymouth. Also if you think the business case for the route through Okehampton was bad the DAL is noticeably worse with little scope for improving it.
Before I am accused of saying that just because it happened in the past, there's a lot of population of the SWML area who currently have to head North or even North East before heading West. By being able to avoid needing to travel via Reading (on a 1tph service) chances are the ability to leave later/arrive earlier could still be done.
No whilst it's unlikely to significantly reduce demand through Reading it may be enough to allow some additional capacity.
Add to that the potential for people opting for an easier journey (for instance Southampton to Salisbury and then Salisbury to Plymouth vs Southampton to Reading using XC and then Reading to Plymouth, potentially having to stand from Reading to Exeter at busy times) then it's for the potential to generate a fair amount of extra income. Certainly more than the DAL would, even though (even allowing for redoubling of the WofE line) the DAL would cost more.
Then there's the running costs, if you're running services on each branch (Okehampton and Tavistock) then the extra trains/staff to run them as a through services would incur almost no extra costs but they would generate some extra income as more than zero people would use it if it existed.
Other than Okehampton and Tavistock, assuming that you've got a fairly reliable service for most of the time along the existing route where else is there of note worth serving by rail between Exeter and Plymouth?
As to we could just run buses, we could, however with a rail alternative those who still needed to use the buses would be better off (for instance shorter wait times for buses), as a bus/coach can generally carry 60 people, even a 30% loaded 9 coach 80x would still need at least 3 coaches, if you can divert 70% of them by train them you only need one coach, so it can be sat waiting, load up and go fairly quickly.
Yes it's £1bn however that's not all that much in the greater scheme of things and it wouldn't require much (if anything) in ongoing support beyond what is already being spent anyway (unlike a lot of other reopenings into rural areas).