नयी दिल्ली New Delhi: Railway Minister Sadananda Gowda’s 2014-15 budget, which was pre-empted by fare and freight hikes last month, has three big messages to offer: consolidation, limited populism, and expansion largely with private investment. The big vision ideas – bullet trains and a diamond quadrilateral of high-speed rail networks – have been outlined, but their execution is likely to stretch over years, and will substantially depend on foreign investment.
The key policy change is thus the proposal to allow foreign direct investment (FDI) in railway projects and an expansion of public-private partnerships (PPPs) to new areas. The first bullet train proposal – between Mumbai and Ahmedabad – could cost all of Rs 60,000 crore and which will need a completely new set of tracks can clearly not be funded without foreign participation. The diamond quadrilateral will need track upgradation to raise train speeds to 160-200 kmph, but even this will call for massive foreign and private investment. It can be taken up in phases – and the process has been begun in this budget with some nine sectors receiving the green signal.
Gowda’s speech can broadly be divided into two parts – a holding operation to stop the drift of the last 10 years; and a big-vision part that will need policy changes to materialise. The first part of his speech thus focused on a diagnosis of the railways’ ills, followed by some tentative short-term remedies, and ending with some dream items for the future. It is actually a responsible budget without too many populist flashes, and one has to wait for his second budget in February 2015 for the recommended policy changes to start moving the railway system towards the future.
Gowda essentially said that past railway ministers were fooling the public by announcing new projects without intending to finish them. Keeping passenger fares low effectively ensured that the railways lost freight business.
Justifying the 14.2 percent fare hike that took effect from 25 June, which drew considerable political flak, Gowda pointed out that passenger fares were so low that freight hikes needed to be more than what the traffic could bear. The net result was a drop in rail freight traffic’s market share. On the other hand, losses per passenger km (the cost of moving one passenger by one km on the rail network minus the revenues) had more than doubled from 10 paise to 23 paise between 2000-01 and 2012-13. Clearly, “the tariff policy adopted lacked a rational approach.”
Gowda also clearly indicated that past railway ministers were fooling the public with populist projects which they never intended to complete. “There has been a focus on sanctioning projects rather than completing them.” In the last 30 years, of the 676 projects sanctioned at a cost of over Rs 1,57,883 crore, less than half were completed, and completing the remaining half and more will require a further Rs 1,82,000 crore. Another statistic: in the last 10 years, only one of the 99 new line projects worth Rs 60,000 crore undertaken was completed. This means all of UPA’s railway ministers, from Lalu Prasad to Mukul Roy to Pawan Bansal, were busy pulling wool over the public’s eyes. When projects drag on indefinitely, the investments are essentially dead investments.
Among the many things Gowda proposed was to limit new trains and projects and focus on completing existing ones; improve the operating efficiencies of the railways from 94 percent to 92.5 percent to generate more internal resources; and raising passenger and freight rates periodically depending on fuel prices (coal, power and diesel, all of which may rise in the near future). So another fare and freight hike before the next budget cannot be ruled out.
Of the 58 new trains being introduced, there are more in the premium (five), AC Express (six) and Express (27) categories which attract higher fares, and just five Jansadharan (unreserved) trains and eight passenger trains, among others. The mix is thus moving towards higher fares.
With these measures, and expecting economic growth to pick up, Gowda has budgeted for higher revenues of Rs 1,64,374 crore in 2014-15 and total expenditure of Rs 1,49,176 crore. Freight traffic will grow 4.9 percent to 1,101 million tonnes and passenger traffic by a small margin.
The short-term remedies clearly focus on raising revenues by periodic increases in fares and freight and keeping a tight rein on expenses. The only internal sources the railways have are their captive companies like CONCOR, IRCTC (the ticketing company) and various coach and locomotive companies that generate surpluses. Gowda has proposed that these companies’ surpluses can be used to build railway infrastructure.
Most railway shares were flat or down after the budget as they saw no new resources flowing to the sector in the short run – only plans to conserve resources and use the resources of public sector units on long-term projects.
New initiatives and resources:
The railways, despite announcing a hike in the plan outlay by Rs 9,383 crore to Rs 47,650 crore in 2014-15, are essentially doing little more than upgrading safety and tracks, improving station cleanliness, building more manned level crossings, improving e-ticketing services, and such routine work. Beyond cosmetic projects like offering food courts and wifi on trains, there clearly isn’t much money left over for Narendra Modi’s big-ticket projects – bullet trains, the high-speed diamond quadrilateral projects, and the Sagar Mala plan to connect railheads to ports. This needs additional resources from private and foreign parties.
What this means is that future growth will come only from private and foreign resources – for which the policy network will have to be evolved between now and the next railway budget.
Among the things Gowda proposed were seeking cabinet approval for promoting private investment in rail infrastructure – both domestic and foreign – and a shift in emphasis to higher funding through public-private partnerships (PPP). Gowda said that the “bulk of our future projects will be financed through PPP mode, including the high-speed rail which requires huge investments.” PPPs have not been successful in the railways so far, and if this is to work in future, clearly the policy framework has to be extremely investor-friendly. That is the challenge for Modi and Gowda over the next six months.
Corporatisation and PPP:
The one thing which could have brought in oodles of cash he did not announce is corporatisation of the railways or its zonal networks. Or the handover of railway operations to private parties. But he did throw hints that the zonal railways could be empowered to finalise PPP projects through BOT (build, operate and transfer) projects to augment capacities on congested routes. He said: “We will interact with Industry and take further steps to attract investment under PPP through BOT and annuity route and 8 to 10 capacity augmentation projects on congested routes will be identified for this purpose. Zonal Railways will be suitably empowered to finalise and execute such projects.”
Gowda’s message to India is thus simple: I am cutting my coat according to the cloth. In future, we have to buy the cloth from private sources. We don’t have the money to do it all for ourselves.