Rail Budget 2016: Prabhu Gambles on Growth

Operating ratio to worsen to 92%, surplus to fall by a quarter; Depreciation provisioning dips 42% to Rs 3,200 cr; freight, Fares spared; tariff structure to be rationalised, plan outlay up 21%

Railway Minister Suresh Prabhu on Thursday spared India Inc and passengers from an increase in railway freight and fares, but continued to bet on higher investments and growth in 2016-17, even though the economic slowdown and the impact of the Seventh Pay Commission's award were certain to take a toll on his finances.

In his second Railway Budget presented to Parliament, Prabhu pitched for capital expenditure of Rs 1.21 lakh crore in the coming financial year, up from Rs 1 lakh crore this year. "Every rupee of investment in the railways has the capacity to increase the economy-wide output by Rs 5," Prabhu said, while presenting the Railway Budget for 2016-17. "The impact that this increased investment will have on the economic growth of the country is unprecedented," he said.
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Prabhu appeared undeterred by a sharp deterioration in the railways' finances, as its operating ratio (expressed as a share of its working expenses, pension fund allocations and depreciation fund provisions in its gross traffic receipts) rose to 90 per cent in 2015-16 and was projected to worsen to 92 per cent in 2016-17. Even the railways' surplus was set to fall by 25 per cent next year. But that did not seem to dilute Prabhu's commitment to reforms and organisational restructuring.

The workman-like Budget was low on politics and continued Prabhu's focus on improving the viability of the Indian Railways in the long run, while making commuting easier and pleasurable for the people. Even as no fare cuts and compensatory freight increase were announced, Prabhu talked of new revenues, new norms (of expenditure) and new structures.

To bankroll the higher capital expenditure, Prabhu has projected a 10.1 per cent rise in the Railways' gross traffic receipts to Rs 184,819 crore in 2016-17. This in spite of the fact that goods earnings, which account for almost 70 per cent of gross traffic receipts, fell 7.88 per cent over the initial estimates in 2015-16 on account of the slowdown. Passenger earnings too fell 9.56 per cent short of the estimates.

Prabhu hopes this trend will reverse in 2016-17 in anticipation of healthier growth in the core sector. But he is not banking on that alone: he announced steps to win back market share in freight movement, which the Railways have steadily lost to the road sector in the last several years.

These include expanding into newer commodity categories (10 commodities account for 88 per cent of the Railways' freight at the moment), rationalisation of the tariff structure, construction of terminal capacity and "nurturing customers" which will involve appointing relationship managers for key stakeholders.

He will look for higher non-traffic revenue to fund his capital expenditure plan. Prabhu's target is to raise this revenue four times in 2016-17 through redevelopment of stations, commercialisation of land along tracks, and monetisation of soft assets.

Prabhu has also budgeted for higher market borrowings by Indian Railway Finance Corporation for investment in rolling stock and projects (Rs 8,168 crore) and more institutional finance (Rs 11,402 crore) in 2016-17 when compared to 2015-16 (revised estimates). However, there is a decline of Rs 8,929 crore in investments through partnerships.

During the year, the liability on account of the Seventh Pay Commission will lead to a jump of 11.6 per cent in the Railways' ordinary working expenses to Rs 1,23,560 crore and cause a 27 per cent rise in pension liability to Rs 45,500 crore.

However, Prabhu said that the Railways have initiated several austerity measures which could help contain the fallout. In 2015-16, these measures helped the Railways reduce ordinary working expenses by Rs 8,720 crore, or 7.3 per cent, which, coupled with the Rs 2,400 crore cut in appropriation to depreciation reserve fund and the Rs 2,315 crore lower dividend, mitigated to a large extent the Rs 15,743 crore shortfall in gross traffic receipts.

Still, the surplus, or excess of receipts over expenditure, is projected to fall over 25 per cent from Rs 11,402 crore in 2015-16 (revised estimates) to Rs 8,479 crore in 2016-17, which will result in lesser allocations for the development fund, capital fund and service fund.

In his Budget, Prabhu outlined a series of systemic changes that could make the Railways more nimble. This includes reorganising the all-powerful Railway Board along business lines and suitably empowering its chairman. He also proposed to set up a Railway Planning & Investment Corporation to draft medium- (five years) and long-term (10 years) corporate plans.

For the second year in a row, Prabhu desisted from announcing new railway lines. Instead, he came out with a series of steps to enhance consumer experience which included more options for un-reserved travel, ticketing machines and FM radio on train. Suburban transport too got his attention, the most important of which were the two elevated lines for Mumbai.

 

Reference - http://www.business-standard.com/budget/article/rail-budget-2016-prabhu-gambles-on-growth-116022600051_1.html