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Reuters

Rail Budget focuses on more efficiency, new funding options but lacks big reforms

26 February, 2015

Railway Minister Suresh Prabhu steered clear of populist moves and did not announce any new trains breaking from the long established tradition of his predecessors in his maiden Railway Budget. He focused on drawing more operational efficiency, making rail travel faster and safer while exploring new funding channels for network expansion besides a string of passenger amenities.

However, for those looking for bold reforms from the former power minister, who is seen as a technocrat more than a politician and joined BJP after switching from Shiv Sena few months ago, the Railway Budget proved to be a disappointment.

The Railway Budget which precedes the annual Union Budget presentation two days later was being seen as a lead indicator for the policy direction to be taken by the new government. Though investors are still betting on big reforms especially on the fiscal side on Saturday, the lack of bold moves did not go down well with the punters with the 30-stock benchmark Sensex skidding close to 1 per cent on Thursday.

Prabhu promised to bring an end to the “vicious cycle of underinvestment” in railways to improve the profitability of the sector. He promised investment of Rs 8.5 lakh crore over next five years, half of it to modernise existing tracks and stations besides other aspects such as introduction of faster trains.

The minister talked of five drivers and eleven thrust areas straddling them to drive the growth in India’s largest employer and a key engine in the economy.

These includes aspects like adopting a medium term perspective for transforming railways, building partnerships for funding and capacity building, leveraging additional resources, management practices and governance.

Capacity building

“In the next five years, our priority will be to significantly improve capacity on the existing high-density networks. Improving capacity on existing networks is cheaper. There are no major land acquisition issues and completion time is shorter. The emphasis will be on gauge conversion, doubling, tripling and electrification. Average speed will increase. Trains will become more punctual. Goods trains can be timetabled,” he said.

The thrust in capacity building is on network expansion, fast-tracking identified projects, raising freight handling capacity, upgrading manufacturing capability and seek to run faster trains.

Within this, electrification of existing lines to make trains run faster and further reduce dependence on diesel as a fuel to run trains found special mention. This was despite the crumbling price of diesel already snipping fuel expenses of Railways.

“As against a sanction of 462 route kms in 2014-15, a length of 6,608 route kilometers has been sanctioned for 2015-16,” the minister said.

The minister also mentioned improving the train speeds and upgrading of manufacturing capabilities. For instance, he talked about raising the average speeds of flagship trains such as Rajdhani Express connecting Delhi to Mumbai and Kolkata which would make both an overnight journey instead around 18 hours currently.

He also talked about exploiting the current asset base better by increasing the capacity of trains to 26 coaches from current 24 by simply reducing the number of coaches on trains with lower occupancy level.

Bullet trains, which is one of the more ambitious projects of the new government, also found a mention but just. The minister said that the feasibility study for high speed rail between Mumbai and Ahmedabad is in advanced stage and a report is expected by the middle of this year. He added that regarding the other high speed routes on the diamond quadrilateral, studies are being commissioned.

Amenities

While the minister did not toe the line of his predecessors who have been announcing a long list of new trains each year, he also did not put further burden on the passengers.

“There will be no hike in railway passenger fares. We will focus on improving passenger amenities,” the minister said.

He announced a slew of measures from ensuring more cleanliness both in trains and in the stations besides safety measures and other amenities for the passengers straddling use of technology and otherwise.

In one big move he said passengers can now book tickets 120 days or four months in advance as against the current norms which allow ticketing just 60 days in advance.

Performance & outlay

The gross traffic receipts is expected to be Rs 1,59,248 crore for 2014-15 as against the budgetary estimate of Rs 1,60,165 crore, the minister said.

This was partly due to lower than expected rise in passenger earnings. This figure which was estimated to grow 22.2 per cent has now been scaled down to 17.7 per cent due to the persistent negative growth trend, particularly in non-suburban non-PRS segment of travel.

However, on the positive side, ordinary working expenses (OWE) which was expected to increase 15.5 per cent over 2013-14 is now projected to rise 11.7 per cent. This has been supported by the drop in price of high speed diesel which powers many engines. On the flip side, the Rs 28,865 crore budgeted for pension fund expenses of the huge employee base is expected to be higher that the provision made earlier.

The surplus of receipts over expenditure stands at Rs 7,278 crore in the revised estimates for 2014-15. With this the targeted operating ratio has improved to 91.8 per cent against 92.5 per cent in budgetary estimates.

Meanwhile, the government is expecting passenger earnings growth of 16.7 per cent in the coming year and earnings target budgeted at Rs 50,175 crore.

The freight traffic is pegged at an all time high incremental traffic of 85 million tonnes, anticipating a healthier growth in the core sector of economy, specially where rail co-efficient is high and by tapping full railway potential to cater maximum to demand-side. Goods earnings is accordingly proposed at Rs 1,21,423 crore after rationalisation of rates, commodity classification and distance slabs.

Gross traffic receipts in 2015-16 is estimated at Rs 1,83,578 crore which is a growth of 15.3 per cent. OWE is expected to grow at an even modest rate of 9.6 per cent with expectation that fuel bill would now account for just 25 per cent of expenses as against 30 per cent in FY14 and 27.4 per cent in FY15.

With the above estimates, the operating ratio is now pegged at 88.5 per cent for FY16.

Jaideep Ghosh, partner and head of transport & logistics, KPMG in India, said the proposed increase in base freight rates by up to 10 per cent, along with hikes for 12 commodities in the range of 0.8 to 10 per cent, will continue to pose a challenge.

“On the whole, while the rail budget proposes several institutional reforms for development and modernisation, all eyes now remain on resource mobilisation and implementation, along with proposed funding plans for the investments,” he said.

“The Rail Budget 2015-16 outlined investment plan of $120 billion over next five years. This translates to around 1 per cent of annual GDP (0.6 percent average in last few years), indicating government’s intent of increasing investment in railways, which we think is a big positive,” according to Ritesh Jain, chief investment officer, Tata Asset Management.

Referring to dedicated freight corridors, he added that the ministry expects award of 750 km of civil contracts in the coming year which is a modest target on an ambitious project and was a slight disappointment.


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Rail Budget focuses on more efficiency, new funding options but lacks big reforms

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