Rail Budget 2013: Why Bansal is in a catch 22 situation

Railway Minister Pawan Kumar Bansal is in a catch-22 situation.

On one hand he has has to drive revenue growth and on the other he has make sure pockets are not pinched too much given that general elections are due in 2014. A section of the Congress party has reportedly stressed that raising passenger fares again will not be a good political move at a time when people are grappling with an economic slowdown and high inflation.

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Passenger fares were hiked by 21 percent across all classes last month. But any gains were offset by the raising of diesel prices. The two diesel price rises announced this financial year are expected to wipe off half the additional revenue of Rs 6,600 crore from the rise in passenger fares in January 2013.

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Due to its inability to raise funds through internal resources, railways has cut the plan outlay for 2012-13 to Rs 52,000 crore from the proposed outlay of Rs 60,100 crore. And without enough internal earnings and government support, its expansion plans are bound to get hit.

According to a report in the Business Line, the only reason the Railways clocked a

20 percent growth in its total revenues this year, the highest ever in the last decade, is due to a steep across-the-board freight rate hike just a few days before the last Railway Budget was presented.

Initiating large-scale investment that would complement investment by private players is crucial for Railways. But this can only be achieved through a hike in freight and fare rates.

So even while there has been talks of increasing passenger fares indirectly through a fuel adjustment cess along with an amenities surcharge, another option is to not touch fares at all in the budget but set up an independent Rail Traffic Authority soon to take the decision.

Moreover, while the focus of the Budget is on providing more amenities to rail users, Bansal is likely to initiate certain steps to earn more revenue from the alternative sources such as commercial utilisation of surplus railway land, advertising and other sundry business.