Multiplier effect on the track

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Railways fortunes on a roll thanks to the freight component


Manasi Phadke

While most budgets world-wide seem to rely on populism and big-ticket announcements for fetching publicity and fanfare, the Rail Budget has given thrust to apparently small and do-able moves for it is only these that will have far reaching impact on the sector.


ere junoon koh natijaa zaroor milega"

(My commitment will be amply rewarded) was how the Minister for Railways, Mr Lalu Prasad, described his efforts at keeping the organisation on the profit track.

The fact that the Railways has made a remarkable turnaround over the past year and that it has a healthy kitty of Rs 11,000 crore were highlighted right at the beginning of his Budget speech.

Yet the fact remains that a part of this huge surplus has to be attributed to the economic boom both globally and in India, due to which the Railways' freight business has been fairly buoyant the past fiscal. The good part of the Budget is that, at last, the organisation seems to have freed itself from the cross-subsidisation psyche wherein passenger fares were cut at the cost of higher freight rates.

This year, in fact, freight rates will stay constant and a long-term freight discount scheme has also been introduced. There is now a recognition that freight contributed to the good fortunes of the Railways and several initiatives have been made so that the revenue from this sector sustains.

These were in two forms: Increasing the physical network of the freight carriage, and improving the efficiency of the existing network.

Especially relevant is the Rs 22,000 crore to be spent on building the freight corridors. This would not only boost volumes but also create a huge multiplier effect.

The multiplier effect of the investment in the freight corridors will be immense as they would increase enormously the reach of the system and move large volumes of raw materials and intermediate goods. Further the freight revenues should get a boost with reduction in the wagon turnaround time by speeding up loading and unloading.

While most Budgets world-wide seem to rely on populism and big-ticket announcements for scoring brownie points, the latest Budget's small and do-able moves such as these will have far reaching impact on the way the machinery works.

In terms of the passenger revenues, the Railways Minister has made the first moves to take on the low-cost airlines by slashing the upper class fares. However, it needs to be remembered that adopting this strategy requires a fairly buoyant revenue source outside the passenger segment and this is where the gains from the freight segment should prove useful.

The idea of cyber cafes and ATMs at railway stations, upgrading 200 trains to super-fast status, and extending the railway network are all good planning and will add to the multiplier effect.

All in all, the Minister has done his job well. If he can provide the necessary thrust and direction to the creaking administrative machinery as well, the economy can then chug along better and the results will start showing.

(The author is Economic Advisor, Mahratta Chamber of Commerce, Industries and Agriculture, Pune.)

(This article was published in the Business Line print edition dated March 14, 2006)
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