High investment plans pose implementation challenges
The Railway budget continued to focus on the long-term health and turnaround of the Indian Railways. In a departure from the earlier budget’s trend of announcing new routes, this budget focused on a more efficient utilisation of existing routes through new tracks and gauge conversions. While FY16’s investment plan is 52% higher than FY15’s, implementation of the plan will be the real test for the government.
Record Plan outlay; gross budgetary support of R400 bn: The Plan outlay for FY16 has been budgeted at R1.0 trillion—52% higher than the outlay of R658 billion for FY15 (revised estimates). This is proposed to be financed by (i) Gross budgetary support of R400 bn (FY15RE was at R301 bn), (ii) internal resources (R178 bn), (iii) market borrowings (R177 bn), (iv) PPP investment (R57 bn) and (v) safety fund (R16 bn). In addition, the ministry also introduced a new financing route based on institutional investments (possibly bilateral/multilateral funding) of R171 bn.
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This will be aimed at accelerating the completion of capacity-augmentation projects.
Sharp improvement in operating ratio: The operating ratio has been budgeted to be brought down to 88.5% from 91.8% in FY15 (FY14 was at 93.6%) . This is projected to be achieved through a 13.6% increase in goods earnings and 16.7% increase in passenger earnings over FY15.
Along with strong earnings projection, the operating ratio is estimated to move lower on muted expenditure growth of 11.2%. Fuel cost is estimated to be almost flat compared with FY15, which is likely to help in keeping expenses under check.
Focus on efficient use of routes: Unlike the past few years, the investment plan is clearly in favour of (i) gauge conversion, (ii) doubling of lines, (iii) new lines and (iv) traffic facilities. Allocations for doubling of tracks and traffic facilities are up 335% and 147%, respectively, over FY15. But for gauge conversion, the rise is only 62%. The focus has not been on new train routes but on increasing the efficiency of existing routes. The railway minister highlighted that out of 1,200 sections on the high-density network, 40% is operating above 100% capacity and 12% is operating at 80-100% capacity.
—Kotak Institutional Equities