The Rail Budget

The Modi government's railway budget broke new ground by proposing the opening up of the system to overseas investors and offering a grand vision of what India's train system could look like in the future but critics attacked the effort, saying there was a sorry lack of detail in the accompanying numbers.
Railway Minister DV Sadananda Gowda promised bullet trains, dedicated freight corridors, a diamond quadrilateral high-speed rail network, enhanced passenger amenities and augmented cargo carrying capacity in his budget for the year ended March 2015. While he spelt out some of the measures for resource mobilisation including leveraging the surplus of railway public sector units, Gowda didn't give a timetable or explain the mechanism via which the organisation would generate funds through FDI and public-private partnerships (PPPs). Also, the areas open for overseas investment could be restricted to infrastructure due to home ministry's concerns.
The budget did not propose any freight or passenger fare increases as these had been made last month.
These are expected to net an addition Rs.8,000 crore this fiscal year. The minister said periodic adjustments in fares will be made to compensate for higher fuel costs. The stock markets didn't appear to be impressed and even political allies such as the Shiv Sena grumbled about Gowda's efforts. Most of the political ire was however over the lack of trains to a particular state or region. Members of the Trinamool Congress and the BJP almost came to blows in Parliament over accusations that there was nothing in the rail budget for West Bengal. TMC members also demanded a rollback of fare hikes that had been announced ahead of the rail budget.
Railway Board chairman Arunendra Kumar later said there were no investment proposals by overseas or domestic investors on the table, pointing out that the budget was suggesting this for the first time. To be sure, the railways is not even among the sectors cleared by the Cabinet to receive FDI, along with the Department of Atomic Energy. “The budget is a vision document,“ which suggests that India could aspire to airport-like stations and trains that run in developed countries, Kumar said. “It all depends upon the interest shown by investors,“ he said in the customary post-rail budget press conference.
There can be no deadline for such an exercise, said VK Gupta, railway board member, engineering. “The exercise of identifying stations will start after studying technical feasibility and interest of private players,“ he said. Kumar said the railways was not averse to allowing 100% FDI in an exclusive high-speed train corridor. A foreign investor could acquire land, lay dedicated tracks and run highspeed trains independently but the railways would retain the right of fixing fares and granting safety licences for operations, he said.
Deteriorating finances are a recurrent theme of railway budgets. The operating ratio, a measure of efficiency, is expected at 92.5% this fiscal, only marginally better than 93.5% in FY14 as its social burden has risen. The loss from the passenger business rose to 23 paise per passenger km in FY13 from 10 paise in FY01. Meanwhile, Rs 5 lakh crore is needed over the next 10 years to complete existing projects.
The enormity of the challenge that the government faces in bringing its vision to pass was reflected in Gowda's budget speech. While running one bullet train would cost about Rs. 60,000 crore, the minister allocated Rs.100 crore toward this end as part of preliminary studies. The Railways will have a surplus of only Rs. 602 core and is relying on Rs. 30,100 crore support from the budget for its all-time high Rs. 66,445 crore annual plan. Rs. 6,005 crore is to come through the PPP route. “This money is needed to plan for the bullet trains--to carry out studies about feasibility and alignment etc.,“ Kumar said. The Japan International Cooperation Agency (JICA) has conducted a detailed study for running a bullet train on the Mumbai-Ahmedabad route. Before that a pre-feasibility survey was conducted on the conducted on the route by the French consultancy firm Systra and RITES (Rail India Technical and Economic Service).
A senior railway board official said that 2014-15 would be a test year, before the real work got underway as the government would have a much clearer picture by then. “The real action on implementation of the promised vision will actually happen after the next budget. By then the government will know if there are any interested investors, domestic or foreign. Everything depends upon that,“ he said. The FDI proposal was aimed at opening up the railways to further reforms, he said.
However, former Railway Board chairman Vivek Sahai cautioned that too much dependence on foreign and private investment may not bear fruit. “The real challenge is to increase railways' freight output by at least 8%. The budget has set the target of 4.9%. That is not enough if the railways' finances have to grow,“ he said. Gowda said that rail's share in freight had come down to a dismal 31%. “This must increase,“ Sahai said. Sahai, who was the chairman of the board in 2010-11, said various PPP models had been tried and failed. For example, investors didn't want to lock their money up in laying tracks as this required a huge investment over a long gestation period. Some private investment went into enhancing port connectivity. But “there were niggling issues like sharing of profits on running the train,“ he said.