Railway minister Suresh Prabhu discusses the steps being taken to increase the national transporter’s revenue and optimise its operational expenses, in an interview with Bilal Abdi and KG Narendranath. The minister also explains how his plans to accelerate the railway’s capital expenditure would be accomplished. Edited excerpts:
Last year, you could curb the growth in the railways’ operational expenses (total expenditure grew just 5.4%, compared with a CAGR of 9.8% in the previous five years) even though it included reduction in allocations for replenishment of assets. A focus is given to non-fare revenue, and the aim is to increase this from 3% of total receipts now to over 10% (the target for non-fare revenue for FY17 is Rs 9,600 crore, up 68% from last year). Also, the freight basket is being diversified and 25-tonne axle load wagons with 9% extra carrying capacity are being inducted. How are these steps going to help you in increasing the railways’ surplus, which is deplorably insufficient to meet its massive expansion requirements?
We have taken many steps to boost receipts. By reducing the freight rates, we are trying to diversify the freight basket. However, it is a structural issue that cannot be addressed overnight; the good news is that the work has started. We have appointed account managers for every important customer. We are also working on long-term contracts for more stability in volumes as well as prices. We have met representatives from each sector — cement, coal, iron ore, food grains etc — individually, for the first time in the railway’s history to discuss the specific needs of each sector. Customer orientation of the entire operations is the main focus. The idea is to accelerate the increase in volume and thereby income.
The low core-sector growth impacted our freight loading. This has prompted us to experiment with new ideas. For example, before July 15, we will be doing the trial studies for double stack dwarf containers which can accommodate goods ranging from house-hold appliances, clinkers, stone chips, textile products etc. Besides, new measures like roll-on-roll off (transporting trucks on rail for last-mile connectivity), long-term contracts, abolishing the dual freight policy on iron ore have been rolled out. There are many more such initiatives being planned with a view to increasing fresh volumes and reducing the dependence on the core commodities.
As regards non-fare box revenue, we intend to increase advertising revenue from Rs 300 crore in FY16 to Rs 1,700 crore this year. Parcel leasing revenue of Rs 4,000 crore is targeted for FY17 thanks to a modified policy. So, the target to increase such revenue to 10% of total receipts would be achieved sooner than many thought.
The structural issue you mentioned, however, can be addressed only by pricing railway services in keeping with commercial realities. The proposed Railway Development Authority of India (RDAI) may have a major role to play. In the Budget, you said the authority will be set up during this financial year, but there are concerns about its autonomy and effectiveness.
We are working towards making the authority very effective. In no way it is going to be subordinate to the rail ministry. It is primarily going to have three functions — ensuring a level playing field to attract private investors, setting up of efficiency benchmarks and performance standards for the transporter, and recommending tariffs. A legal consultant is assisting us in the structuring of RDAI and we are confident that it would be formed with adequate powers soon.
You have assumed a 12.6% increase in total expenditure this year, much higher than last year’s 5.6%, despite the headway being made in cutting operational expenses on diesel and electricity. Is Pay Commission the only reason for this?
We will likely achieve annualised savings of Rs 3,000 crore in electricity bill (thanks to the deemed licensee status and launch of competitive bidding for procurement of power). The increase in expenditure is primarily because of the 7th Pay Commission award for which we have provided Rs 20,500 crore in this year’s rail budget. This excludes the payment of allowances, as the finance ministry had asked us not to budget for these in the current year. The allowances portion is around Rs 8,500 crore which may have to be budgeted for next year. After the Bonus Act was amended, the largest bonus liability was with the railways.
Taking everything into account, the increase in expenditure this year should have been 20%. But we could keep the outgo in check with diligent steps and zero budgeting. We are trying to curtail our diesel expenditure further; we are in talks with the ministry of petroleum on this. The railways bears the brunt of the cess on diesel more than anybody else while the proceeds are used for development of roads. We are one of the largest consumers (of diesel) and so, the proceeds of the diesel cess should also come to us. We are taking up the matter with those concerned.
When it comes to monetisation of the railways’ surplus land — 45,000 hectare according to an estimate —the progress has been tardy. The rail land development authority has been given just 1,000 hectare or so for development. What are the practical difficulties you are facing in generating a revenue stream from your land assets?
Most of the railway land parcels that we are talking about are the narrow stretches beside the railway tracks and don’t allow commercial development. Since the railways’ network is so big, statistically you estimate the surplus land to be huge. What we are doing is planting trees near the tracks and tapping the advertising potential of the space. We are also using such spaces to set up solar lighting devices. Additionally, we will use vacant spaces for station redevelopment. We have already awarded the contract for redevelopment of Surat station.
The target is of course to revamp 400 stations and the Swiss challenge route (the first model proposed could be challenged by others, but the first right of refusal will be with the first bidder), but modest beginnings have been made. We also have a lot of land encroached by others and are trying to remove these hurdles. Some of the lands which are not occupied are being developed for warehousing, private freight terminals, private sidings etc. We are also digitising our land which would eventually help monetisation.
You have set an ambitious target to spend Rs 8.5 lakh crore over five years to create capital assets. Last year’s Plan spending was Rs 93,795 crore, up 50% over the previous year, and the target for this year is Rs 1.21 lakh crore. Does it hold ground to say that last year’s capex figures should not have included advances released to rail PSUs?
We have not given more than Rs 1,000 crore to PSUs in FY16. Anyway, it is a usual and globally prevalent practice to give mobilisation advances to the implementing agencies before the work commences. If a project starts and the project cycle is, say, four years, we will have to first give a mobilisation advance. The railways have a limited capacity to implement projects. So, we need implementing agencies like our PSUs and other firms, for instance, L&T has taken up many projects. Even the Railway Board gives funds to zonal railways; it is also given as an advance and so are the advances to the dedicated freight corridor. And these can legitimately be reckoned as spending by the railways.
Equity infusion is carried out annually in Indian Railway Finance Corporation (IRFC) to enable it to raise resources from the market. It is necessary to maintain a healthy debt-equity ratio to ensure good credit rating in the market. In FY16, the total borrowing through IRFC increased to Rs 24,866 crore and the plan for FY17 is to raise Rs 40,000 crore.
What about the plans to increase extra-budgetary resources (EBR) for capital spending?
Apart from the Plan outlay of Rs 1.21 lakh crore, we spend on DFC (dedicated freight corridor) projects and add to these the private investments. Last year, Rs 85,000 crore was spent on DFC and around Rs 40,000 crore worth of contracts were awarded for locomotives. We have also given the highest number of orders for wagons. As for EBR this year, these will include some Rs 21,000 crore to be raised as institutional finance. We have a plan to mobilise Rs 1.5 lakh crore from LIC over five years. Other avenues to raise finances from multilateral agencies and overseas markets will also be explored in keeping with the Rs 8.5-lakh crore capex plan for five years.
Is their visible progress on the PPP (private public partnership) front?
The PPP segment is picking up.
We have a target to create more than 100 private freight sidings this year via the PPP route.