Railways Budget: A gravy train for the investors?

I guess, by now, most of us have deliberated the bold to the fine print of the Railways Budget 2014-15. At the first blush, it looks delightfully vague.  Unable to see a clear blue print, the stock market gave its knee jerk reaction by shedding 518 points.  Given the clean mandate of the Modi government and its market-based reformist approach and, more importantly, after taking the bravest move to hike 14.2% in passenger fares and 6.5% in freight tariff, FDI was expected to be like a clear writing on all railways coaches!

Be that as it may, thankfully this Railways Budget does not reek of populism. In a calibrated move (hopefully!), after the steepest tariff hike, our Minister of Railways has imbibed a broad brush approach and eschewed a clear blue print on bold policy reforms such as FDI, PPP and Railways Tariff Authority. 

After parsing through the details, it is clear that our Minister of Railways has delivered a budget, which sets the tone for the bulk privatisation of railways infrastructure through PPP model and clearly hints at embracing FDI to bullet the wheels.

The Railways Budget adequately addresses weak financial health and articulates a pragmatic strategy to garner a huge investment outlay for modernisation by: leveraging railway PSUs, seeking cabinet approval for FDI and shoring up the PPP model. Though PPP model has been in vogue for all infra development, it suffered miserably from a mismatch of expectations, risks and rewards. To this end, it is noteworthy that Railways seeks to refine the PPP (BoT and Annuity models) by a consultative process with the industry.  This is certainly a welcome move as a single PPP model cannot be a straight jacket for all projects, and, above all, there should be a fair allocation of all risks between the government and private players to create a sustainable long-term PPP framework.

Nation’s woefully inadequate logistics infrastructure has become the largest bottleneck for GDP’s double-digit growth. To plug in the last mile connectivity, the port connectivity is now reckoned as a top priority. Expediting Dedicated Freight Corridors and proposal of Diamond Quadrilateral will spur GDP; so will certain schemes to facilitate for procurement of parcel vans and rakes by private parties, special milk tanker trains, increase movement of fruits and vegetables in partnership with the Warehousing Corporation and setting up Private Freight Terminals on PPP model.  Aside from spurring GDP, these measures will certainly help contain inflation by transforming the supply-side efficiency.

The Railways Budget’s unequivocal thrust on hygiene, modernisation and transparency is a silver lining in the cloud.  Use of next-gen-IT-infra, bullet trains, and development of railway stations in the line of airport through PPP model would definitely attract private participation. Also, proposal to harness solar energy by utilising roof-top spaces of stations, railway buildings and land will reduce costly fossil-fuel energy bill and stabilise supply of electricity during peak deficit hours.

The Railways Budget lacks a clear blue print but creates clear blue water between this budget and any previous budgets. To sum up, FDI is in the offing and PPP is the way forward. The Railways Tariff Authority could perhaps wait for the right time to usher in. 

In the days ahead, this Railways Budget will hopefully whet the appetite of investors!

(Nishant Singh is partner with Induslaw.)

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