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Business News/ Opinion / Views/  Union Budget and the path forward for Indian Railways
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Union Budget and the path forward for Indian Railways

Indian Railways has received substantial investments over the past decade or so, the next logical step is to introduce efficiencies to ensure a return on these investments, which may require further reforms

Gross budgetary support for the railways has been raised by 5% to ₹252 crore, but gross capital outlay saw a modest ₹5 crore increase to ₹265 crore. (File Photo: Mint)Premium
Gross budgetary support for the railways has been raised by 5% to 252 crore, but gross capital outlay saw a modest 5 crore increase to 265 crore. (File Photo: Mint)

Being an interim budget, no major policy changes were expected. The FY25 budgetary support for Indian Railways rose to 252 crore from 240 crore, marking a modest 5% rise, which is somewhat disappointing given the current trend of fund utilization. Even then, this small increase might be sufficient to sustain ongoing projects like track doubling, new lines, electrification, and the procurement of modern rolling stock.

A key policy direction in the budget is the strengthening of mineral and cement corridors, port connectivity, and dedicated freight corridors along high-density routes. This approach has already contributed to significant growth in the Railways' freight traffic, and the budget for fiscal year 2024-25 (FY25) aims to continue this successful strategy. 

Recent policy initiatives, such as the development of logistics parks and railway terminals under the PM Gatishakti policy, have received positive industry feedback and are anticipated to greatly reduce logistics costs. The process for approving and funding port connectivity projects has also been streamlined.

Another notable announcement was the upgrade of 40,000 passenger coaches to Vande Bharat standards. Although specific details are not available yet, it's assumed that this will involve improvements to interiors, such as lighting, panelling, upholstery, and toilets. While this will likely enhance passenger experience, it may not significantly impact speed or safety. 

Expert estimates suggest that this number – 40 – represents almost the entire fleet of LHB (Linke Hofmann Busch) coaches with the Indian Railways, which are suitable for upgrades due to their residual life of over 10 years. If this upgrade process is spread over the next decade, it could mean refurbishing 4,000 coaches annually, creating a 1,000 crore business opportunity for the MSME sector and boosting employment and adoption of modern technology.

Gross budgetary support for the railways has been raised by 5% to 252 crore, but gross capital outlay saw a modest 5 crore increase to 265 crore. This highlights the railways' growing reliance on gross budgetary support for capital expenditure, as internal generation and extra-budgetary resources are declining. This indicates potential issues, especially since post-pandemic growth in road and air transport sectors has been significant, while railway passenger traffic is yet to return to pre-pandemic levels, suggesting a loss in market share for passenger services. Despite consistent capital investment over the last nine years, this has not translated into increased profitability or surpluses.

Over the last five years, the railways has implemented several policy reforms, with notable successes in eliminating at-grade crossings and achieving complete electrification. The elimination of level crossings has resulted in improved operational efficiency and reduced manpower needs, while the switch to electric traction has made operations more efficient, economical, and environmentally friendly. However, station redevelopment has been less successful, with underutilized funds allocated for passenger amenities.

The Vande Bharat train, a world-class product made in India, has generated high expectations among travellers. However, the budget does not address the necessary infrastructure upgrades to fully utilize Vande Bharat's speed potential.

The project delivery system within the railways needs improvement. Often, railway projects are awarded to railway PSUs, leading to multi-layered subcontracting and increased failure risks. For sustainable growth, a framework is needed where specialized railway knowledge and experience are made accessible to the private sector to enhance efficiency and build capacity.

Thanks to sustained capital investment, railway PSUs are performing well, with shares of listed companies trading near peak values. This presents an opportunity to focus on disinvestment/consolidation to invite private sector investment and efficiency.

Railways is a capital-intensive sector, and substantial investments over the past nine years have been made in various segments, including new lines, doubling, electrification, rolling stock, last-mile connectivity, and signalling. The next logical step is to introduce efficiencies to ensure a return on these investments, which may require further reforms.

Subodh Kumar Jain, former member, Railway Board, and current chairman of Etude Services, a railway consultancy service provider.

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Published: 01 Feb 2024, 07:32 PM IST
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