Fares, freight unchanged as UPA nears poll station

Written by fe Bureau | New Delhi | Updated: Feb 13 2014, 06:30am hrs
RailEconomic slowdown deprives railways of tariff hike benefits. Reuters
THE economic slowdown and a slippage in controlling ordinary working expenses have largely deprived Indian Railways of the benefits of a fiscal consolidation drive begun more than a year ago. The interim Budget 2014-15 along with the vote-on-account for the first four months presented by railway minister Mallikarjun Kharge in the Lok Sabha on Wednesday left passenger fares and freight rates untouched.

Rail Budget 2014: Mallikarjun Kharge Full Speech

It showed passenger earnings rising 19.7% in FY14 against the budgeted 35%. Freight revenue, which accounts for roughly two-thirds of railways gross traffic receipts (GTR), is seen growing at 10.2%, a trifle more than 9.7% estimated previously.

Despite the 20% weighted average hike in passenger fares announced in January 2013 and the subsequent introduction of automatic six-monthly adjustment of tariffs to factor in fuel costs, the operating ratio (OR) has only deteriorated. The ORs differential with 100 shows the size of funds with the transporter for investing in much-needed expansion after meeting ordinary expenses and unavoidable replenishment of assets.

Against the budgeted 87.8%, the OR for 2013-14 is now projected at 90.8%. Due to a R4,000 crore rise in pension bill to R26,700 crore, the OR is not envisaged to improve much next fiscal either with the figure estimated at 89.8%. Kharge also revised the OR for 2012-13 to 90.2% from 88.2% previously estimated all these figures compare poorly with the best OR of 75.94% achieved in 2007-08, helped by a sharp rise in incremental freight loading to over 60 million tonnes a year since 2004-05.

Despite providing Rs 1,000 crore less (as against the budheted Rs 7,500 crore) to the depreciation reserve fund (DRF), excess of receipts over expenditure for 2013-14 is now pegged at just Rs 7,943 crore as against the budget estimate of Rs 13,146 crore. (DRF is used for replenishing existing assets). That means the national transporter is left with nothing after Rs 5,268 crore being spent on debt servicing and a measly Rs 2,675 crore provided to the development fund. The revenue-creating Capital Fund, to which flows of Rs 5,434 crore was envisaged in previous budget, has been completely starved. Of course, dividend payment is set to be Rs 7,943 crore as against Rs 6,249 crore estimated in the previous budget.

There have been times were our fund balance has been in the negative. What we project for the next year (89.8% OA) is very realistic and does not leave us in an uncomfortable position, Rajendra Kashyap, finance commissioner, Indian Railways said.

Gross traffic receipts (GTR) for 2013-14 is now pegged at Rs 1,40,500 crore as against the budgeted Rs 1,43,742 crore, which means 13.5% increase from the previous year as against the targetted 16%. For the next fiscal, GTR is seen at Rs 1,60,775 crore, up 14.4%. Even as the economy is expected to grow at sub-5% for the second year in a row this fiscal, freight loading is set to slightly exceed the target at 1,052 mt (1,047 mt) thanks to the modest hike of 3.9% budgeted.

While Kharges projections are seen to be largely modest and realistic, analysts say it is going to be the task of the next government to chart out a plan that would boost the railways internal generations and make it more eligible to borrow funds and use the public-private partnership model to invest in network expansion and modernisation. Port connectivity, coach and wheel factories are areas where PPP has started working while the plan is to extend the model to other areas like laying of rail lines, first and last-mile connectivity projects and modenisation of stations As far as PPP model is concerned, many uncertainties and risks are involved. It will take time to build the mutual trust between the railways and private investors, said Vijaya Kanth, former railway finance commissioner.

Net Plan outlay for railways including budget support for 2013-14 has been revised to Rs 59,359 crore from Rs 63,363 crore originally budgeted and the same is kept at Rs 64,305 crore for the next fiscal. Marketing borrowings by IRFC and Rail Vikas Nigam stood at Rs 14,942 crore, close to budgeted level of Rs 15,103 crore.

The lower-than-expected growth in passenger receipts despite the 20% hike in fares in January ending a decade of non-revision of tariffs is primarily due to the dip in short-distance (up to 50 km) suburban traffic, a railway board official said.

Passenger fares continue to be cross-subsidised to the tune of Rs 25,000 crore by freight.

The freight loading target for next fiscal is set at 1,101 mt, just 4.6% increase over this revised estimate for this year. Ideally, the rail freight loading should grow at 20% faster than the real GDP and freight revenue 20% higher than the nominal GDP. As far as specific commodities are concerned, cement has gone down (thanks to a deceleration in construction growth), but food grainsare is doing well and so also coal, which accounts for 60% of the freight revenue.

Says Manish Agarwal, leader-infrastructure at PwC India: The share of rail in freight movement at 25% in India, compared to 50% in China and the US, indicates insufficient utilisation of the cheapest form of transport. The next government will have the opportunity to take a five-year view, to spell out how railways will contribute to making manufacturing more competitive.

The plan to better the railways OR to 80% by the end of the 12th Five-Year Plan (which implies creating a surplus of Rs 30,000 crore for the year), doesnt seem easy to implement right now. What boosts hope is the rail tariff authority being set up. Kant said the although the authority will have only an advisory role initially, it will help make the process of tariff determination a transparent and dynamic process, devoid of subjectivity to a great extent.

Kharge envisioned development of the countrys 1.15-km-long rail network by attracting private investments and FDI. He also announced launch of 17 new premium trains, 39 express trains and ten passenger trains in the coming year and providing rail connectivity to Katra and Vaishnodevi in Jammu and Kashmir, and Meghalaya and Arunachal Pradesh in the Northeast.