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Business News/ Opinion / Online Views/  Rail budget: a low-impact wishlist
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Rail budget: a low-impact wishlist

The budget veers away drastically from the prime minister’s commitments to the country and the railways

Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint )Premium
Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint )

Anew government at the centre gets only 60 months to perform credibly. A credible performance requires a clear package of deliverables, emphatically declared and controlled with a top-down approach. Sadly, even in its second rail budget, the government is still learning to fly.

The budget essentially contains a set of incoherently packed, low-impact wishlists of various directorates of Rail Bhavan. Some big ticket projects will take a long time to mature into action plans. The high-speed rail project, for instance, which was to run across the Diamond Quadrilateral, has been truncated. This will hardly lead to the transformation that Prime Minister Narendra Modi envisioned.

Instead, railways minister Suresh Prabhu used this budget to build a favourable background for seeking Parliament’s tacit approval for various future announcements and, in particular, resource mobilization through creative extra budgetary resources. Much like his predecessors, Prabhu reminded Parliament about the long list of pending commercial railway line projects. Most of these are un-remunerative, new railway lines to nowhere. Their fast-track completion would only push the presently profitable Indian Railways into losses. The impact of this on the performance of the railways has not been considered a major issue to be shared with public through this budget. Perhaps it is reserved for the Comptroller and Auditor General of India to discover in future.

To finance an investment of 1 trillion in 2015-16, extra budgetary resources are pitched at 17,136 crore from institutional finance, and 17,655 crore from market borrowings. The targeted operating ratio of 88.5% in 2015-16, on a revenue base of 1.83 trillion, yields a surplus of 14,265 crore. This has to be now compared with the debt service burden that will be imposed on the railway system from investment on business-as-usual, low-return and long-gestation projects.

Borrowing of 40,000 crore entails annual repayment liability of at least 4,800 crore per annum over a period of 15 years for an internal rate of return of 8% for the lender (including return of principal). At the level of internal revenues that the railways are able to generate, this repayment liability, along with existing debt burdens of past Indian Railways Finance Corp. Ltd borrowing, has to be built into either tariffs or volumes. The volume of traffic is certainly not going to fetch the kind of money required. Thus, tentatively, if over the next five years Indian railways plans to progressively borrow more and more, on the path towards 8.5 trillion investment, the debt repayment liability will keep rising in increments of 4,800 crore per annum and more.

The only admirable decision is about the strategic-cum-commercial new links in the north-eastern region. What Rail Bhavan never told Prabhu is whether the technical directorates have the technology for tunnelling through mountains and building earthquake-resistant tall viaducts. Substantial funds worth 8.5 trillion are promised for implementing all these projects, including in the northeast, but whether the railway ministry has enough programme management skills to demonstrate substantial progress in 50 months is yet be ascertained.

Commercial performance of railways is on expected lines. Riding on a slight buoyancy achieved in average loading at 3.15 million tonnes per day in January 2015, which might prevail through to March-end, railways can achieve their targeted financial results, wrapped around a modest operating ratio of 91-92%. However, even with economic growth projected at 7.4 %, traffic availability of coal and minerals in 2014-15 continued to be low, which in turn affected potential revenues.

Ironically, it is the railway ministry which was responsible for low availability of coal. Warnings were sounded in 2012 about the huge traffic advantage from the possible fast-track completion of three ongoing rail–mine connectivity projects in Karanpura (Jharkhand), Mand-Raigarh (Chhattisgarh) and Ib Valley (Odisha). Completion of these project would have provided the railways a massive 250-300 million tonnes of coal to carry. ​

The next three years are very critical for the railways’ ways and means finances. Unless revenues are augmented, the operating ratio will be affected. A poor, or even, a modest operating ratio will prevent substantial replenishment of fund balances. If fund balances are not built up consistently over the next three years, the next Pay Commission payout will stare at an empty rail treasury. The fear is that the incremental growth trend in revenues may not be able to support even the spike in working expenses due to enhanced salaries and pensions, leave alone arrears.

The budget unfortunately veers drastically away from Modi’s commitments to the nation and even the railways. The strategic advantage of the prime minister’s bold announcements has been lost.

Railways is still keen to project itself as a mere transporter, in competition with road and air, rather than an industry and technology leader capable of becoming an engine of growth in line with the prime minister’s vision.

Railways continue to add institutions upon institutions to a list of public sector undertakings, societies and bodies, which instead of adding value, only further sub-divide the revenue basket.

The core of the station re-development philosophy is getting lost in pursuing disproportionately heavy investments for station buildings where passenger stay is but temporary in nature, instead of focusing on the train—where the passenger spends more time. Would it not reap more goodwill and business to improve the travel experience?

R. Sivadasan is former Financial Commissioner (Railways).

Comments are welcome at theirview@livemint.com

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Published: 26 Feb 2015, 07:56 PM IST
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