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The Big Picture – Railway Budget: What’s on offer?

The Big Picture – Railway Budget: What’s on offer?

Railway Minister Suresh Prabhu has announced his second Railway Budget. Interesting here to note is that unlike past, he has not announced any new trains, tracks or projects. While departing from his predecessors, Prabhu announced a slew of measures aimed at improving the travelling experience of passengers. Focus was also given on restructuring, reorganizing and rejuvenating the railways, and completion of pending projects. However, many are disappointed as the railways could not reach its revenue targets, both in passengers and freight. The newly announced capital expenditure projects are also being looked at with some amount of skepticism.

There are few projects which will not be completed even after two decades. This is due to lack of resources. Shelf of projects is more than 200,000 crores. Hence, giving focus on completion of existing projects rather than introducing new projects is a good move.

Why revenue targets were not achieved and how can we improve the situation?

  • First of all, the economy is facing a number of problems. Production has been coming down with manufacturing and other industries being affected very badly. Added to it is the overall global slowdown, with worsening Chinese and US economy.
  • Another reason is the government’s policy on coal. Railway is relying on 10 commodities for freight earning. Of this, coal constitutes 50% of total earnings. But, government this year announced that it will use only indigenous coal in the government run power houses. Due to this coal freight suffered a lot. Hence, it is time for railways to increase the basket or commodities that the railways should carry.
  • The Railways has also been losing market share to road haulage due to ever increasing freight rates as well as infrastructure bottlenecks that have reduced average freight train speeds to around 25 kmph, one of the slowest in the world. The creation of dedicated freight corridors and the increased focus on containerisation will help the Railways move away from overdependence on low yield bulk cargo and speed up transit times, enabling it to compete better with road transport.

The minister also noted that the operating ratio has gone up beyond 90%. Resources for this will be raised by charging passenger amenities and providing add-on services. Revenues from freight terminals, advertisements and station development will also be used. Premium trains and parcel services will also yield a good amount of revenue.

The railway minister has also announced modernization plans of worth Rs 8 lac crore. Of this 1 lac crore funds will come from the LIC and 40, 000 crore will be budgetary support. However, roadmap for rest of the resource is not clearly laid out. It is being assumed that remaining resources will be raised by monetization of railway assets. Given the huge expenditure, railway minister should clearly indicate the roadmap for raising revenues.

However, experts are also skeptical about PPP projects. It is because of unclear policies of the government. The government, in the recent times, has been trying to get state governments on board by forming joint ventures with them. This has also increased confidence among the investors. The minister has also that by 2017, 2800 km of tracks will be laid. This is an ambitious announcement.

What is most worrying perhaps is that provisions under a key head – depreciation reserve fund – which is used to carry out critical repairs like replacing ageing tracks (a fall in this activity can lead to more accidents) have been lowered to a paltry Rs 3,200 crore for next year from the revised estimate of Rs 5,500 crore for the current year, which itself was substantially lower than the Budget estimate of Rs 7,900 crore. Actual expenditure can be a bit different but the numbers (presumably the best that can be afforded) send out a negative signal.

Perhaps most critically, the Railway Budget has not shed any light on how to engage with the railways’ huge workforce. There is no progress towards ideas that non-core activities like security (Railway Protection Force) and running hospitals and schools should be hived off. Staff and pension expenses already account for almost half of total expenditure. After the blow delivered by the pay commission, their share of expenditure will go up further. Other biggest accusation is that there are very less men to manage railways. It is because of irregular recruitment policies. Control on this front is a survival issue for the railways.