Home >politics >policy >Rail Budget 2016 | Present tense, future hopeful

New Delhi: Ahead of his second budget, railway minister Suresh Prabhu had two options: whine about his circumstances, partly a result of the legacy handed down to him, or dare to dream.

On Thursday, he chose to do the latter.

Candidly admitting that the current financial year is a washout—earnings, including freight and passenger revenue, are estimated to fall 8.5% short of the target for 2015-16—Prabhu went ahead and set out an ambitious medium-term goal to reset the country’s oldest institution, including its governance, and restore its key place in the Indian economy.

For starters, he moved to rewrite the railways’ interface with passengers—especially their travel experience—and made it a central part of his budget. He set out immediate steps—such as clean stations, easier booking of tickets, hygiene of travel, more food choices on board—and promised new state-of-the-art coaches equipped with facilities such as WiFi.

At the same time, Prabhu did not effect either an increase in freight or passenger tariffs. Implicit in Prabhu’s projections for 2016-17, despite the poor performance this fiscal, is economic buoyancy. If this does pan out then his earnings projections for next year, otherwise extremely modest, will be radically revised upwards, providing substantial relief to its bottom line.

In a post-budget interview to Doordarshan News, Prabhu summed up his ambition thus: “We are talking about completely revamping the structure of railways over a period of time."

“If you have a headache, you can take a pill and make it all right. But where surgery is required, you have to go in for that. If our predecessors had done that, railways wouldn’t have been in this state but I don’t believe in blaming people."

The present

Unveiling the largest ever rail budget of 1.21 trillion, Prabhu said that the three cornerstones of his strategy for 2016-2017 are: Nav Arjan (new revenues), Nav Manak (new norms) and Nav Sanrachna (new structures).

The minister fixed the revenue target for next fiscal at 1.84 trillion, marginally above the budget estimate of 2015-16, which the railways missed by a big margin. That was only to be expected, given the global economic downturn and drying up of domestic investment which squeezed its resources. At the same time, the railways has had to absorb the burden of an additional payout of 28,000 crore as part of the Seventh Pay Commission recommendations.

Though it targeted an operating ratio—proportion of expenses to revenue—of 88.5 for 2015-16, the railways will end up with 90 instead. For 2016-17, it now expects the operating ratio to further worsen to 92.

The investment plan for 2016-17 will be funded in part by a transfer from the Union budget of 45,000 crore and internal resources of 12,700 crore. In addition, partnerships with state governments will bring in 18,000 crore while the Life Insurance Corporation of India and Indian Railway Finance Corporation will contribute 23,000 crore and 21,700 crore, respectively.

While Indian Railways did not increase its freight rates, understandable given the contraction of freight receipts in the current fiscal, it is looking to expand the list of commodities it services—increasing it to 40 from nine at present by including automobiles, packaged consumer goods, cotton, fruits and vegetables.

The future

The biggest takeaway from this year’s budget is Prabhu’s promise to overhaul the railways, including its governance, even as he reiterated the medium-term plan of investing 8.5 trillion by 2019-20. In this, he has drawn heavily from the report of the committee for mobilization of resources for major railway projects and restructuring of the railway ministry and railway board.

For starters, the minister has abandoned the convention of passing on the financial burden of Indian Railways through frequent increases in freight and passenger tariffs.

Instead, the funds would be arranged by the cash-strapped transporter from its internal resources (stepping up efficiencies and generating savings) and financial innovations.

The resources are expected to be generated from three sources: institutional reforms that would generate savings, monetization of assets and defraying project costs with other stake holders.

The new funding avenues include tapping loans from domestic and multilateral agencies, funding projects through joint ventures with states, a new public-private partnership strategy and selling rupee bonds.

In addition the minister announced governance reforms of the Railway Board, the utility’s apex operational authority, and commercial operating principles.

The board will now have cross-functional directorates to focus on non-fare revenues, speed enhancement, motive power and information technology.

Another change would be bringing around two dozen Indian Railways-owned companies under the umbrella of a holding company.

Railway board chairman A.K. Mital claimed the reorganization would mean the board will work as a business company. “For example: the focus would be on non-fare box revenue which at present for Indian Railways is less than 5% and we expect to double it."

While cost-cutting measures would be just a small fraction, a major part of revenue generation is expected to come from monetization of railway resources.

“The railway budget presented by Suresh Prabhu has good direction. The challenge would be more in terms of how they would get executed," said transport economist G. Raghuram, a professor at the Indian Institute of Management, Ahmedabad, and a member of the expert group for the modernization of Indian Railways, 2012.

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