Rail Budget 2016: Suresh Prabhu puts Indian Railways back on track

This article has been co-authored by Suryakiran Tiwari and Subhash Chandra.

 |  Breaking views  |  7-minute read |   25-02-2016
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Suresh Prabhu presented his second Railways Budget amid low fanfare today. The silent, introvert Prabhu, who till yesterday was being mentioned by analysts as one who needs to pull up his socks, has delivered a performance-oriented budget. He has managed to put forth a budget which balances populism (no increase in fares) and growth.

Piyush Goyal is more or less regarded by most as the best performing minister in the Union Cabinet. We now believe that Suresh Prabhu must be included in this list. While his budget did not receive a good response from the stock markets, but if one looks at it closely, there are some outstanding points in it.

3 key themes of Rail Budget 2016-17

1. Corporatisation

Indian Railways will be examining the feasibility of bringing all its companies under an umbrella holding company to leverage its resources strength and provide flexibility for raising finance for future infrastructure/capex projects. This will also lead to enhanced valuations if and when the company needs to go public. Prabhu has proposed to reorganise the Railway Board along business lines (SBUs) and suitably empower top management to lead the organization and manage day to day affairs effectively.

2. Accountability and deliverance

A commendable new trend has been initiated by Prabhu for "examination of last year's momentum". A detailed implementation report has been included in the budget for 139 announcements made last year. 50 out of these 139 announcements have been implemented (36 per cent) which is not bad considering many announcements were of long gestation nature. As he put it, "Accountability is an ongoing principle of public life." To give deliverance a thrust, he has, for example, changed the metric to rate the performance of pace of construction/laying down new lines from completion to commissioning.  

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Railways minister Suresh Prabhu presenting the Rail Budget 2016-17 in Lok Sabha on Thursday, February 25, 2016.

3. Innovative and forward looking

The focus of Prabhu has also been on increasing receipts and resources through non-tariff sources. Worth mentioning is the Rs 27,000 crores raised through partnerships which helped to meet the enhanced capital expenditure.

Railways' share of freight has declined from 62 per cent in 1980 to 36 per cent in 2012. The current tariff structure has led to out pricing of its services. A complete overhaul and rationalisation of the tariff policy is being planned including signing of long term tariff contracts with key customers which will enhance revenue visibility.

The dedicated freight corridor scheduled to commission in 2019 would create huge capacity as goods train will shift from existing tracks to this corridor. A blueprint to make full use of the idle capacity is being planned well in advance.

Key Achievements in 2015-16

The points that caught our attention are around financial performance, infrastructure expansion and customer experience and safety. Here are some of the key achievements we picked up in 2015-16, some of the numbers are truly mind boggling.

Financial

-    Gross Traffic Receipts up 7.1 per cent to Rs 167,834 crores (passenger +7.5 per cent, freight + 5.7 per cent)

-    Excess of receipts over expenditure up 48.7 per cent to Rs 11,402 crores

Infrastructure

-    Capital Expenditure up from Rs 58,718 crores to Rs 1,00,153 crores, a huge 71 per cent jump over 2014-15

-    New Lines construction spending up nearly 80 per cent from Rs 7,139 crores in 2014-15 to 12830 crores in 2015-16

-    Spend on Doubling of Tracks up 132 per cent from Rs 3,880 crores in 2014-15 to Rs 9,007 crores in 2015-16

-    The jump in Capital Expenditure came from a massive Rs 27,269 crores raised through investment through partnerships

-    While rail fares for AC Classes (first and second) were increased in November (by about 4.35 per cent), average earnings per kilometre are up by 9 per cent for the year indicating a well-managed enterprise

-    Spend on Metro Transport works, up a massive 23 times from Rs 995 crores in 2014-15 to Rs 23,412 crores

-    Dedicated Freight Corridor contracts worth Rs 24,000 crores have been given out since November 2014, it was Rs 13,000 crores in the previous 6 years

-    Road Safety work (level crossings) up 20 per cent from Rs 1,791 crores in 2014-15 to 2144 crores in 2015-16; 20 per cent lower accidents compared to previous year

-    Commissioned in excess of 2,500 km Broad Gauge Lines (+30 per cent compared to previous year); at the rate of 7km per day up from 4.3km in the last 6 years

-    Finalisation of bids for setting up of two loco factories with an order book of Rs 40,000 crores

Customer experience and safety

-    1,73,88 bio toilets installed

-    138 call centres available to attend to customer complaints on a real time basis. 182 to security related complaints

-    1780 Automatic Ticket Vending Machines and 225 cash coin and smart card vending machines commissioned

-    65,000 additional berths by augmenting 884 coaches on permanent basis

-    E-Ticketing capacity enhanced from 2,000 per minute to 7,200 and to support 120,000 concurrent users vs 40,000 earlier

-    CCTV surveillance at 311 stations has been provided

-    350 manned level crossings and 1,000 unmanned level crossings closed

However, it is worth mentioning that receipts for 2015-16 are 8.5 per cent lower than budgeted and operating ratio is higher at 90 per cent versus 88.5 per cent due to a mix of global slowdown impacting domestic corporate activity and increased competition from road traffic. This increases the need of active monitoring of our rail/central budgets and a mid-year review of sorts to revise the numbers if all not going well rather than wait till the end of the year.

Surplus/excess of Rs 11,402 crores has received a partial boost due to lower appropriation to Depreciation Reserve Fund. Adjusted excess would be 17.4 per cent higher at Rs 9,002 crores assuming transfer to DRF at budgeted estimate (Rs 7,900 crores vs Rs 5,500 crores).

Key announcements 2016-17

Given the excellent record for 2015-16, there is no reason to believe that many of the following goals set for 2016-17 will not be met:

-    Capital Expenditure likely to go up nearly 20 per cent to Rs 1,21,000 crores (Rs 70,000 crores already tied up - Rs 40,000 crores grant from Central Budget plus Rs 30,000 crores from LIC)

-    Gauge conversion budget up nearly 3 times from Rs 9,007 crores to Rs 25,118 crores

-    Rolling stock budget up 42 per cent from Rs 19,088 crores to Rs 27, 278 crores

-    Road Safety Works (Road over/Under bridges) up 4 times from Rs 2,144 crores to Rs 8,684 crores

-    Increase in outlay for railway electrification by c.50 per cent and target to electrify 2,000kms

-    Another 17,000 bio toilets expected to be added this year

-    100 stations to be covered with Wi-Fi access by December 2016

-    Savings of Rs 3,000 crores in power costs through direct procurement of power at competitive rates

-    Extending E-catering from 45 large stations to 408 stations

-    Hourly booking of retiring rooms vs existing minimum 12 hours

Many of Bibek Debroy's committee's recommendations on Railways are being gradually implemented:

-    Decentralisation, Public Private Partnerships, involving state governments and raising resources

-    Establishment of a regulator, gradual transition to commercial accounting (which has been highlighted in the speech)

-    Streamlining of recruitments and HR processes (online recruitment initiated)

-    Focus on Core Areas, Decentralisation and Indian Railways Manufacturing Company (proposed)

Hopefully, some of these initiatives which have not been implemented will pick up steam during the coming financial year.

One of the big issue that needs more attention is the continued issues around safety especially due to incidents over the last 12 months. It is unclear from the budget as to how many of the derailments/collisions are sought to be tackled.

To sum up, Mr Prabhu will need to continue to keep his sharp focus on delivering on his promises not just in terms of allocations but the quality of infrastructure being built and the quality of customer service. In 2015-16 control on costs helped Railways post a good performance despite drop in receipts. 2016-17 may not provide him this luxury because of implementation of pay commission recommendations which is expected to increase the operating ratio to 92 per cent from 90 per cent. In 2016-17, the focus has to be on revenues, any slippages there would derail his budget for the next year.

Wishing him all the best.

Writer

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