Rail Budget: A pragmatic approach

Published: March 3, 2015 12:55 AM

Expectations from this year’s Railway Budget were very high. A new reforms-oriented minister with a successful track record took over the...

Expectations from this year’s Railway Budget were very high. A new reforms-oriented minister with a successful track record took over the ministry of railways in November 2014, and the railways has been titled as the “engine of growth” by the PM. On the other hand, there was also a feeling whether a miracle is really possible in a sector which has been seen chronic underinvestment in the past few years. The financial situation of the railways is weak, it has a complex organization structure and there is a heavy element of cross-subsidisation of passenger fares from freight traffic.

The railway budget initiatives announced were pragmatic and cognitive of the reality the railways is in today. There was no announcement of new trains or new projects. There was a factual acknowledgement of underinvestment in the sector and of the saturation in capacity of important trunk routes. There were practical and implementable initiatives related to JVs with states and other government PSUs for the purpose of constructing railway lines. Large projects like high speed railways were committed to study and deliberation and there has been no rush to commit investment on this ambitious project.

The minister talked about delegation of power and decentralisation of decision-making, with the associated measures of increased accountability. He also talked about changing the accounting system to give a clear visibility of costs and enabling better monitoring of project progress. He mentioned the setting up of a regulation body which will look into tariff setting, disputes resolution, etc. All these measures are targeted towards increasing internal efficiency and reducing the time taken in decision-making. All these initiatives are welcome and reformist.

The minister did not increase passenger fares and given the fact that there is a large element of cross-subsidisation and passenger services are actually lossmaking for the railways, this move could welcome comments on being populist. However, it is to be noted that fares were increased by 14.2% in June 2014. Also, the passenger traffic carried by the railways from April 2014 to November 2014 has actually decreased by 1.43% as compared to the same period in 2013. The decision of not raising passenger tariffs needs to be looked at in the light of these facts.

In the passenger segment, the emphasis of the minister has been on increasing amenities with measures related to cleanliness and technology-based solutions to enhance the customer experience. Freight tariffs have been increased and while this is a good move from the perspective of shoring up the railways’ finances, the freight services users will feel the pinch of this raise in tariffs.

Capital expenditure in the 2015-16 railway Budget is fixed at Rs 1,10,000 crore and this represents a massive 66% increase over last year. A large component of this is targeted to come from market borrowings and the minister talked about tapping money through pension and insurance funds, and also talked about setting up an infrastructure fund. These are all news ideas and explore new avenues of funding. An implication of the increased capital expenditure is that the railways will also need to significantly ramp up its project execution capability to manage the enhanced outlay.

In summary, the Budget of 2015-16 sets the right direction to be followed and an efficient and sincere implementation of these measures will lead to an improvement in the financial health of the railways.

By Biswanath Bhattacharya and Rajaji Meshram
Biswanath Bhattacharya is Partner, Infrastructure and Government Services, KPMG, India and Rajaji Meshram is Director, Infrastructure and Government Services, KPMG, India

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