The Hindu Business Line : Rail Budget: Creating new records

The fourth successive Rail Budget presented by Mr Lalu Prasad seeks to create new records in several areas and make a sound beginning to face the emerging challenges during the Eleventh Plan beginning next fiscal. Evidently, a laudable effort has been made to make full use of the continuing economic boom that has helped the Railways come out with record-breaking performance during the first nine months of 2006-07.

FINANCIAL PERFORMANCE

According to revised estimates, gross traffic receipts during the current fiscal are expected to be Rs 63,220 crore with freight revenues accounting for Rs 42,299 crore. What is heartening is the fact that ordinary working expenses have been contained; in Revised Estimates, these have increased by just Rs 64 crore (0.2 per cent) to Rs 38,091 crore in 2006-07. This is the result of better capacity utilisation in both freight and passenger segments and improvement in overall efficiency of the system.

After providing for Rs 4,108 crore and Rs 7,416 crore towards Depreciation Reserve Fund and Pension Fund respectively, the total working expenditure is likely to be Rs 49,615 crore. The cash surplus before dividend is estimated at Rs 20,063 crore, 16 per cent higher than the previous year and 5.5 per cent higher than the Budget estimates. The net revenue and net surplus after payment of dividend are expected to be Rs 14,870 crore and Rs 10,627 crore respectively.

The operating ratio of the Railways is likely to improve to 78.7 per cent this fiscal from 83.2 per cent in 2005-06, the best ever for the Railways. Consequently, the financial health of the system is set to improve dramatically. The year-end fund balances are likely to increase from Rs 12,141 crore in 2005-06 to Rs 16,000 crore in 2006-07 and the return on capital is set to touch a historic level of 20 per cent.

ANNUAL PLAN

The proposed annual Plan outlay of Rs 31,000 crore for 2007-08 is the largest ever and represents an increase of about 32 per cent over the previous year. The internal generation of resources is expected to contribute Rs 17,323 crore or almost 56 per cent of the total outlay and is 61 per cent more than last year. The outlays of the annual Plans over the last three years have increased by about two-and-a-half times.

The budgetary support for the Plan is Rs 7,611 crore (24.5 per cent) and raising of extra budgetary resources will be Rs 5,740 crore. Thus, the dependence of the Railways on budgetary support during the year will be less than 25 per cent. Considering the quantum jump in investments planned by the Railways, including the Eastern and Western Dedicated Corridors, during the next Plan, the budgetary support during 2007-08 — the first year of the next Plan — appears inadequate.

It may be recalled that at the Planning Commission meeting, chaired by the Prime Minister in October 2006, the Railway Minister, Mr Lalu Prasad, had sought a 134 per cent increase in budgetary support for the Railways from Rs 32,000 crore during the Tenth Plan to Rs 75,000 crore during the Eleventh Plan. He had pointed out that the total investments for the projects to be taken up would amount to about Rs 3,00,000 crore, including the projects that may be taken up under the public-private partnership schemes.

FARES AND FREIGHT

The Rail Budget does not propose any increase in passenger fares for any class of travel; upper class fares have been slashed a bit and second-class fare was reduced by a token Re l per ticket. There will be a reduction of 4 per cent for all sleeper class tickets and the super fast charge on second class tickets slashed from Rs 10 to Rs 8. AC 3-tier and AC chair car will see a 4 per cent reduction in busy season and 8 per cent in lean season.

Freight rationalisation process will continue during 2007-08. The freight rate for diesel and petrol will be cut by 5 per cent and on iron ore and limestone by 6 per cent. The 10 per cent surcharge on iron ore freight on busy routes has been dropped. Thus, the Rail Budget makes a modest attempt at checking inflation. Evidently, the modest cut in upper class fares has been proposed keeping in mind the competition from airlines. In any case, there was a relentless hike in these fares in the past, making them counter productive. However, the same cannot be said about second-class and suburban fares, which continue to remain heavily subsidised, and the Railways continue to make losses to the tune of Rs 7,800 crore annually in passenger business.

A moderate hike in second-class fares would have been desirable to reduce the losses. This was all the more necessary against the backdrop of 32 new trains and eight more `Garib Raths' proposed by the Railway Minister, along with the addition of 800 coaches to popular trains and improvements in passenger amenities. With the existing second-class fare structure, every addition to capacity will mean more losses to the system and potential loss of profit-making freight business.

IMMINENT SLOWDOWN

While it was relatively easy to bring about a dramatic turnaround in Railway finances with optimum utilisation of existing assets, which were grossly under-utilised earlier, sustaining the growth momentum is not going to be easy. Already the growth numbers projected for next year are relatively modest compared tothis fiscal. For instance, the gross traffic receipts are set to increase by 12.8 per cent, down from 16 per cent in 2006-07.

The growth in freight earnings in 2007-08 is projected at 11 per cent against the record 16.5 per cent in 2006-07. The growth in net revenue is expected to be just 7.7 per cent against 46.6 per cent in 2006-07. The growth in the overall surplus of the system is expected to come down significantly to just 7.7 per cent from the record 72 per cent. The operating ratio, which improved dramatically from 83.2 per cent in 2005-06 to 78.7 per cent in 2006-07, is projected to deteriorate slightly to 79.6 per cent next year.

The revenue earning freight traffic, which is expected to increase from 667 million tonnes (mt) in 2005-06 to 726 mt in 2006-07 is projected at 785 mt in 2007-08. However, the task of achieving the target of 1,100 mt by 2011-12 is not going to be easy. In fact, the Budget estimate has already reduced this target from the earlier much ambitious target of 1,200 mt.

Serious efforts would be needed to implement at the earliest, the proposals to run triple-stack containers on diesel-hauled routes and double-stack containers on electrified sectors as also for early completion of work on dedicated freight corridors.

In this context, the proposals to improve the payload-to-tare ratio of wagons, reduce empty running and to introduce 25-tonne-axle load trains are welcome and need speedy implementation.

In view of the huge investment requirements over the next five years, some of the areas that need urgent attention include measures to attract more higher value freight, reduce the losses of passenger segments, commercial utilisation of landed properties of the Railways and public-private partnership on a much bigger scale.

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