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Finance ministry turns down railways’ request for funds

Finance ministry turns down railways’ request for funds
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First Published: Sun, Oct 16 2011. 10 29 PM IST

Off the track: The railways has been under increasing financial constraints in the last few years. Mint
Off the track: The railways has been under increasing financial constraints in the last few years. Mint
Updated: Sun, Oct 16 2011. 10 29 PM IST
New Delhi: The finance ministry has denied the railway ministry’s request for a loan of Rs 2,100 crore to cover development expenses, two railway officials said.
The railway ministry made the request in August saying it was falling short by that sum to meet its planned expenditure.
“The finance ministry has squarely told the railways that it needs to put its house in order before it asks for more money,” said one of the railway officials mentioned above, requesting anonymity.
The finance ministry could not be immediately reached for comment.
In 2009-10, the railways was left with a paltry revenue surplus of Rs 75 lakh, the comptroller and auditor general said in a report in August. In 2008-09, the figure stood at Rs 13,431 crore.
Raising passenger fares can help the national transporter generate extra revenue. Officials said the railways earns about Rs 30,000 crore annually from passengers—even a 10% hike in fares will fetch it an additional Rs 3,000 crore.
Passenger fares were last raised in 2002-03.
Off the track: The railways has been under increasing financial constraints in the last few years. Mint
Instead of raising fares across the board, the ministry has been considering a dynamic fare mechanism that will peg the fare to cost of fuel, said a second railway official.
“It could involve determining a constant base rate of increase, in addition to which, would be a variable component that would be linked to the cost of power or diesel, as the case may be,” said this official, who also did not want to be identified.
But this is unlikely to happen anytime soon as the Mamata Banerjee-led Trinamool Congress party, a key constituent of the ruling United Progressive Alliance (UPA) is opposed to the idea, the officials said.
“Not only is she (Banerjee) opposed to a fare revision, but also to any new surcharges being levied,” said the first official cited above.
Banerjee was the railway minister since 2009 until she took over as chief minister of West Bengal this year. The post then went to another leader of her party, Dinesh Trivedi.
Banerjee could be reached for comments. Trivedi declined comment.
It is unlikely that any decision on a fare hike would be taken before the budget, although the finance ministry has been pushing for a passenger fare revision, said a third railway official, asking not to be named.
A finance ministry official had earlier told Mint, on condition of anonymity, that the ministry keeps giving the railways periodic advice on how to improve its fiscal situation, but does not give specific directions on how and when to raise passenger fares and freight charges.
To be sure, the railways does not require Parliament’s approval to raise passenger fares or freight charges.
It already follows a dynamic pricing model for freight and routinely revises freight rates. On 14 October, it announced a 6% hike in freight rates for all the commodities that it carries, including iron ore, coal, foodgrain and fertilizers.
The railways has been under increasing financial constraints in the last few years. Its operating ratio, which indicates the amount spent for every rupee earned as revenue, rose to 92.3% in 2010-11 from 75.9% in 2008-09.
“The arrears due on account of the salary and pension hike proposed in the sixth central pay commission set us back by at least Rs 16,000 crore every year,” said Samar Jha, former financial commissioner, Indian Railways.
Abhaya Agarwal, executive director, Ernst and Young, said apart from raising passenger fares, the only way in which the railways could improve its fiscal situation was by going in for public-private partnership (PPP) projects.
But some major PPP projects, including the ones to manufacture electric and diesel locomotives at Madhepura and Marhowra, respectively, in Bihar, have been delayed.
These projects, announced in 2006, could face further delay as the finance and railway ministries differ on various clauses of the draft contract agreements, Mint reported on 27 June.
Four companies—General Electric Co. (GE), Alstom SA, Bombardier Inc. and Siemens AG—are competing for the electric engine contract. A joint venture between GE and Bharat Heavy Electricals Ltd (Bhel) is competing with Electro-Motive Diesel Inc. for the diesel engine contract.
The railways is likely to award a proposed rail coach factory project in Kanchrapara in West Bengal to state-owned Bhel on a nomination basis and cancel the open tender, Mint reported on 17 September.
In 2010, the railways had shortlisted eight bidders for the project. These included Bombardier Transportation India, Alstom India, Siemens, Construccionesy Auxiliar de Ferrocarriles (CAF), Hyundai-Rotem, Stadler Rail with Titagarh Wagons and ABB, Hitachi and Kawasaki Heavy Industries with Texmaco.
Asit Ranjan Mishra contributed to this story.
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First Published: Sun, Oct 16 2011. 10 29 PM IST