Railway Budget 2013: UPA express slows at poll signal

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SummaryIn the railway budget 2013-14 presented in Parliament on Tuesday, the Congress’ Pawan Kumar Bansal resisted the temptation for another grand vision for the financially stressed and operationally crippled national transporter ahead of an election year, but batted responsibly by setting economical revenue targets and realisable capital investment goals.

In the railway budget 2013-14 presented in Parliament on Tuesday, the Congress’ Pawan Kumar Bansal resisted the temptation for another grand vision for the financially stressed and operationally crippled national transporter ahead of an election year, but batted responsibly by setting economical revenue targets and realisable capital investment goals. Clearly focused on the short term — this would likely be UPA-II’s last rail budget before the 2014 elections — Bansal has sought to reduce the cross-subsidisation of passenger fares by freight even as he refrained from hiking passenger fares, revised as recently as last month. This is obvious from a projected 30% increase in passenger earnings from a mere 5.2% increase in the number of passengers.

More than a third of railways’ gross traffic earnings comes from the goods segment right now, thanks to inadequate pass-though of costs over several years to passengers, especially those who travel in the lower-class coaches.

For the record, Bansal announced automatic revision in freight to factor in fuel costs every six months, starting with an average 5.8% rise in freight of major commodities from April 1. This could rake in R4,200 crore, more than offsetting the rise in fuel cost — R3,300 crore annually — due to the recent deregulation of bulk diesel prices. Fuels account for 26% of the railway’s operational expenses and Bansal said that the electricity and diesel price revisions in 2012-13 would inflate the transporter’s fuel bill for 2013-14 by R51,00 crore. Another R881 crore is expected from raising passenger reservation and related charges.

Freight revenue is estimated to increase just 9% in 2013-14 as against this year’s 24%, while the gross traffic receipts (GTR) are set to rise 14%. So, over and above the recent hike in passenger fares, more differential pricing and segmentation could be expected in this segment. (One profit centre could be the new Anubhuti coaches in select trains.)

To his credit, Bansal, the first Congress minister to present a rail budget in 17 years, showed the resolve and tenacity to disentangle the pricing of the national transporter’s services and distribution of its investments from political considerations and favouritism. The new projects and 93 new trains he announced were spread out evenly, while Arunachal Pradesh is set to be connected to the country’s vast rail network. A proposal for setting up a Rail Tariff Authority, he said, was being formulated and discussed among ministries.

The freight revenue target based on a meagre 4% projected rise in loading, seems modest, especially since Bansal endorsed the policy of automatic fuel surcharge. Also, the GDP growth next year is not likely to be slower than this year’s estimated 5%. GTR for 2013-14 are estimated to be R1,43,742 crore, up 14% over the current year in which the GTR increase is seen at 21%. Ordinary working expenses for 2013-14 is estimated to grow at the same rate as the GTR, to R96,500 crore.

The operating ratio, which shows how much is left with the railways after meeting the ordinary operational expenses from its own revenue receipts, is estimated to improve only marginally to 87.8% in 2013-14 from the revised estimate of 88.8% (original estimate 83.7%) for the current year. This, again, reflected the modesty in target-setting.

The OR remained at over 90% in the four years to 2012-13, with the worst ratio of 95.3% reported in both 2009-10 (that saw the effect of the Sixth Pay Commission award on wage/pension bills) and 2011-12. The excess left after payment of interest (4% for 2013-14) on the soft loan from the government, would be appropriated to the Development Fund (Rs 3,550 crore), Capital Fund (Rs 5,434 crore) and a newly created Debt Service Fund (Rs 4,163 crore), which would initially meet the debt-servicing liabilities for the World bank and JICA loans for the Dedicated Freight Corridor.

Bansal’s proposals for allocation to the various railway funds (including Rs 22,000 crore to the pension fund and Rs 7,5000 crore the depreciation reserve fund used to replenish existing assets) and the plans to raise the combined balance of these funds to Rs 30,000 crore by the end of the current Plan period don’t look very ambitious either. These funds have been depleted drastically since 2007-08, when their combined closing balance stood at an Rs 22,279 crore. The inability of railways to contribute in required amounts to creation of revenue-generating assets is evident from the fact that just Rs 425 crore was credited to the Capital Fund in 2012-13 as against the Rs 5,000 crore estimated in Budget 2012.

Bansal has laid out his the capital investment plan thus: “...we must be realistic in setting targets in the Annual Plan 2013-14, even if it means Railways would be faced with a stiffer challenge of enhancing investment during the remaining three years of the 12th Plan. A Plan investment of Rs 63,363 crore is proposed for 2013-14. The Plan is proposed to be financed through gross budgetary support of Rs 26,000 crore, Railways’ share in Road Safety Fund of Rs 2,000 crore, internal resources of Rs 14,260 crore, market borrowings of Rs 15,103 crore and an expected mobilisation of Rs 6,000 crore through the public private partnership (PPP) route.”

Of course, the level of investments proposed through the PPP route is not anywhere near the scale envisaged by expert panels like Sam Pitroda-led one (which spoke about cumulative investments of $120 billion for the railways’ network expansion and all-round modernisation) or the Planing Commission (which set Rs lakh crore investments through this route in the 12th Plan). But the minister has identified the priority areas for PPP projects with diligence. He said considering the “limited success” of PPP in the railway sector so far, the PPP model would be employed in Mumbai’s elevated rail corridor, parts of DFC, redevelopment of stations, freight terminals, power projects during the 12th Plan. Care has been taken to promote investments in new rail lines to connect iron ore and coal mining areas to ports. Bansal appealed to state governments to be pro-active on this front and mooted the Centre-State SPV route. The PPP sector attracted investments of only Rs 1,050 crore in 2012-13.

The minister admitted most of the projects announced in the past years on safety upgradation, laying of new lines, doubling and gauge conversion have been either stranded, reduced in size or delayed, but proposed construction of seven new lines and doubling of ten lines. Introduction of first AC Electrical Multiple Unit (EMU) on Mumbai suburban network, introduction of 72 additional services in Mumbai and 18 in Kolkata are among the metropolitan projects and suburban services proposed.

Providing free Wi-Fi facilities on several trains and getting some railway work done through the employment guarantee scheme are among important proposals. Bansal also announced a clutch of new projects including a forged wheel factory at Rae Bareli in collaboration with state-run RINL, a greenfield mainline electrical multiple units facility at Bhilwara in Rajasthan in collaboration with BHEL, another PSU.

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