Lalu Chants Modernisation Mantra

Written by Economy Bureau | New Delhi, Feb 26 | Updated: Feb 27 2008, 06:39am hrs
In the 21st century, the business scenario is changing fastat the speed of light. Therefore, we have decided to set up a multi-departmental innovation promotion group in the Railway Board, said railway minister Lalu Prasad in his Budget speech on the floor of the Lok Sabha on Tuesday.

In keeping with that theme of modernisation, he announced the setting up of a strategic business unit to act as single window for all core business problems. He also said an IT Vision 2012 document would be prepared on the use of platforms based on geographic information systems, global positioning systems and radio frequency identification to make freight and passenger information real-time. Vision 2025 for Indian Railways will also include mobile tickets and a switch to lighter stainless steel wagons to carry a much higher load.

Prasad kept intact his track record of not increasing passenger fares during his tenure as railway minister. Instead, he reduced fares significantly. He made travel by AC first class cheaper by 7% and by AC II-Tier cheaper by 4% to take on competition from low-cost airlines. He also announced a 5% cut in passenger fares in second class and a symbolic Re 1 discount for tickets priced up to Rs 50 in non-suburban second class to please his core constituency. Prasad announced a Rs 75,000-crore investment plan for new tracks and add more muscle to his freight business.

Passengers have been flooded with promises of more amenities to make rail travel more comfortable. New stainless steel trains with modular fittings, discharge-free green toilets, multi-level parking at 30 major stations, provision for lifts and escalators, wider e-ticketing facilities, 53 new trains and 10 more Garib Raths were announced. All these will raise the railways expenditure by nearly 20%, compared with 14% in the current year, to Rs 50,000 crore.

Gross traffic receipts for 2008-09 are estimated to be Rs 81,901 crore, a growth 12.5%, at par with the nominal GDP growth rate of 13% for the year. This is less than the almost 16% recorded in the current fiscal, but it is still expected to generate a surplus of Rs 24,782.98 crorejust a shade less than this years Rs 25,065.49 crore.

In the area of freight tariffs, the railway minister reduced the number of categories from 210 to 200, thereby reducing the spread in rates between the costliest and cheapest commodities, possibly leading to savings for transporters. Freight discounts of 5% for petrol and diesel and 14% for flyash have also been announced. However, whether fright tariffs will be revised midyearas has been done no less than 11 times in the current fiscalremains to be seen.

The tariff and fare concessions are, however, likely to hurt the railways finances. While the railways is expected to pass this fiscal with flying colours, 2008-09 may just prove to be a reality check, with projections of a higher operating ratio and working expenses. The impact of the Sixth Pay Commission will cost the railways Rs 5,000 crore and rising fuel prices will dent the bottomline.

There is also no funding proposed for the ambitious dedicated freight corridor between Delhi and Mumbai. Rail Bhavan sources told FE that they were asked to keep the forthcoming elections in mind while preparing the Budget. Estimates indicate that the fare and freight concessions were likely to cost the railways Rs 800-900 crore in the fiscal. Its operating ratio, which is pegged at an all-time low of 76.3% for this fiscal, is estimated to increase to 81.4% in 2008-09.

Analysts also point out that while the railways has an excellent balance-sheet at the moment, capacity constraints are mounting. The minister has projected 100 million tonnes (mt) in container traffic and 300 mt for port traffic by 2012, from the present level of 26 mt. The challenge now for the railways is to move to larger and more complex investment requirements such as the oncoming capacity constraints, said Amrit Pandurangi, executive director, PricewaterhouseCoopers.

Prasad has, therefore, announced a private-public partnership programme to attract Rs 1 lakh crore in investments over the next five years. The projects envisaged include station improvement, setting up wagon and loco units and multi-modal logistics parks. The core business of the railwaysrunning trainsthough, will not be up for grabs.