The Hindu Business Line : Rail Budget

If there was one word that was coming through constantly in the Railway budget, it was investment. The Railways will be investing massively in shoring up and creating new capacities across all areas.

The Railway Minister, Mr Lalu Prasad, has done it again. Despite the commotion created by the Opposition, Mr Lalu Prasad, in his inimitable style, declared a profit of Rs 20,000 crore for the Railways. This Budget brings great news for industry.

Investment focus

If there was one word that was coming through constantly, it was investment. The Railways plans to invest massively in shoring up and creating capacities. From freight corridors to coaches and from three-stacked containers to cushioned seats for Second Class bogies, the Railways will be spending more. Eight hundred new coaches are to be added on popular trains, which is good news for coach-making companies. Fifteen private container licences have been given out. Three-deck container carriers are to be designed for certain sector-specific needs, such as carrying automobiles from the hinterland to ports. Twenty-five-tonne axle load trains are to be run experimentally. The Railways is also planning significant investments in rail route capacity.

With the Railways going on a spending spree, it will be bonanza for industry.

Industry to benefit

While the immediate beneficiaries will be companies such as BHEL, Gammon India and BEML, the multiplier effect and the corresponding spin-off for the economy will be huge. Steel, iron-ore and cement will benefit as will the mechanical, electrical and rubber and polymer industries. Companies with mechanical and electro-mechanical job-work facilities will see increased demand. Design industries will also get a boost due to a qualitative change in the freight-carrying policy, introduced for the first time in this Budget.

Companies are going to be allowed to enter the designing arena and come up with different model freight cars. This implies that Indian companies will now be able to partner with some global majors for coming up with better designs for the Indian rail fleet.

Issues of concern

Amid this bonanza for industry, a couple of issues need sorting. First, the process of issuing tenders and obtaining orders is still not very transparent. The process through which the Railways, or any other government department for that matter, awards contracts needs to be open. It is not enough to give a demand side boost Companies that will participate in the supply base must be treated fairly. A lot of companies, Small and Medium Enterprises among them, are aggrieved at the often unfair tender specifications. The SMEs especially need a mechanism by which they can participate in the growth story created by the Railways.

The Railways record of making payments for goods and services needs to improve. When the new Micro, Small and Medium Enterprises Development (MSMED) Act specified that large buyers that fail to make timely payments to SMEs will be punishable with penal interest equivalent to the Bank Rate, one of the main issues that came up was that such large buyers are often government departments themselves. While the Rail Budget will create sufficient demand pull for SMEs, such operational issues need to be sorted out.

At the macro-level, this kind of spending by the Railways can add fuel to the inflation fire. Thus, there needs to be some interlinking between the Railway and the Union Budgets. When the Finance Minister gives a growth thrust, the calculation and inclusion of the demand created by the Railways, one of the biggest government buyers, is crucial.

But industry surely is not complaining. Mr Lalu Prasad, the management guru, has come up trumps yet again.

(The author is Economic Advisor, Mahratta Chamber of Commerce, Industries and Agriculture, Pune. Email: manasip@mcciapune.com)

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