Editorial: Diverging tracks

After Dinesh Trivedi’s aborted budget in 2012, Suresh Prabhu’s maiden Railway budget could either be the most ambitious India…

After Dinesh Trivedi’s aborted budget in 2012, Suresh Prabhu’s maiden Railway budget could either be the most ambitious India has seen in years, or it could simply fall between the tracks. On the face of things, the budget is hugely positive on many fronts. A capital budget for 5 years—R8.6 lakh crore—suggests a longer-term horizon than the usual one year that most railway ministers look at. At R14,266 crore, the FY16 projected excess of revenues over expenses will be the highest India has ever seen and nearly double that for FY15—and that is when the FY15 number itself was inflated by a R5,000 crore saving in fuel costs, thanks to the collapse in global crude prices. And since the last Pay Commission, the Railways have never had a better operating ratio in the last 9 years—88.8 for FY16 versus 91.8 for FY15 and 92.5 for FY14.

Apart from having the best finances for years, the Railways is projecting a capital expenditure of R1,00,011 crore in FY16 as compared to R65,798 crore in FY15, an increase of 52%—that is a big positive for economic growth since it signals the government is going to significantly step up capital investment, and probably more can be expected in the main Budget on Saturday. All of this, with a minor hike in freight rates—around 5.5% across the board—and, according to the minister’s speech, no hike in passenger fare at all. A big positive is the absence of announcements for new trains, though Prabhu did say this was an ongoing process.

How Prabhu plans to square the circle is the story of this budget’s ambition, and fine print. For one, despite the statement about how passenger fare has not been hiked, a 10% hike has been pencilled in on top of the 14% hike after the government came in—while passenger kilometres are projected to rise 6%, passenger revenues are projected to rise 16.6%. The official explanation is that the increase is due to ‘clerkage & cancellation charges’ and due to increasing the advance reservation period by 2 months, but this doesn’t add up. Given that the Railways lost R34,298 crore in FY15 on account of passenger carriage, the fare need to be raised, but whether it can be implemented remains to be seen, given the minister’s categorical statement—on average, Railways’ earnings/cost ratio is 49.4% for passenger fare and 163.7% for freight. Around R41,645 crore of Prabhu’s ambitious capex plan of R1,00,011 crore is to come from the Union budget, another R17,793 crore from internal accruals and R17,655 crore from normal market borrowings, leaving R23,397 crore of an unfunded gap. Prabhu’s plan is to raise the balance from PPP projects and from ‘extra-budgetary resources’ that include insurance and pension funds along with multilateral and bilateral agencies.

Getting money from these sources means Prabhu has to have a raft of projects that can be completed quickly and will yield enough of a return to make payments—as of now, it is not clear what these projects will be, and it doesn’t help that, in Prabhu’s own words, land acquisition has ground to a halt in the last two years. Over the current year, as well as over the longer run, Prabhu is banking on a series of PPP projects—R1 lakh crore alone over 5 years for redeveloping railway stations and constructing logistics parks. For a Railways that looks like on the brink of collapse, even physically—40% of all tracks are running at over 100% capacity, a sure recipe for trouble—there is no other option but to bring in the private sector in a big way. So, full marks to Prabhu for trying to get the Railways back on track. An essential prerequisite for private sector involvement, though, is to get the fare structure right—by ducking the issue, Prabhu has dealt himself short.

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