Rail Budget 2015-16 India Update : Prabhu to unveil plans for raising resources in Rail Budget

Railways Minister Suresh Prabhu will unveil his first Budget on Thursday and a lot of suggestions from the Prime Minister’s office have been incorporated in the Budget, said sources, adding that its focus will be on attracting investment, modernisation of trains through Wifi and transparency in railway systems.

While a fare hike is unlikely across the board, acess for cleanliness cannot be ruled out. Prabhu is likely to unravel his grand plans of how to decrease the cross-subsidy for passenger service from freight earnings which is touching Rs 24,000 crore and the steps to increase goods transportation share in the national transporter with or without hiking fares.

For 10 years before 2012-13 there was no increase in rail fares. Then Railway Minister and Trinamool Congress leader Dinesh Trivedi had made an across-the-board hike in 2012-2013 but was made to roll back the hike in second and sleeper class categories. Since then there have been hikes in passenger fares.

Before the first Railway budget of the Modi government in July last, fares were increased by 14.2 percent and freight rates by 6.5 percent.

Though there is a decrease in diesel price, electricity cost has gone up by over four percent making it a balancing act for the fuel adjustment cost (FAC)-lnked tariff revision policy adopted by railways since 2013.

Currently there are 676 projects worth Rs 1,57,883 crore sanctioned and out of these, only 317 projects could be completed and 359 projects remain to be completed which will now require as much as Rs 1,82,000 crore.

Considered a reformer, Prabhu may lay the road map for attracting private investment for the public transporter, which badly needs funds for completion of many crucial rail projects. Given the funds constraints, he is likely to go slow in announcing new trains and projects in the budget.

Funds allocation will be made only for those projects including new lines which are strategically crucial, doubling and route electrification which are nearing completion, the sources said.


Rail Budget 2015-16 India Update : Passenger svcs breakeven must, says ex-rail board member

The best start for the railway reform will be if the present railway minister can make passenger services of Indian railways breakeven. The Indian railways’ finances has gone from bad to worse gradually for the simple reason that Indian railways had to cross subsidize its passenger sector earnings by about Rs 30,000 crore every year.

Over the years, it is increasing. During my time, the loss of Indian railways due to passenger services was Rs 8,000 crore. After taking a lot of measures, I could reduce it to Rs 6,000 crore but now since then and prior to my time also, passenger fares were not increased and very recently two-three small increases have been made. As a result, what has happened is loss has increased right up to Rs 30,000 crore.

If you calculate the operating ratio of passenger services separately as you know that Indian railway’s overall operating ratio is little more than 90 maybe 92-93 and gradually it is getting worse. Now, if you separately calculate the operating ratio for passenger services and freight services then passenger services operating ratio will be as high as 160, which means for earning each Re 1 from passenger services, you have to spend Rs 1.60 paisa.

Normal course – Indian railway is the only railway in the whole world, which makes a small amount of profit but if you can make the passenger services self sufficient that means breakeven then Indian railway can easily generate internal resource mobilisation to the tune of Rs 40,000-45,000 crore.

The railway is a commercial organisation basically; therefore railways operation broadly should be divided into two categories. First category 80 percent of it should be on commercial configuration, commercial viability. That should be only if the operation, the business is financially viable. Now therefore all commercially viable projects like any other commercial organisation be it PSU or a private corporation it has to be financed following the normal principle of financing a project. That means 30 percent by the organisation through equity or their internal generation and 70 percent by credit, bank loan. If they can earn Rs 40,000-45,000 crore profit, every year it will not be difficult for them to finance those projects and according to me Indian Railways can finance any project.

Balance, about 15-20 percent these are those projects where say in a backward area the rail line should go, the roads have gone because every year thousands of crore either central government or state government have spend for expanding the road network. Like, during Vajpayee’s time the golden quadrilateral of roads have been constructed or started being constructed.

So railway has got 2-3 social obligations, not exactly the social obligations, it is necessary for the country’s benefit, security and defence. So front area, backward area, these projects entirely should be financed by the state government or the central government. If a state wants some line in their backward area they should pay some 50 percent or whatever it is and Center should pay and that project should be constructed based on that.


Rail Budget 2015-16 India Preview : Prabhu needs to look for ways to raise funds

The world’s largest passenger carrier (23 million a day), fourth-largest freight carrier (1 billion tonne a year) that operates 19,000 trains daily covering a 65,000 kilometres of route length, the Indian Railways truly is a story of scale.

However, another story that has run alongside and grew every passing year is the one of stagnation, thanks to the perennial dilemma of whether it should operate as a commercial enterprise or serve as a welfare organization.

The table below charts the railways’ financials over the past seven years. Railways has managed to just about meet its expenses and create some bit of surpluses, as can be seen in the gross receipts and working expense figures.


But the surplus, a few thousand crores every year, is a drop in the bucket compared to the capital required for railways to meet their expansion projects. For ongoing projects alone, capital worth Rs 1.57 lakh crore needs to be infused.

The story lies in failures of two kinds.

One, over the years, governments have been extremely hesitant in hiking fares for passenger, while choosing to increase rates of freight, to the point that the latter has been subsidizing the former for a long time.

For instance, the average rate charged by railways to a passenger for a kilometre’s distance went up from 24.5 paise in 2003-04 to 27 in 2010-11. Over the same period, the average rate to carry a tonne of freight a kilometer has increased from 71.88 paise to 101.47.

As a result, while the passenger division has been consistently making losses (it accounts for roughly half the railways expenses and brings in less than one-third its revenues), ever-increasing freight rates have only resulted in companies increasingly deciding to transport freight by road.

The market share for freight has come off from 90 percent in the 1950s to about 42 percent now.

The only conceivable way for railways to upgrade systems, boost cleanliness, improve safety mechanisms and provide more comfortable travel while expanding its capacities is to invite private capital.

In the last railway budget, the government allowed 100 percent foreign direct investment in several sectors aside of transportation.

So also, it focused on trying to revive the public-private partnership (PPP) model, which has till now failed to take off in any meaningful way because earlier railways would hardly leave any incentive for the private sector to come in.

So when Suresh Prabhu gets down to read the railway budget speech on Thursday, beyond the routine announcements of new trains and newer projects, analysts will look for the big ticket ideas on how railways can raise the funds it badly needs.

While there are expectations passenger fares or freight rates may not be touched – the increase last year just prior to the rail budget resulted in a furore – Prabhu should outline ways in which the government’s push last year has yielded results.

Ways to bring in more local and foreign capital, monetize assets, cut costs, promote more indigenous manufacturing, improve access to low-cost funding, boost governance by overhauling IT infrastructure as well as forming an independent authority to decide on rail tariffs would be key on observers’ minds.


Rail Budget 2015-16 India Predictions : Fare hike unlikely; stress on Make in India & cleanliness

Just a day before the Narendra Modi government is set to unveil the Rail Budget, sources say that its focus will be on attracting investment, modernisation of trains through Wifi and transparency in railway systems.

Sources say that a lot of suggestions from the Prime Minister’s office have been incorporated in the Budget. While a fare hike is unlikely across the board, a cess for cleanliness cannot be ruled out.

As high speed corridors cannot come out of the railway resources only, the focus is likely to be on joint ventures and Foreign Direct Investment in the Budget. As per sources, the emphasis of the government is to build a Public private partnership for raising money. NGOs, corporate sectors can advertise on the coaches of railways to generate more revenue.

Railway sources: 59,000 coaches to be converted into vacuum toilet, a technology that’s available in air planes. Cleanliness of stations and bio toilets is likely to be the thrust of ‘swachh’ (clean) railways.

Railway Minister Suresh Prabhu is likely to make announcements of a series of green initiatives, focus on cleanliness and build an interactive customer portal for direct feedback from passengers. Prabhu is likely to emphasise upon finishing the existing projects.

To ensure safety and security, a proposal to install CCTVs in coaches and on stations is likely to be presented.

It is likely that lesser number of new trains will be announced in comparison to the previous budgets of the Congress-led United Progressive Alliance government. According to sources, the minister feels that announcement should be done after study of feasibility and economic viability.

Sources also say that 2016 onwards, only those Linke Hofmann Busch (LHB) coaches will rolled out which have bio toilets. The old coaches will have green toilets. Stations which don’t see too many trains will see better utilisation of the space for skill development programme of the Prime Minister.

The focus of the Budget will be on Make in India so indigenous technology will be pushed, claim sources.

© 2008-17. All Rights Reserved. Epic Research Pvt. Ltd.