Rail Budget 2016: Why it is a tougher pariksha for Suresh Prabhu this time

Railway minister Suresh Prabhu, one of the best performing ministers in Narendra Modi’s cabinet, has a tougher choice to make this time as he readies to announce Railway Budget tomorrow (on 25 February) — whether to play to the gallery with a populist budget or take the bitter pill and opt for some tough steps for greater good in the long term.

For sure, railway budget (otherwise a mundane event ahead of the general budget) is increasingly gaining attention in recent years since there is more recognition to the importance of railways as a crucial engine for rapid economic growth.

Rail Budget 2016: Why it is a tougher pariksha for Suresh Prabhu this time

Suresh Prabhu. Image courtesy: PIB

Prabhu’s challenges are several:
One, the highlight of last year’s (2015) railway budget, and the smartest move, was no hike in passenger fares. Instead, Prabhu, chose to indirectly increase the freight revenues by adjusting cargo categories and slabs. But, Prabhu will have to rethink on this strategy this time and mull hiking passenger fares and giving a soft touch to the freight segment, even though it would mean backlash from the public and opposition.

This is because, in the backdrop of a slower economic activity on the ground, costlier freight rates would prompt more users to shift to road from rail, which could further hit rail volumes. Already, there has been a shortfall in the freight volumes this year, with the freight volumes growing only 0.9 per cent in the April-January period as against the budgeted estimate of 7.7 percent for the entire fiscal year. Experts have cautioned about the subsidization of the passenger services at the cost of freight segment.

Of the total budgeted revenues of railways in 2015-16, nearly 66.2 per cent or Rs 1,21,423 crore will come from freight services and Rs 50,175 crore from the passenger segment. “Freight is the breadwinner of railways,” said K C Jena, who served as a railway board chairman between 2007 and 2009, in a discussion organized by ASSOCHAM. “Therefore, it is the freight which should be the prime thing,” said Jena. A gradual hike in fares (not necessarily in the budget) in the upper classes, simultaneously improving the quality of services, wouldn’t cause much public uproar.

Second, Prabhu’s major challenge will be to attract private capital to push the development of railways infrastructure in the country. In the last budget, Prabhu hinted that railways will be open for private-public partnership even though he has categorically denied options of privatizing railways.

“Railways need private capital, not privatization,” Prabhu has said. The argument that railways should remain under state-control has many supporters who argue the criticality of this service to the economy and its huge revenue potential. But, there is no way government can turn down private participation in railways given the extent of funding it will require besides budget allocation.

As Jena points out, total earnings of railways have fallen short of expectations by Rs 17,000 crore in last year. Such a shortfall, coupled with an additional burden of Rs 32,000 crore on account of 7th pay commission implementation, would constrain the balance-sheet of the Railways in 2016-17.

Clearly, Prabhu cannot afford putting on hold the spending plans to expand the rail infrastructure, coach manufacturing and quality of services, which precisely mean need of more private capital. In the 2015 budget, Prabhu had proposed a sharp increase in the plan expenditure (by a whopping 52 percent) to Rs 1,00,011 crore with centre contributing nearly 42 per cent of this and internal profit generation making up for 17.8 percent. It is not clear howmuch spending has happened till now. Prabhu will have to continue the spending push to change Railways the key engine of economic growth.

Third, it is even more critical to create an independent railway regulator with powers to decide passenger and freight tariffs, investment proposals and efficiency of services. This proposal has been discussed for long, but there has not been any definite structure yet. Converting the Railway Regulatory Authority to Railway Development Authority with more powers could prove to be a right step if implemented efficiently.

This is particularly crucial to get the confidence of private investors that there is a proper overseeing mechanism for railways that is different from the government’s existing mechanism. But, making this regulator a reality will be a tough task for Prabhu since this will have to get the consent of Parliament.

Fourth, another key challenge for Prabhu is to ensure a more consumer-friendly approach in railways. This doesn’t necessarily mean announcing new trains but making sure that the existing trains are more available to common man. Presently, the availability of train tickets is a major issue (currently, it is hard to get a train ticket on time while flight tickets are relatively easier). This is highly important at a time, when budget airlines are hitting the market with aggressively competitive fares putting up a direct competition to railways in the high-end customer segment.

Fifth, monetization of assets owned by railways, such as land parcels in metros, instead of selling them was a plan unveiled by Prabhu in the last budget. He will have to take this process ahead to generate more revenues.

The bottomline is this: The challenge for Prabhu is to set the house in order by presenting a bold budget. He will have to give a clear message that passenger fares will have to go up, but will be compensated through better services and efficiency, for the greater good of railways in the ensuing years.

Data from Kishor Kadam

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Updated Date: Feb 25, 2016 08:00:27 IST

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