Having an effective administrator with a remarkable track record has been a huge positive for Indian Railways over the past eighteen months since the NDA government came to power. Railway Minister Suresh Prabhu’s fresh approach to ushering in commercial accounting is laudable, although dwindling resources present challenging economics, and less room to manoeuvre.
Subdued growth in revenues — both passenger and freight — presented a compelling reason for another increase in fares. However, Prabhu choose to shun the low hanging fruit by refraining from fare hikes. Instead, he has proposed enhanced revenue mobilisation through more innovative means to tide over resource woes. The proposal to develop a new freight tariff structure so as to evolve more competitive rates will help the Railways regain market share vis-à-vis other transportation modes, particularly roads.
In order to unleash the monetary potential of rail infrastructure in the country, Prabhu has proposed to evaluate consolidating rail assets under one umbrella, which can give him the leverage to potentially raise incremental institutional capital to fund capital expenditure on capacity addition. On the cost side, while savings in fuel cost yielded marginally improved operating performance during FY16, the increased burden on account of the Seventh Pay Commission’s recommendations is likely to put further strain on IR’s resources.
In this context, the operating ratio proposed for FY17 (at 92 per cent) is a fairly reasonable target, particularly considering moderate growth in passenger and freight revenues, and the indispensable increase in variable costs over the next fiscal.
Besides, expectations from Rail Budget 2016 largely revolved around the promise of capacity addition to prevent losing market share to road transportation. It was also hoped that there would be structural reforms in incurring capex, and sharper focus on project completion rather than on rolling out new projects.
Prabhu has toed pretty much the expected line on this score, rolling out a three-pronged strategy for overhauling the operating efficiency of IR: reorganise, restructure, and rejuvenate.
Capex hike A significant increase in capex — the projected outlay of about ₹1.21 lakh is nearly double the average of the previous year — should facilitate modernisation of the Railways. Expectedly, the Budget proposed to leverage the flagship ‘Make in India’ programme by proposing the setting up of two new locomotive factories.
Impending financial closures for all bankable rail projects is a big push for initiatives towards funding capacity addition. An agreement for long-term financing at favourable terms by LIC is a big draw, and should take the burden off the government finances for building new projects.
Setting up a railway planning and investment organisation will facilitate the judicious utilisation of funds available for developing and revitalising the existing infrastructure, in a transparent manner. The proposed institution will be responsible for drafting the medium (five years) and long (10 years) term corporate plans, based on which the government can identify projects that fulfil the corporate goal of the Railways.
For capacity enhancement, the Budget also spelt out seven key missions, including establishing two dedicated freight corridors (DFCs) which are scheduled to be commissioned by 2019. These DFCs will create a huge capacity for carrying freight traffic on the Delhi-Mumbai and Delhi-Kolkata rail routes. Mission Zero Accident, and Mission Raftar are two other key missions instituted by the minister, which have the potential to positively transform the infrastructure of Indian Railways.
Mission Raftar in particular, which targets doubling the average speed of freights trains and increasing the average speed of superfast mail/express trains by 25 kmph in the next five years, promises considerable revenue potential.
Being a remarkable accounting professional himself, Prabhu has stressed the need to overhaul the accounting system beyond book-keeping, by tracking outcomes with input; a structural reform in the way accounting has historically been undertaken by the Railways can also modernise the pricing and costing tools for the ministry.
Ambitious target Having achieved an increase in commissioning and not completing the tracks, he has laid down an ambitious target of 7 km of new track per day, compared to the 4.3 km/day achieved last year. This is projected to climb to 13 km/day in 2017-18 and 19 km/day in 2018-19.
The government clearly seems to be driven by improving customer experience and that should enhance the fortunes of this important engine of growth. Amongst other key announcements, proposals for India's first rail auto hub, boost to e-catering, connectivity to the North-East and wi-fi in railway stations clearly stand out. There is also a bunch of proposals targeted at improving passengers’ travel experience.
Last year’s announcement of a five-year investment plan of ₹9 lakh crore didn’t find a mention in the Budget; however, with an intention to build accountability, the Budget document carries an annexure highlighting outcomes and accomplishments.
Overall, Prabhu has been progressive without resorting to geo-political giveaways in the form of new trains. The Budget thus takes forward key principles set out in his last Budget, that is, de-congesting the rail network and making Indian Railways world class.
With inputs from Sumit Singhania. The writer is the managing partner of BMR Legal. The views are personal