Railway Budget 2016: Prabhu should open a doorway to private investors to get Railways behind on track

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By Sanjeeva Shivesh

The second Railway Budget of Suresh Prabhu was energetically expected, essentially due to a fact that his initial bill was high on guarantee and by Jan 2016, we knew that a financial health of railways run-down further.

The reformist picture of Suresh Prabhu, a engorgement of consultant committees and recover of Achievement Booklet with hashtag #RailYearofChange, serve lifted expectations of radical moves by a Railway Minister.


Indian Railways is one of a largest organizations in a universe obliged for blurb activity. It’s prolonged existence, notwithstanding years of bad decisions by politicians and tip government is an indicator of robustness of a organization. As a primary inciter of bulk line and passengers opposite some-more than 7000 stations, it plays a outrageous purpose in India’s mercantile progress.

However, railways are in a mess. The golden form is choking. The punctuality of trains over a years has left down. 2015-16, saw second uninterrupted year of decrease in newcomer volumes. But a scariest information for railways is recession of burden volume. For a initial time in final 25 years, we find that a burden business, that is a butter of Indian Railways, has grown reduction than 1%.

Let us put a numbers in perspective. Last year (2014-15), a burden hauled by Indian Railways was 1095 million tonnes. The revised estimates for 2015-16, puts this series during 1107 million tonnes, that is 1% aloft than a prior year. A indicate value observant is that in a final 15 years, railway loading has augmenting on normal 7% each year. While imbecility in railway loading can be attributed to resigned economy, a existence is that we have had several years in a past when GDP enlargement was reduction than 5%.

So, what is a genuine reason for stagnating burden volumes? Look during a enlargement in railway burden rates and we will get a answer. Since a year 2000, a universal railway burden rates have augmenting 11%. That means, on a per tonne kilometer basis, a normal burden rate to a shipper on Indian Railways was Rs 1.00 in 2011. This has augmenting to Rs 1.68 now. Comparatively, a prolonged stretch burden rate for trucks is Rs 1.75 now. Take into account, factors like final mile bridging costs, improved highways and continued overloading of trucks, we know that trucks have turn faster, improved and cheaper for a customers.

No wonder, a bill refrained from creation any serve boost in tariff, both on burden and passenger. Any boost in tariff would usually harm a railways. This has happened because, on one hand, India invested in building a highways, it shied divided from investing in railways.

Thus, Prabhu’s bill contingency be reviewed in this context. Certainly, a budgetary 2016 has vast elements of instruction setting. Prabhu announced a 5 year prophesy of creation Rs 8,50,000 crore investment in Railways with Rs 121,000 crore entrance in 2016-17. He serve announced that many of a investment would go towards doubling, foundation and network decongestion to raise a ability and network enlargement and fewer on populist measures. There are other announcements also to residence issues of patron service, cleanliness and safety. Introduction of new sight categories like Humsafar( three-tiered AC trains), Tejas (fast trains with speeds trimming adult to 130 km per hour), Uday (Double-deckers) and Antyodaya (unreserved superfast trains). Also, full credit to a Minister sourroundings a prophesy and fortify in a professionally run classification by announcing sourroundings of Railway Board on business lines.

However, for a announcements to attain in full measure, it has to be upheld with adequate resources. Bear in mind that 2016-17 is a Pay Commission year. It affects railway output by Rs 25,000 crore. That means, adds serve vigour to railways ability to beget margins. While Prabhu has resolutely settled that a handling ratio during a finish of 2016-17 shall be 92%, everybody agrees that it is impossible. The best railways to could grasp shall be about 97% (if Dinesh Trivedi, former Railway Minister is to be believed, it is already 117%).

Higher handling ratio implies, reduce handling margins, that means, obtuse inner over-abundance of railways. The impact of Pay Commission on railway output carries brazen up-to a subsequent 5 years. This means, in a subsequent 5 years, railways ability to beget over-abundance shall be low.

In this context, generating Rs 8.5 lakh crore for investments is a outrageous challenge. Kudos to Prabhu for creation a state run LIC determine to lend Rs 150,000 crore for railway projects over 5 years during a auspicious term. But generating a remaining supports shall be a outrageous challenge. So far, Indian Railways have depended on IRFC to mobilize outmost resources to comment rail assets. Seemingly, this lane is streamer to a critical bottleneck. Already there are murmurs of Indian Railways’ IRFC borrowing comment streamer into a debt trap. That is Railways borrowing from IRFC to repay IRFC!

Indian Railways ability to mobilize private collateral has been really bad to contend a least. Unless, Railways emanate an atmosphere to attract private collateral by simplifying a PPP contracts and formulating a non-competitive sourroundings for a private player, PPPs will sojourn non-starter for railways. However, it has achieved some success in Public-Public Partnership, by signing MoUs with Chattisgarh, Jharkhand and other states. But, if Railways are serious, they have to open their doors adult to private zone and concur with their vital partners to emanate railway capacity. Only afterwards it can be brought behind to track. Suresh Prabhu recognises this. Therefore, he done it a indicate that this gets mentioned in his Budget Speech. But how most of this will occur on ground, we will get to know usually in hindsight.

Further, a delayed gait of growth of Dedicated Freight Corridors contingency be questioned. The plan primarily announced by Laloo Prasad Yadav, slated to finish in 5 to 7 years is already into a tenth year and we will not get to see a DFC until 2020.

Prabhu carries a picture of a reformer. But that felt short, when easier targets were set for augmenting income from non-transport mechanisms like exploitation of railway land and monetizing promotion revenues. Non transport box income should be accorded a really high priority on an obligatory basis, since that’s usually approach for Indian Railways to grasp income nirvana.

Sanjeeva Shivesh is a Founder and Chief Executive Officer of The Entrepreneurship School, India’s initial dedicated propagandize of entrepreneurship formed in Gurgaon.