One is spending fast, the other needs to up his game
Any comparison between the highways and the railways ministry is unfair given the vast complexity of the latter—it also employs 1.33 million people—but it remains true that these two sectors, above all, were chosen by PM Narendra Modi to lead India’s economic revival. With the private sector cash-strapped, and PPPs in all manner of trouble, the government’s big plan was to step up public investment, and mostly in railways and roads given their big multiplier effects in terms of both inducing private investment as well as employment generation. To that extent, though only to that extent, the comparison is an acceptable one. In the first five months of the year, from April to August, according to Ambit Capital, the award of 1,855 km of new road contracts represented a 93% increase over the same period last year. By contrast, the railways performance has been quite poor with total expenditure rising a mere 12%, from R19,100 crore in April-August 2014 to R21,300 crore in April-August 2015 and, within this, the capex in the railways system itself—as opposed to JVs/SPVs—was flat at R14,700 crore in both periods.
Most important, the numbers are woefully short of target. In the case of new lines to be constructed, for instance, a total of R12,800 crore was to be spent in the full year—of this, R8,700 crore was to come from the railways itself, and the rest from extra budgetary resources like LIC and the World Bank—while just R2,500 crore was actually spent; that’s 29% of the capex which was to come from the railways itself and an even lower 19% of the total target. In the case of doubling of tracks where R18,400 crore is to be spent—R7,100 crore from the railways itself—just R2,000 crore was spent. All told, of the R1,00,000 crore that is to be spent—R59,400 crore from the railway budget—the total spent in the first five months of the year was R21,300 crore. There is, of course, the possibility that spending may increase later on, but it is important to monitor targets on a monthly/quarterly basis so that the necessary course correction can take place. One possibility is that, for instance, the railway bureaucracy that has been empowered to take as many financial decisions by minister Suresh Prabhu has not yet got used to the responsibility given to it.
Under Prabhu, the railways has come out with many innovative means to raise finance, such as from LIC and even the World Bank—to that extent, it is fair to say funds are not going to be the constraint, at least for the next few years. And, given timely repayments have to be made to LIC—and the World Bank is not in favour of lending if the projects are not viable—the railways is being smart in first taking up projects that cross a minimum hurdle rate in terms of internal rates of return. The task ahead of the railways is also huge, adding to Prabhu’s challenges—in the case of doubling projects, for instance, while the railways has done 600-700 km annually at its peak, the targets envisage this going up four times by FY19. All of which means Prabhu has to not only really crank up the railways machinery, he has to involve more private players too. The latter though, is easier said than done given the bureaucracy’s resistance—look at the heavy weather made over awarding two locomotive projects to private players over the last few years. Privatising railway stations, in the manner AAI did various airports like the Delhi one, would have allowed a few really big projects to start, but that too seems to be stuck on a slow track. Given the promise of change, the slow start is unfortunate.