Millennium Post

Massive investment planned for railways

A medium-term massive investment plan of Rs 8.56 lakh crore for the next five years is the defining highlight of the 2015-16 Rail Budget presented by Union Railways Minister Suresh Prabhu. Other key aspects of the Centre’s Rail Budget includes no hike in passenger fares, but a 10 per cent increase in the freight structure for base class-100. Some essential items are, however, exempted from this freight hike, including salt for human consumption, bulk goods like cement, coal and coke, iron and steel, pig iron, iron ores and petroleum products. The Budget also took into account rationalization of distance slabs in the next fiscal.

In his bid bring the railways back on track after years of mismanagement Prabhu desisted from playing to the gallery. He did not flag off sops and concessions or new trains and routes. This is a resolute break from the relic of populist thinking that India had outlived over the last two decades. The Minister did not mince words when he pointedly noted that a fundamental factor for abject service in the railways is “chronic under investment”. No wonder, as a consequence, capacity augmentation suffered, safety was sedulously challenged with pathetic quality of service delivery, leading to “poor morale, reduced efficiency, sub-optimal freight and passenger traffic and fewer financial resources”.

Without unduly harping on what went wrong, Prabhu hit the nail on the head by expatiating on the benefits of investments in the Railways, which will have “a large multiplier effect” on the rest of the economy, besides fostering jobs for the poor and ensuring environmental sustainability. He has also correctly diagnosed the need for significantly improving capacity on the extant high-density networks, which works out to be cost-effective and efficient, as there are no major land acquisition issues. The stress, therefore, would be on gauge conversion, doubling, tripling and electrification to speed up trains for the consumer’s benefit.

A particularly noteworthy feature in the budget is a bold hike in railway electrification for the next fiscal. As against 462 route kilometers this fiscal, a length of 6,608 route kilometers has been sanctioned for 2015-16, an incredible jump of 1330 per cent over the previous year. Considering that electric power is mostly produced through thermal plants, this goes against the green growth paradigm of development that India has vowed to promote. If ecological sustenance and lower fuel consumption are what makes the Indian Railways a preferable mode of transport compared to roads, the Minister owes us an explanation as to how he intends to generate electric power expansion in the next fiscal for hauling freight and passenger trains.

The four objectives Prabhu laid out in this regard, includes the delivery of sustained improvement in customer experience, augmenting the system’s capacity to increase passenger intake from 21 million to 30 million daily passengers, increasing track length by 20 per cent from 1.14 lakh km to 1.38 lakh kms and annual freight carrying capacity from 1 billion to 1.5 billion tonnes. These objectives will be met if the Minister followed it up with action on the ground. Prabhu has sought to rope in State governments for railway projects, through special purpose vehicles. He has also sought partnerships with public sector undertakings (PSUs) to ensure that sufficient capacity is built to transport critical commodities like coal, iron ore and cement. To finance these measures and bring in adequate technology, Prabhu has sought to tap multilateral and bilateral organisations and other governments, besides bringing an efficient dispute management system.

An auditor himself, Prabhu has talked about financing remunerative projects through market borrowings. Apart from the costly borrowings that the system contracts from its own arm, the Indian Railways Finance Corporation (IRFC), it also intends to tap low-cost long-term funds from insurance and pension funds, multilateral and bilateral agencies, which could be serviced through incremental revenues. It is salutary to note that the railways plans to create new vehicles to crowd in private investment from long-term institutional investors and other partners. For the first time, on record, the Railways Minister has openly stated that he would prefer to “monetize our assets rather than sell them”, putting an end to needless controversies.

Most of the Minister’s revenue projections for the Railways are optimistic, as against facts on the ground. In the current fiscal, passenger and freight revenue receipts had to be slashed and the gross traffic receipts fell by a hefty Rs 917 crore in revised estimates compared to budgetary estimates of Rs 1, 60,165 crore. Against this revision, gross traffic receipts are budgeted to fetch Rs 1, 83,578 crore in the next fiscal. Unless a miracle of sorts supervenes and the Ministry of Railways puts in place some user-friendly policies, both for individuals and industries, the revenue receipts need to be realistic.

What is amazing is the accounting mastery the Minister has displayed. Thus faced with stagnant budgetary support, Prabhu has taken recourse to extra-budgetary resource (EBR) route through an innovative tack of tapping institutional finance, which he said is a new vista with promising potential. This would be based on institutional investments in railway projects through railways/PSUs, which are projected to net Rs 17,136 crore. This sum has been designed to speed up completion of capacity augmentation projects, instead of spreading sparse resources. The idea is that many of these projects pertain to decongest heavy traffic sections and as such are remunerative upon completion.  
In sum, Prabhu eschewed populist policies of his predecessors by tweaking the system in a positive manner through a process re-engineering that would undoubtedly bring benefits to the stakeholders and shareholders over the long haul. IPA
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