The Viagra in 'no fare hike' Suresh Prabhu Railway Budget - 'low for long' oil prices

You next train trip comes at no extra cost on the world's cheapest rail transport system. Here’s how.

Low oil prices which are tipped to stay “low for long” put the shine on Railway minister Suresh Prabhu’s Railway Budget speech. India's rail budget has kept passenger fares and freight rates unchanged at least for now.

A chartered accountant by training, Prabhu's numbers got a staggering boost from two dramatic global developments - oil prices that have gone down for the first time on incremental supply and OPEC losing muscle over supply.

The Viagra in no fare hike Suresh Prabhu Railway Budget - low for long oil prices

'Whenever one contemplates a journey, there are two mistakes one can make: not starting and not going all the way,' Prabhu said concluding his speech. PIB

For every kilometer you travel on Indian Railways second class, the government makes a measly 13.80 paise and that’s not going to change after the latest Railway Budget, making India’s possibly the cheapest rail transport system in the world.

Indian Railways' per km revenue per passenger:

-- 14.54 paise for suburban trains
-- 27.47 paise for second class mail and express trains
-- 109.47 paise for upper class

The latest CLSA research data explains how much the government will gain from falling oil prices - a 65 per cent cut in its oil subsidy bill.

In a rare interview just last week, chairman of Reliance Industries, which runs the world’s largest oil refinery, spoke to CNN’s Fareed Zakaria on how it’s the first time in the world that oil prices have gone down on incremental supply.

“What it really means is that we have had oil price spikes but never has it been because of more supply than demand. Also because of innovation primarily in the US, we have large quantitues of oil. The US has gone from less than a million barrels per day to 9 million barrels a day and OPEC has lost control of supply,” Ambani said. And exactly that has been passed on to the Indian traveller in Suresh Prabhu's budget.

Links: Mukesh Ambani on oil prices - full text of interview to Fareed Zakaria GPS

“Taking advantage of the crude oil price fall, the government has deregulated the diesel price and made LPG subsidies more targeted. This should drive a 65% cut in the government’s oil subsidy bill from Rs 710 billion in FY14 to Rs 250 billion in FY16,” says the CLSA report.

How low oil prices benefit India, highlights from CLSA report:

-- A 55% fall in the crude price in FY16 vs FY14 will translate into Rs 4.1 tn gross savings in oil consumption

-- Net benefit of Rs 3.3 tn to economy after factoring impact on domestic crude production.

-- Of this, Indian govt has gained Rs1.3 tn through excise hikes and lower subsidies.

-- Consumers have saved Rs 0.3 tn, industry has got a Rs1.3 tn boost.

-- Primarily using international prices for mainstay oil products, the price decline should have led to a total saving of Rs 4.1tn for India.

-- Even if crude price rises, govt has enough ammunition to limit inflation.

- NDA government has raised excise duty on petrol/diesel by Rs 12/ 14/l. If required, the government can use this buffer to offset a crude price increase of US$25/bbl without driving up inflation from diesel and petrol.

Arvind Padmanabhan of IANS analyses of the Raiway Budget below saying that Indian Railways’ operational efficiency has taken a beating even as concerns remain over raising money for future projects.

This is the crux of Railway Minister Suresh Prabhu's budget for his ministry presented in the Lok Sabha on Thursday - that shows targets set by him for this fiscal on a host of counts remained to be realised, be it on receipts from passengers and freight, revenue mop-up or efficiency.

The often used parameter for measuring a rail management's competence is operating ratio, which suggests how much of generated revenue is left after spending on day-to-day operations. Globally, a 75-80 percent or lower operating ratio is seen as a healthy benchmark -- the lower the better.

Minister Prabhu, a chartered accountant by profession, targeted to bring it down to 88.5 percent this fiscal -- or the lowest in nine years, from an unsustainable level of 93.6 percent in 2013-14 and 91.8 percent for 2014-15. But the revised estimates indicate a much higher figure.

"For 2016-17, we expect an operating ratio of 92 percent after including the immediate impact of the 7th Pay Commission against 90 percent likely to be achieved in the current year," he said in his 68-minute speech, indicating the ministry was ill-prepared for even a normal matter like a wage hike.

It is against this backdrop that doubts arise on the promise of an almost Rs.21,000-crore hike in the plan size for the railways, that basically covers all the developmental projects, to Rs.1.21 lakh crore for fiscal 2016-17, as also an increase in receipts from both passengers and freight.

Prabhu's calculations are based on factors like change of mindset and improving economy. "We have managed to break away from average capital expenditure of Rs.48,100 crore over the period 2009-14, and an average growth of only 8 percent per annum, to achieve a quantum jump," he said.

"This year, our investment would be close to double of the average of previous years -- a feat never achieved earlier. For the year 2016-17, the capital plan has been pegged at Rs.1.21 lakh crore," he added. He also hoped for a 10-percent jump in total revenue.

Spared a fare hike and promised involvement in the private sector better, industry chambers have reasons to cheer. But where will the money come from? Towards this, the minister is relying on sources like revenues and station redevelopment, and says bankable rail projects will be funding.

"LIC (Life Insurance Corp) has agreed to invest Rs.1.5 lakh crore over five years on extremely favourable terms. We're also looking forward to setting up a fund with multilateral assistance for financing railway projects," Prabhu said.

Prime Minister Narendra Modi was all praise for his minister. "While keeping the promises made in the last budget, this one makes an aspirational strategy for future. We've been successful to a large extent this year, and this budget has a promise to make it even better."

A former rail minister himself who went against his party with a passenger fare hike, TMC leader Dinesh trivedi was critical: “Where was the actual budget? Did you hear any figures - what they achieved last year, what is the budget for this year? We are still waiting for the budget."

The share markets also gave a thumbs down. Disappointment over lack of any big-ticket projects, rail-related stocks fell on Thursday -- BEML by 3.29 percent, Siemens by 1.06 percent, ABB by 1.37 percent, Larsen and Toubro by 1.5 percent, and Timken by 2.31 percent. Some, though, rose.

Yet, there were positive outcomes from the budget as well. For long there has been a charge that the network length of the Indian Railways hasn't expanded commensurately -- 0.06 times since 1989-90, even as passenger and freight traffic have increased 3.3 times and 2.2 times, respectively.

Prabhu said his ministry will surpass the target of commissioning 2,500 km broad gauge lines this fiscal -- almost 30 percent higher than last year. "In the next year, we plan to commission 2,800 km of track," he said, promising new tracks at 7 km per day against 4.3 km a day since 2008.

There were also a slew of measures for passengers: 65,000 more berths on trains, over 2,500 water vending machines, 17,000 bio-toilets inside coaches, 1,780 automatic ticketing machines, 120,000 concurrent users for e-ticketing, and e-catering services at 408 stations.

This apart, he said, the quota of lower berths for senior citizens will be hiked by 50 percent to 120 such seats per train, more stations will come under special scheme for old and differently abled passengers, and a new train "Tejas" will be introduced at 130 km per hour.

He also announced WiFi at 100 more stations this year and 400 more stations in the next, fully unreserved trains and double-decker sleeper coaches on high-density routes, 24X7 helpline for women, local art at stations, dignity for porters and better amenities at pilgrimage centres.

As regards ongoing projects, the minister said contracts for all dedicated freight corridors have been awarded, further connectivity has been provided in the north-eastern states, work is on track for rail projects in Kashmir and bids have been finalised for two loco factories.

Prabhu also promised a regulatory authority for railways soon, and sought cooperation from the opposition to make it happen. Perhaps, that's the reason the fare hikes were kept in abeyance, leaving it to the watchdog to move towards dynamic pricing for such matters.

As per official data, India has the fourth largest railroad network in the world with some 64,460 route km, after the US (224,792), Russia (128,000) and China (112,00). Nearly 21,000 trains ply daily to ferry 23 million passengers and 3 million of freight.

The network spans 29 states and three union territories via some 8,500 stations. It crisscrosses Baramulla in Jammu and Kashmir in the north to Kanyakumari in Tamil Nadu in the south and Ledo in Assam in the east to Naliya in Gujarat in the west.


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Updated Date: Feb 26, 2016 01:50:22 IST

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