RAIL BUDGET 2016

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Sarthak Singla, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The Rail Budget unequivocally affirmed the government’s commitment to expand, upgrade and modernise rail infrastructure. A 20% year-on-year increase in capital expenditure proposed for 2016-17 will give a major impetus to the Indian Railways efforts to improve its infrastructure with a sense of urgency.

The announcement of three new dedicated freight corridors, two new loco factories, additional networks, port connectivity and upgradations of tracks and railway stations will go a long way to enhance the capacity, competency and efficiency of the Indian rail system, which in recent years has lost its market share across both the freight and passenger segments.

 

The railways investment programmes are not merely limited to hard infrastructure and rolling stock, but also aim to introduce state-of-the-art facilities to enhance service quality and ease of doing business for its customer segments. The railways ministry also enumerated several initiatives to bring in more transparency into its functioning, including procurement. The renewed focus on improving market share of rail freight traffic in India is a welcome move, given that in India, the market share of rail freight stands at a dismal 30%.

The railways are obviously taking several measures to cut its operating costs but unfortunately, the impact is still not visible in its operating ratio at 93.8% for 2015-16. The railways cannot continue with revenue deficit and incur losses needing federal budgetary provisions.

While the minister did mention about investment support from institutions like LIC and divestment of its assets, it has to set a timebound agenda for adopting the PPP model, which is yet to take off in a substantial way.

The green shoots of the PPP mode in building railway stations and augmenting rail connectivity to ports is a decisive move. It has been long desired that private players play a larger role in the developmental ecosystem of railways, however, the fineprint of achieving this synergy needs to be fully comprehended. Adoption of PPP models, besides reducing investment burden will also enable Indian Railways to better manage its spread of activities.

The railways’ 12.5% lower revenue performance than budget is definitely a setback, which needs to be overcome with a steady resolve and micro level action plan. The budget speech did not mention any revision of freight and passenger rates for the next year. The exact impact of budget on customer segments and its consequent reverse impact on the railway earnings and profitability will be known only after they are announced.

While catering to the growing aspirations of a billion plus population, the rail budget in spirit sets the track for holistic growth of the Indian Railways, the transport life line of the country. The budget while very positive and firm in its intent will have to be backed up by robust execution of both capital investment and earning plans. Good financial performance would remain quintessential to the achievement of its long-term growth plan as well as the future of India’s logistics.

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