The Hindu Business Line : Rail budget sidetracks freight

The spate of concessions announced are of doubtful social impact, cumbersome to implement, and liable to be misused. Moreover, they will put further pressure on railway finances.

— M. Srinath

Freight, which is the real profit generating segment, continues to get a raw deal.

S. D. Naik

With a slew of populist measures and absence of any bold new initiatives, the Railway Budget presented by Ms Mamata Banerjee clearly falls short of expectations. Leaving fares and freight untouched appears prudent for now since the economy is facing a downturn.

However, the spate of concessions announced such as ‘Izzat’ tickets for unorganisd workers, concessions to correspondents, metro concessions, and so on, are of doubtful social impact, cumbersome to implement, and liable to be misused. Moreover, they will put further pressure on railway finances. According to analysts, the additional financial burden on account of these concessions would be around Rs 500 crore per annum.

Again while the proposal to set up another 1,000 MW power plant could be justified considering the perennial power shortages in the country, the decision to move into unrelated and low priority areas such as nursing and medical schools defies logic. It would be better if the Railways concentrated on its core activities considering the huge resources constraints facing the behemoth and the challenges of meeting the Eleventh Plan targets.

Dream run interrupted

Unfortunately, the dream run of the Railways over the last five years has been interrupted by the current economic slowdown and its finances have come under pressure since the second half of 2008-09. Following the industrial slowdown and declining exports, the Railways could load freight cargo of only 833 million tonnes during 2008-09 against a target of 850 million tonnes.

The target for 2009-10 has been lowered to 882 million tonnes from 910 million tonnes given in the Interim Budget. The achievement of even this lowered target would largely depend on the extent to which the economy recovers this fiscal with some pick up in industrial production and export shipments.

The path-breaking financial performance of the Railways from 2003-04 to 2007-08 that brought about a dramatic improvement of railway finances, had coincided with the high growth phase of the Indian economy with GDP growth averaging 8.9 per cent per annum. True, it was also aided by better utilisation of existing assets, some additional freight loading per wagon dynamic, pricing of freight and passenger fares, as also the faster turnaround of wagons.

The cumulative cash surplus of the Railways before dividend during the four years ending 2007-08 was Rs 68,778 crore. The cash surplus of over Rs 25,000 crore during 2007-08 was 25 per cent higher than that in the previous year. However, the cash surplus declined to Rs 17,400 crore in 2008-09 and it is projected to go down further to Rs 14,201.27 crore this fiscal.

This is, in part, due to the Sixth Pay Commission award entailing an extra outgo of Rs 13,600 crore in 2008-09 and another Rs 14,600 crore this fiscal. After meeting dividend and pension liabilities, the cash surplus for 2009-10 is projected at Rs 8,722 crore, 31 per cent lower than Rs 12,683 crore in 2008-09.

The amount available for capitalisation (transfers to the Development Fund and Capital Fund) will be just Rs 2,642 crore in 2009-10, down from Rs 6,356 crore in 2008-09 and a hefty Rs 13,431 crore in 2007-08.

With fuel costs slated to increase further this fiscal, unless employee productivity increases significantly, the Railways is in danger of ceasing to generate any net surplus. In this context, a worrisome development is the steep fall in the Railways’ operating ratio — an indicator of efficiency. It declined from 75.9 in 2007-08 to 88.3 in 2008-09 and is projected to go down further to 92.5 per cent this fiscal.

Welcome features

The focus of this year’s rail Budget is on passenger amenities, a neglected area for a long time. The Minister has doubled the outlay on this to Rs 1,100 crore and announced plans to develop 50 world class stations and 375 ‘Adarsh Stations’ with basic facilities such as drinking water, adequate toilets, catering services, waiting rooms and dormitories, especially for lady passengers. Also, priority will be accorded to cleanliness, passenger safety and security.

There are also commercial proposals relating to augmentation of wagon fleet, introduction of modern wagons, modernisation of railway platforms, laying of optical fibre cables, utilisation of air space over platforms, introduction of superfast parcel express, etc. It is also proposed to introduce a dozen non-stop fast trains between major cities and double-decker air-conditioned coaches on inter-city trains. These have the potential to attract some of the regular airline passengers.

Other welcome features include the proposals to initiate several projects under the public-private partnership (PPP) model, setting up of land banks for commercial and industrial use of railway land and linking of industrial clusters to markets. However, considering the poor track record over the past decade in these areas, there is a need for new dynamism to pursue these objectives and achieve better results.

Despite lower resource generation, Ms Mamata Banerjee has been able to raise the overall Plan target for 2009-10 to Rs 40,745 crore from the actual Plan expenditure of Rs 36,336 crore during 2008-09 by persuading the Finance Minister to enhance the budgetary support by Rs 5,000 crore to Rs 15,800 crore and raising the market borrowing target to Rs 9,170 crore from the Interim Budget provision of Rs 7,190 crore.

Absence of bold initiatives

The Railways has to traverse a long way before it can match the standards of some of the Asian countries, let alone global standards. It has an ambitious Eleventh Plan target of Rs 2.3 lakh crore for capacity expansion, the bulk of which has to come from internal generation of resources and the PPP contribution. However, there is no indication or roadmap in this Budget as to how the ambitious targets are going to be met.

There are no specific announcements relating to any new freight policy measures or expediting the work on dedicated freight corridors. The work on these corridors has not been moving at the desired pace. The only announcement in this regard is the decision to set up a ‘project monitoring committee’ to ensure timely completion of projects.

With regard to freight policy, there was a need to initiate some bold measures to provide a much-needed push. Even today, bulk commodities such as coal, iron ore, steel, cement, foodgrains, etc., account for about 90 per cent of the freight carried by the Railways. It has not been able to attract high value light freight so far despite the pricing being more competitive compared to road transport which is able to ensure faster and door-to-door delivery.

While the heavily subsidised passenger segment gets several new trains, including fast and super-fast ones in successive rail budgets, the freight segment, which is the real revenue earning and profit generating segment, continues to get a raw deal. The maximum speed of freight trains continues to remain less than 25 km per hour. Serious efforts are needed to ensure faster movement of freight traffic if the Railways has to succeed in attracting more freight, particularly the high value traffic.

Related Stories:
Mamata leaves passenger fares, freight rates untouched
Is Mamata plan more realistic than Lalu’s?

More Stories on : Railway Budget | Insight

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Borrowing gamble

Turning around Air India

Rain check for the Budget party

Other side to ‘borrow-and-spend’

Rail budget sidetracks freight

Revenue-neutral

Realistic restructuring