Deal Street

February 26, 2016

Rail Budget: Few steps in right direction


bmr

Having an effective administrator with a remarkable track record in Mr Suresh Prabhu has been a huge positive for the Indian railways over the past eighteen months since the NDA government came to power. Minister Prabhu’s fresh approach to ushering in commercial accounting is laudable, although dwindling resources present challenging economics, and lesser room to maneuver for the Minister.

Subdued growth in revenues – both passenger and freight – presented a compelling reason for another increase in fares, but Mr Prabhu didn’t give in to hiking fare as an easy solution to resources woes. Instead, he has proposed enhanced revenue mobilization through more innovative means. Proposal to develop a new freight tariff structure to evolve a competitive rate structure shall help railways regain market share vis-à-vis other transportation modes, particularly roads. Proposal of generating 10 to 20 percent revenues from non-tariff sources predominantly through asset monetization is a significant leap in revenue mobilization endeavors. On the cost side, the proposed operating ratio at 92 percent for FY ’17, is fairly reasonable target after all, in a year without fare hike and indispensable increase in variable costs.

Besides, expectations from 2016 Rail Budget largely surrounded promise of capacity additions to prevent losing market share to road transportation; structural reforms in incurring capex, and focus on project completion rather than rolling out new projects. Mr Prabhu toed pretty much the expected line as he set out a three-pronged strategy consisting in principles of ‘reorganize’, ‘restructure’, and ‘rejuvenate’ for overhauling the operating efficiency of railways. Significant increase in capex – projected to double from the average of previous year – should facilitate modernization of railways. On expected lines, the budget proposed to leverage the flagship Make-in-India program by proposing 2 new locomotive factories to be set up. 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 favorable terms by LIC is a big draw, and should take the burden off the government finances for building new projects.

Having achieved an increase in commissioning and not completing the tracks, He has laid down an ambitious target of 7 KMS from 4.3, 13 in 17-18 and 19 in 18-19. The government clearly seems to be driven by improving the customer experience and that in my view would enhance the fortunes of this important engine of growth.

Amongst key misses, last year’s announcement about a 5 year investment plan of 9 lac crore didn't find any mention; finally, with an intention to build accountability, Mr Prabhu had added an Annexure to the budget highlighting the outcome and accomplishments.

Overall, Mr Prabhu does a fine job of striking a fine balance between progressive measures, without falling for geo-political give‑aways in the form of new trains. The budget thus takes forward key principles set out in his last budget, ie de-congesting rail network and making Indian railways a world class infrastructure. Mukesh Butani is the non-executive Chairman, advisor and Managing Partner of BMR Legal.



Related Post

latest News

  • RBI Bans Use Of Direct Selling Agents To Sell Loans In Order To Minimize Data Theft, Reduce Operational Risk For Banks

    The Reserve Bank of India (RBI) has banned the use of direct selling agents (DSAs) to sell retail loans as well as physically verify documents of borr...

    Read More
  • Oil India Moves SC On Its Order Over Paying AGR Dues

    State-owned Oil India Ltd (OIL) has filed a clarificatory / modificatory petition in the Supreme Court about its earlier order which had expanded the ...

    Read More
  • Conduct surveys of all hotels, restaurants collecting service charge: CBDT

    Noting the increase in the number of consumer complaints regarding the levy of service charge by hotels and restaurants, the Central Board of Direct T...

    Read More