Rail Budget 2016: Here are six things to watch out for in Suresh Prabhu's tough balancing act - Firstpost

Rail Budget 2016: Here are six things to watch out for in Suresh Prabhu's tough balancing act

Railway minister Suresh Prabhu is presenting his second budget at a time when aspirations are soaring. One reason for this is that Prabhu has been making all the right noises.

Among the big moves taken last year the first and foremost is the highly ambitious bullet train project. That the Rs 1 lakh crore project to be operated between Mumbai and Ahmedabad has got a soft loan from Japan has only heightened the expectations from Railways.



There have been several other steps too, the most innovative being setting up of joint ventures with state governments to expedite execution of stalled projects. Earlier this month, Chhattisgarh becamed the fifth state to set up such a venture.

While all these initiatives are in the right direction and are comment worthy, there is one question that begs an answer - how is the railways' financial health faring?

As we wait for the Budget, here are six things to watch out for from the budget:

Operating ratio:
Investopedia defines operating ratio as “a ratio that shows the efficiency of a company's management by comparing operating expense to net sales.” In simple terms, it is a measure of efficiency. According to investopedia, the smaller the ratio, the greater an organization's ability to generate profit if revenues decrease. However, this doesn't take debt repayment or expansion into account.

The railways' revised estimate for last financial year's operating ratio is 91.8 percent, which means of the Rs 100 it earned, Rs 91.8 was spent. The best the railways have achieved is 75.9 percent in 2007-08 and the worst 98.3 percent in 2000-01. For the current financial year, Prabhu has set a target of 88.5 percent.

Gross traffic receipts: The budget estimate for the current financial year is Rs 183,578 crore, recording a 15.3 percent increase from the revised estimate for 2014-15. The best perfromance in the last 10 years on this count was in 2012-13, when the organisation witnessed an 18.8 percent rise. Prabhu had also budgeted the freight earnings at Rs 121,423 crore, which will be a 13.6 percent rise from the revised estimat for 2014-15. Passenger earnings have been budgeted at Rs 50,175 crore, up 16.7 percent. However, it remains to be seen whether the railways will be able to achieve these ambitious targets. According to a PTI report, April-December freight traffic missed the target by a wide 7 percent margin and passenger bookings by a 5 percent.

Working expenses:
There is an urgent need to rein in this head. For the current financial tthe budgeted amount under this head is Rs 162,210 crore, which is a 11 percent increase from the revised estimate for the previous year. What has rendered the task difficult for Prabhu is the Rs 8000 crore reduction in gross budgetary support to Rs 32,000 crore. It is to be remembered that the Seventh Pay Commission implementation will put an additional Rs 32,000 crore burden on the railways next year. According to the earlier mentioned PTI report, the plan is to reduce the energy bill by 20 percent next year. At present, the bill stands at Rs 30,000 crore. While the electricity bill is about Rs 12,000 cr, diesel cost is around Rs 18,000 cr a year. However, this will only be a quick fix. The bigger reform in this direction will be a concrete plan to rationalise jobs and in turn the salray expenses. The railways staff strength stands above 13 lakh.

Fund surplus: The budgeted amount for the current financial year was an ambitious Rs 14,266 crore, which was a 96 percent increase from the year earlier. With freight and passenger revenue missing the target, it is highly unlikely that the railways will meet this target. In fact, a report in The Indian Express says the surplus is likely to be just Rs 3,400 crore, which will less than half of the previous year's revised estimate of Rs 7,972 crore.

Passenger fare: To raise or not to raise, that is the question Prabhu faces. If he raises, the opposition parties and also some of the BJP's allies are likely to kick up a storm of protests. But then then freight cannot subsidise passengers forever. Prabhu in fact told the Lok Sabha on Wednesday that the railways resources are "constantly dwindling" as freight and passenger fares are not being decided in an optimum manner. Industry lobby group has urged the minister to show some political will to raise the passenger fares. A poll done by Firstpost, in which 729 readers participated, around 62 percent agreed that the minister should increase the passenger fares. If he indeed bites the bullet and raise the fares, that indeed will be a bold decision.

Amenities: For the large number of commuters, railway budget is all about amenities and new trains. And therein lies the minister's big task, to balance the finance and the aspirations. Now that there has been a move ahead in the bullet train project, it is llikely that the middle class will be waiting keenly for any announcement on this. Moreover, there are other other issues like passenger safety, especially that of women, which is always a major issue. Any move to increase private sector participation or bring in FDI will be welcomed whole-heartedly by commuters because they expect such moves to help modernise railway stations and other amenities.

Data from Kishor Kadam

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