Details on FDI would have rounded it off well

Updated: Jul 9 2014, 15:51pm hrs
At the outset, the rail minister must be congratulated for taking the bold decision of increasing passenger fares before the budget and standing by it. Former rail minister Dinesh Trivedi had rightly said, while increasing fares in the 2012-13 budget, that the railways was in the ICU. Unfortunately, that hike had to be rolled back.

The first rail budget of the new government, while not path-breaking, is positive. For one, it is not a populist announcement of a slew of new projects. While retaining the contours of the interim budget, initiatives have been spelled out to take the Railways forward. However, the minister could have given more details on FDI and private investment, which would have had an immediate impact on market sentiment. The modalities must be spelled out at the earliest.

The first steps were taken in the 2013-14 budget through the introduction of automatic fare revision, based on the fuel adjustment component (FAC). The rail minister has confirmed this would be implemented. But there was no mention of the creation of the Rail Tariff Authority which should, hopefully, crystallise this year for fare revisions to be independent.

A salient feature of the budget is containing market borrowings through IRFC and the proposal for a near-plan Holiday, which would give much-needed reprieve to the Railways finances. To concretise this, the ministry should prepare a Green Book, just as the Pink Book, indicating the projects proposed to be frozen, and a separate book according high priority to projects that would augment capacity.

While the introduction of bullet trains and other high- speed initiatives are welcome, the minister must also address safety requirements for railway tracks and other infrastructure. Whats encouraging is that this is also the Prime Ministers dream rail budget and financial support from the Centre, especially in the form of a safety fund, would help modernise infrastructure.

What the national transporter requires is a clear policy for financial support, not only in the current year but also in years to come. Budgetary support comes at a cost of 5% in the form of a dividend payable by the Railways to the Centre. For the current year, approximately R9,100 crore has been set aside for this purpose. This needs to be revisited, keeping in view the obligation of providing safe transportation.

The rail minister has correctly hinted at the need for cost sharing and participation by states for their priority projects. Increasing plan expenditure comes at a cost since development, repairs and renewals are funded through the Railways internal funds. This affects provisioning for the fund meant to meet repayment of loans taken for Dedicated Freight Corridor and to cover future demands of the Seventh Pay Commission. On no account should the fund be compromised. Ideally, about a size of R30,000 crore must be reached in 3-4 years. This underlines the need for a dedicated safety fund to modernize the assets of Indian Railways.

To conclude, this budget is not just on the right track, but one that promises the fulfillment of aspirations of millions of travelers. That, besides giving a boost to the economy.

Vijaya Kanth

Former Financial Commissioner, Indian Railways