1. Rail budget 2016: Capex outlay to fuel efficiency

Rail budget 2016: Capex outlay to fuel efficiency

The roadmap outlined in the Rail Budget must be adhered to while implementing proposals

Updated: March 2, 2016 1:48 AM

Overall, the Rail Budget 2016-17 with a total outlay of Rs 1.20 lakh crore as compared to Rs 1 lakh crore last year is heavy on capital expenditure. Though the budget has tried to incorporate all possible measures of transforming the Indian Railways as proposed in its five-year road-map (2015-19), due emphasis has not been given on keeping the operating ratio low. Moreover, increased expenditure on account of the 7th Pay Commission is likely to put pressure on the operating ratio for the next budget.

The decline in freight volume and passenger traffic indicates the state of the economy. At this stage, debottlenecking of investment seems the only option available. An investment close to double the average of previous years is an ambitious target and the Railway Minister must be complimented for his positive outlook.

The budget has tried to focus on expansion of the overall railway freight basket and generate more revenue through non-farebox avenues. It is heartening to see that the railway ministry has, for the first time as a part of the budget, presented an implementation report on the progress status of last year’s budget announcements.

Some of the major thrust areas the budget has focused on are:

Improvement in Railway Amenities

An increased focus on improving passenger amenities like cleanliness, punctuality, food, ease of ticket booking, quality of travel, on-board facilities, security, etc. is the expected and desirable step towards achieving passenger satisfaction. The positive response to the Swachh Rail Swachh Bharat mission has seen it being extended across stations and trains and the system of third party periodic audits is a welcome move. The challenge could lie in an efficient monitoring mechanism for their implementation.

Regaining railway freight market

Rail freight revenue comprising more than two-thirds of Railways’ total revenues is an important contributor to the economy. However, over the last few years, railway freight traffic growth is declining. The budget has tried to regain freight market share through announcements for expanding the freight basket, rationalising the tariff structure and building terminal capacity.

The budget has highlighted that Eastern and Western Dedicated Freight Corridor projects are likely to be operational by 2019-20. An additional three new dedicated freight corridors have also been announced. These steps, supported by more fuel efficient wagons, are likely to provide much needed boost towards increasing railways’ share in the freight market.

Gr5

Better Port and Rail Connectivity

The budget has recognised the importance of connectivity to ports. The new railway line spurs connecting Nargol port, Hazira port, Jaigarh, Rewas, Paradip and Dighi; augmentation of sub-urban rail network in major metro cities; and broad gauge connectivity to the North Eastern states and Jammu & Kashmir would improve connectivity significantly and are likely to boost  EXIM freight movement.

Operational efficiency and Process Improvement

The procurement of power directly at competitive rates is a notable step for annualised savings of Rs 3,000 crore. Several environment-friendly steps like generation of solar energy, recycling of water, conversion of waste to energy and use of LED lights are also likely to contribute to such savings.

The procurement of goods and services through an e-portal is another positive measure.

Assessing the punctuality performance of busy routes, evaluating each zonal office and station on the basis of performance indicators and targets, setting up an independent Rail Development Authority to govern rail tariff seem to be measures aimed at streamlining the overall processes.

Attracting Investments

It would be a challenge to generate extra-budgetary resources. The budget has reiterated the need for increased investments through alternate means of financing and stressed building partnerships with various stakeholders.

It emphasises forming joint venture with state governments for developing railway projects and exploring alternate means of project funding through multilateral and bilateral agencies, international markets for rupee bonds, partnerships with Ministry of Coal, SAIL and NTPC to expedite the pace of project execution.

Promoting Public Private Partnerships (PPP)

Similar to last year, the budget has highlighted the need to strengthen the PPP cell to increase private sector participation in various large projects. This is likely to encourage private sector funding.

Non Fare Box Revenues

In comparison to other countries where non-fare box revenues contribute 15-30%, our contribution from non-fare box revenues is less than 5%. The budget has given due emphasis on increasing additional revenues from non-fare-box avenues, primarily through station redevelopment, monetising of land along tracks, and monetising of soft assets.

Way Forward

Indian Railways has been able to add only 5000 km of tracks in the last 35 years due to budgetary constraints. Increased investment would help railways in capacity augmentation, electrification and expansion of networks and is likely to impact positively on economic growth. As the revenue estimates of the budget are based on healthier growth in freight traffic, it is critical to ensure that the implementation take place in the same manner as envisaged in the document.

By Abhaya K Agarwal

The author is Partner-Infrastructure and PPP, EY

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