The recent hike in freight rates by Indian Railways is likely to push inflation up marginally, but the same is necessary to raise revenue and improve operating ratio of the Indian Railways. Railways? financial commissioner Samar Jha shares the rationale behind the move with FE?s Praveen Kumar Singh:
What made railways increase freight at a time when government is trying to tame inflation?
Freight rates have been hiked by maximum 4% and its impact on inflation is going to be marginal as industry associations have already said. The hike will not have an impact on short distances. Goods transported over long distances, will pay more freight.
This was a measure to raise additional revenue for railways and improve the financial position. Up to November 2010, our expenditure is more than the projected figure by at least Rs 1,300 crore. This is mainly because of extra percentage of dearness allowance (DA) given to the staff. We had provided for 16% DA only but have had to pay more. There is also the impact of two increases in diesel price which accumulatively will burden the Railways by over Rs 1,000 crore in 2010-11
In addition, the sixth pay commission has linked allowances rate to inflation. It also enhanced the assured career progression to three promotions from the two given in the Railways till now. The pay commission has added an extra Rs 15,000 crore every year to our expenditure. This is a time of hardship. Austerity measures have been imposed.
Talking about financials, what is the exact financial position of the railways?
As I said, we have spent Rs 1,300 crore more than the projection. We are short of earnings target by about Rs 1,100 crore up to November. We hope to bridge the gap in earnings target in the remaining months. The main reason for revenue shortfall is the ban on export of iron ore in Karnataka and Orissa. We are trying other ways to bridge the gap. I am hopeful by March 2011, earnings will match the target. Expenditure, basically staff cost that will be paid fully, remain a worry.
What is the operating ratio now?
Operating ratio cannot be calculated mid-year because it consists of four things?Ordinary working expenses, gross earnings, appropriation to pension fund and appropriation to depreciation reserve fund. Last year, the operating ratio was 95.3% and I hope it will be a little better this year.
Will the operating ratio target of 92.3% be achieved
We may not get too close because of the reasons I have already shared with you.
Railways has envisioned investment of Rs 14 lakh crore in next 10 years, part of which will come from private sector. How will you bridge the fund gap?
We have planned that 64% of this investment will be met through internal generation, market borrowing and public private partnership. The balance 36% we hope will come from government?s budgetary support.
What has been the response to PPP policies prepared by the railways?
There have been five application to the RBI policy, in which private firms will be involved in laying of rail lines. Two applications have been received on running of business as special freight train operator. We expect when these projects start operations, more firms will come forward and invest in railway projects as they would know the revenue stream that will be generated.
For the auto hub policy, SIAM have sought clarifications on freight rates. It wants us to give an estimate of increase in freight rates over a period of time. We are in the process of working out an agreement with them.