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Cash-rich Railways seeks massive investments to sustain turnaround

Cash-rich Railways seeks massive investments to sustain turnaround
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First Published: Tue, Feb 27 2007. 03 46 AM IST
Updated: Tue, Feb 27 2007. 03 46 AM IST
New Delhi: Enjoying the benefits of a huge turnaround in financial fortunes that has resulted in an unprecedented cash surplus of Rs20,000 crore, the Indian Railways have embarked on a plan to make massive investments in expanding capacity of the rail network, even as it sought to cut freight and passenger fares to calm rising inflation.
In a chaotic budget presentation marked by non-stop heckling and a walk-out by Opposition parliamentarians, railways minister Lalu Prasad held out the promise of bullet trains, container trains with triple-stacking bins, a more ambitious dedicated freight corridor, smart cards, ticket-vending machines and a much-needed focus on hygiene as part of a Cleanliness Year. And in keeping up with the minister’s populist image, several new trains were also announced along with special concessions for the physically handicapped, women and senior citizens.
The total cost: a capital investment that could go up to Rs2 lakh crore over the next five years.
Railway experts said the minister has no choice but to make such large investments as a lot of the measures that have fuelled the turnaround appear to have run their course, especially in terms of freight loads and operational efficiency.
“The railways have to make these huge investments now,” said S. Murali, a former finance commissioner who remembers the days, just six years ago, when the railways were in a financial crisis and had defaulted on their annual dividend payment, a fact that the minister himself pointed out, for the second year in a row, while presenting evidence of the turnaround.
Despite the huge investments being proposed, Prasad surprised many by trimming passenger fares across the board even as he proposed cutting freight rates on diesel and petrol by 5%, and those on transportation rates for iron ore and limestone by 6%
“This (Budget) has shown the way how growth can benefit all,” said finance minister P. Chidambaram. “I think the Railway Budget has presented a picture of a growth-oriented railway that passes the benefits of growth to the ordinary people.”
That is one reason why the railways have decided to make the private sector a partner in their growth strategy. It is likely that the railways will have to raise as much as Rs73,000 crore from private players in the next five years.
While the growth in its cash surplus, to Rs20,000 crore from Rs14,700 crore, was significant, the most impressive statistic recorded by the railways this year was the operating ratio, which has now fallen to a record 78.7% The operating ratio shows the amount of money the railways spend on their operations as a percentage of their revenue.
Railway Board chairman J.P. Batra said that the cash surplus generated this year was possibly a world record and added that the operating ratio was perhaps only second in the world to the US’s Union Pacific, which only carries freight.
Batra said 50% of the improvement in the operating margin was attributable to better efficiencies. Additional rolling stock helped by 10%, while carrying higher axle load accounted for another 10% of the improvement, he said.
Other yardsticks cited by the railway minister also showed impressive gains. Passenger earnings have increased by 14% in 2006-07, while a record increase of 17% was registered in the freight sector. Gross traffic earnings, which is a sum of all train-related revenues, reached Rs63,120 crore, a 16% growth.
But even as the railways were basking in the performance, some experts are starting to point out that the railways shouldn’t count on incremental loading of freight continuing to grow. Incremental loading refers to the additional freight carried by the carrier year-over-year.
An analysis of the extra amount of freight carried by the railways in the last five years shows that loading increased, on average, by around 50MT. Meanwhile, the railways have set some steep targets. It plans to carry 200MT each of cement and steel, up sharply from its current 35MT of cement and only around 22MT of steel.
Similarly, the railways say they want to carry 100MT of containers even though the current tonnage for containers carried by rail is in single digits. But Prasad noted that while the railways have been losing market share in these two commodities since 1991, for the first nine months of the fiscal year, they had managed to increase their share in the transportation of cement and steel by 5% to 7%.
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First Published: Tue, Feb 27 2007. 03 46 AM IST
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