Rail Budget 2016: Suresh Prabhu does not switch tracks

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New Delhi | Published: February 26, 2016 1:08:56 AM

Rail Budget 2016: Suresh Prabhu sticks to huge expansion despite funds crunch.

Union Minister for Railways Suresh Prabhu with MoS Manoj Sinha arrives at Parliament for presenting the Railway Budget 2016-17, in New Delhi on Thursday. Express Photo by Tashi Tobgyal New Delhi.Union Minister for Railways Suresh Prabhu (L) with MoS Manoj Sinha arrives at Parliament for presenting the Railway Budget 2016-17, in New Delhi on Thursday. (Express Photo by Tashi Tobgyal).

Headline Railway Budget numbers for the current fiscal and the next unveiled on Thursday in Parliament drew a picture much rosier than the transport behemoth’s weak financial situation would allow. And the blame can be placed not only on the economic sluggishness but also on last year’s overly optimistic estimates.

Railway minister Suresh Prabhu, however, persisted with his massive expansion plans for the country’s rail network and attendant facilities — last year, he had set a capex target of Rs 8.5 lakh crore to be achieved over a five-year period — hoping to rely a lot more on institutional finance, domestic and overseas borrowings and private investments.

The minister promised a rigorous effort at cost-optimisation (even in 2015-16, helped by a decline in fuel costs, he saved Rs 8,720 crore on ordinary working expenses or OWE) and a rejigging of the tariff structure in the course of the next financial year to reverse the trend of the transporter losing business to other modes, and embarked on a journey to raise non-fare receipts by an abysmal 3% now to above 10% or Rs 16,000 crore at the current revenue level (parcel leasing revenue of Rs 4,000 crore is targeted for 2016-17).

He also laid out a plan to expand the railways’ freight basket, now dominated by bulk commodities like coal, ores, cement and grains, by giving more container traffic access to its terminals.

Despite the focus on the ties with private sector, rail stocks witnessed heavy selling pressure on the bourses during the day. Shares of Kalindee Rail Nirman Engineers tanked 9.26%, Texmaco Rail & Engineering dipped 8.78% and Titagarh Wagons slumped 8.4% on the BSE.

Prabhu, however, refrained from announcing a definite action plan for monetising the railways’ non-operating assets like vacant land (seen at 48,000 hectares) to boost its sparse internal resources, despite expert committees pitching for it, presumably because of the legal and administrative complexities involved.


Some of Prabhu’s budget estimates are liable to be challenged and corrected over time. Apart from the savings on OWE, he also set aside a substantial Rs 2,400 crore less to the depreciation reserve fund meant for repairs and renewals to partly offset the huge Rs 15,740 crore shortfall in gross traffic receipts. This enabled him to report an operating ratio (OR) — paise spent to earn one rupee — of 90 for 2015-16 compared with 88 budgeted. Last year’s were overestimates: Total receipts grew just 7% in 2016-17 as against a CAGR of 11.3% in the previous five years.

Freight volume has been found to be 1,107 million tonnes (mt), against the budget estimate of 1,185 mt (that demanded a 7.7% growth) and the target for the next fiscal is 1,157 mt.

But the lid the minister could put on expenditure ensured it has grown only 5.4% in the current year, compared with a CAGR of 9.8% in the previous five years.

With a further squeeze on outlays to the depreciation fund and a 10% growth in traffic receipts — relying mainly on the promised tariff changes through the proposed Rail Development Authority as the incremental freight loading expected is just 4.5% or 50 mt — Prabhu estimated the OR for 2016-17 at 92%.

Provisioning for the 7th Pay Commission for 2016-17 is Rs 20,500 crore, compared with Rs 28,450 crore estimated by the finance ministry as cost of the recommended salary/pension hikes to the transporter’s 13 lakh staff and an equal number of pensioners for next year. (The railways’ own internal estimate was that pay panel’s proposals could inflate its staff cost by over Rs 32,000 crore in 2016-17 excluding arrears.) This means the outgo of roughly Rs 11,500 crore could be pushed to subsequent years.

The railways’ OR had, it’s worthwhile to recall, spiked nearly 20 percentage points to 95.3% in 2008-09 due to the 6th Pay Commission award and it had spent about Rs 1 lakh crore in the six years to 2012-13 as a result of the award.

The 1.21 lakh crore Plan outlay seen for next year, however, was doubted by many analysts for their viability. Of the Plan outlay for the next fiscal, the gross budgetary support from the finance ministry forms Rs 45,000 crore while Rs 20,000 crore is to be borrowed through the Indian Railway Finance Corporation and Rs 20,985 crore as institutional finance. These are major increases from the conventional levels and even over the current year which saw a GBS of Rs 34,507 crore, market borrowings of Rs 11,848 crore and institutional finance of Rs 9,584 crore crore, said rail ministry officials. They added that investments through public-private partnership (PPP) have been to the tune of Rs 27,269 crore in the current year as against Rs 5,781 crore budgeted.

However, these figures — in line with the minister’s statement in the budget speech that the Plan outlay for 2016-17 was double the average level in 2009-14 — seem to have included several committed projects on which the actual spending has not taken place, analysts said.

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