Financing for railways budget
What does the Budget say ?
- The budget announced increasing investments by 21 per cent to Rs.1.21 lakh crore in 2016-17 – more than double the average investments made by the previous government in the 2009-14 period.
- There are obstacles for investment
- Slow growth of our economy’s core sectors due to international slowdown
- The looming impact of the 7th Pay Commission and increased productivity bonus payouts
- The budget factored in Rs.20,500 crore as impact of the recommendations of the 7Th Pay Commission in 2016-17; leading to a decline in the projection of the operating ratio to 92 per cent (the Railways will spend 92 paisa to earn a rupee). Operating ratio is a measure of financial performance of the Indian Railways and a lower ratio means better efficiency.
- In 2015-16, the operating ratio declined to 90 per cent from 91.3 per cent in 2014-15. The decline in operating ratio from 88 per cent to 90 per cent, and to 92 per cent for next year is along expected lines, with freight and passenger traffic remaining nearly flat, and expenses continuing to increase.
3. As both passenger and freight traffic declined, the revenue earned by the Indian Railways was hit. The total revenue declined by 8.9 per cent to Rs.1.72 lakh crore in 2015-16 compared with last year. The gross traffic earnings were 8.6 per cent less than the target of Rs.1.83 lakh crore in 2015-16. The freight earnings were hit due to poor performance by the core sector – which constitutes around 88 per cent of the goods transported by the Indian Railways. The share of railways in the total freight traffic (35 per cent at present) has been consistently declining over the years
4. Most of the state governments coffers are empty
5. Private players are currently not in a mood to pick up PPP projects.
6. While international agencies are open for investing in Indian projects, they demand more reforms and at faster pace
In this context, how the increased investment target of Rs.1.2 lakh crore will be met, becomes more pertinent
Positives – budget expectations
- However despite the burden of Seventh Pay Commission, the operating ratio is projected to move up by two per cent.
- The government plans to raise Rs.20,985 crore in 2016-17 from institutional financing, a 119 per cent increase from the revised estimates of 2015-16.
- This year, Railways plan to control the working expenses. The savings from diesel and electrical energy account would be Rs.5,000 crore. We plan to increase freight by 50 million tonne. With the passenger initiatives, the passenger earnings will go up. The non-fare box revenue will be doubled. So, increased revenue combined with reduction in working expenses will finance the Seventh Pay Commission burden.
- SPV has been formed and registered. National High Speed Rail Corporation is the name of the company.Initially, Rs.200 crore will be provided as equity to the SPV. The total authorised capital is Rs.20,000 crore for this company. The funding model is 81 per cent of the funds will come from Japan and the balance has to be a joint company between the government of India and the (governments of) two states.
- An incremental traffic of 50 million tonne in freight is expected in 2016-17 as the government is looking to bring down freight tariffs and look to increase the basket of freight goods.
- The total revenue is expected to grow by 10 per cent to Rs.1.89 crore in 2016-17 as the government is looking to tap other sources of revenue besides passenger and freight.
- Budget listed station redevelopment, monetising land along tracks, monetising soft assets, advertising as some of the means to shore up non-fare revenues.
Public-private partnerships to fuel future growth of Indian Railways
- The Railway Budget has laid emphasis on Public Private Partnerships (PPP) to implement initiatives such as rail connectivity for ports, station-redevelopment, rail-side logistics parks and warehousing as well as satellite terminals.
- A committee appointed for the purpose of revamping the ministry’s PPP cell has submitted its report and the initiative is “under implementation. The cell will be strengthened as part of organisational restructuring process to improve ease of doing business with the Indian Railways
- The capital expenditure for the next financial year, pegged at Rs.1.21 lakh crore, calls for abandoning the “business-as-usual approach” and continually innovating to develop new frameworks for PPP
- Foreign investors from Spain and France were keen on dedicated freight corridors (DFC) projects provided they were structured properly in terms of financial returns and risk-allocation and mitigation, he said. Land acquisition for dedicated freight corridors could take a long time.
- The ministry would take up dedicated freight corridors and implement it in a time-bound manner through innovative financing mechanisms, including PPP. The corridors will to cater to rapid expansion of freight business
- Port connectivity was important for seamless logistics to boost imports and exports and as a part of the ongoing coastal connectivity program, the government plans to undertake implementation of rail connectivity for the ports of Nargol and Hazira under the PPP model during the next financial year.