BackRail Budget: Prabhu projects improvement in finances
Operating ratio is set at 88.5% in FY16, lowest in 9 years, against the revised estimate of 91.8% for FY15
Premium(Priyanka Parashar/Mint)
New Delhi: Railway minister Suresh Prabhu on Thursday projected a significant improvement in the financial health of the public sector transport behemoth that operates the world’s fourth-largest rail network.
The operating ratio is set at 88.5% in 2015-16, the lowest in nine years, against the revised estimate of 91.8% for the previous year. That means Indian Railways will spend ₹ 88.5 for every ₹ 100 the national transporter earns.
Prabhu, in his budget speech, said railways plans to procure power from generating companies at economical tariffs through a competitive bidding process, through power exchanges and bilateral arrangements and, in the process, save at least ₹ 3,000 crore in the next few years.
The expected improvement is based on estimates of record incremental freight traffic and savings on account of fuel, said Rajalakshmi Ravikumar, financial commissioner of railways.
Ravikumar said railways will save 2% on its fuel bill due to the fall in diesel price and new efficiency measures. The network has projected its fuel bill to remain flat in 2015-16 at ₹ 30,000 crore with ₹ 11,000 crore on account of electricity consumption and ₹ 19,000 crore of diesel consumption.
The transporter has also rationalized freight rates for commodities such as coal, food items, urea and cement and will raise additional revenue of ₹ 4,000 crore on this account.
Prabhu proposed a plan outlay of ₹ 1 trillion for 2015-16, an increase of 52% over the previous year. Out of this, while the finance ministry has allocated ₹ 40,000 crore to the railway ministry in budgetary support, the railways plans to raise ₹ 17,655 crore through extra-budgetary resources such as the World Bank, Asian Development Bank and public sector undertakings to fund its long-term projects.
The railways is expected to raise ₹ 17,793 crore through internal resources and ₹ 5,781 crore through public-private partnerships, including possible foreign direct investment inflows. Indian Railway Finance Corp. is expected to raise the rest of the amount through market borrowing.
Ravikumar said the ministry was working out various models with multilateral lenders as well as domestic financial institutions such as the Life Insurance Corp. of India and India Infrastructure Finance Co. Ltd (IIFCL) for raising additional resources.
Public sector units such as Coal India Ltd are also keen to partner with railways to build infrastructure as they face congestion in ferrying coal.
Former railway commissioner R. Sivadasan said the government should not run down railways if it expects private investors to put their money into its projects. Sivadasan highlighted that with all its faults, railways makes a profit—a fact that should be flagged to attract investors. The railways generated a surplus of ₹ 7,278.46 crore in 2014-15 and expects to make a profit of ₹ 14,265.71 crore in 2015-16.
The government has sanctioned 77 projects covering 9,400km of doubling, tripling and quadrupling works along with their electrification to decongest the busiest networks in six corridors, 65% of which is already choked, affecting smooth traffic movement.
Though Prabhu in his budget speech claimed the total cost of such projects is ₹ 96,182 crore which is “2,700% higher in terms of amount sanctioned in 2013-14", it did not match allocations in the budget documents.
The budget may be lacking in fine detail, but promises a superior ride to everyone—from passengers to private-sector participants—with a raft of measures aimed at improving operational efficiencies and invigorating the public-private partnership model and nodal agencies, said Ravi Uppal, managing director and group chief executive officer at Jindal Steel and Power Ltd.
Prabhu has budgeted for freight earnings of ₹ 1.21 trillion in 2015-16, assuming a record 85 million tonnes of incremental cargo traffic.
Prabhu laid out a road map for ₹ 8.5 trillion of investment in 2015-19 with around ₹ 4 trillion allocated for network decongestion and network expansion.
Madan Sabnavis, chief economist at Care Ratings, said industrial growth and the overall economy will receive a boost as several sectors benefit from the planned investments.
“The services sector, especially information technology and hospitality, will get a positive push through these measures. The corporate debt market will be affected marginally with a positive thrust on borrowing by the Railways," he added.
Citigroup India economist Rohini Malkani said in a report that the government’s thrust on higher public investments in railways could well be a precursor to the general budget on Saturday. “We expect government to broadly adhere to fiscal deficit of 3.6-3.8% of GDP in FY16 while improving the quality of fiscal spending from revenue towards capital," she wrote.
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