For improving rail infrastructure, India need to invest 10 per cent of the total infrastructure GDP of $2 trillion over next five years which means that we need to invest $200 billion annually in the Railways over the next five years, after which we need an annual investment of 1.5 times more of this ($350 billion) for the next five years – said Suresh Prabhu at the Investors Meet at BSE Towers.
New Delhi: Indian Railways, one of the country’s largest commercial enterprises, plans to start issuing quarterly account statements in what could be one of the most significant reform initiatives of the Narendra Modi government.
Railway Minister Suresh Prabhu told top foreign investment banks and brokers at a closed-door meeting at the BSE on Friday evening that this is one of the changes that the state-run monopoly is planning. The move is aimed at improving transparency as the government looks at attracting billions of dollars in investment.
Currently, information on accounts is available in the annual railway budget. Quarterly disclosures will help investors get a sense of the actual picture though a lot will depend on what information is provided, economists said.
“Quarterly numbers from railways is better than the annual budget, which is an anomaly and a hangover of the British raj,” said Vinayak Chatterjee, chairman of Feedback Infra. “Quarterly numbers would be effective if they comprise operating numbers, capex and review of other special initiatives like installing bio-toilets and update on various schemes and so on.”
Prabhu told his audience that the railways was not just meeting targets for the first quarter but exceeding them. He expects that the next big wave of investment in the country after power and telecom will be in rail. The railway ministry’s invitees to the event at the Bombay Stock Exchange included representatives of top insurance companies, investment banks, brokers and foreign institutional investors.
A presentation by Prabhu at the event showed that revenue in the first quarter ended June rose 14.54% from the year earlier while there was a growth of 134% in total projected expenditure to 17,734 crore against the budget expectation of 13,231 crore.
The railways is undertaking massive accounting reforms to ensure tracking of expenditure, the presentation showed. It also dwelled on the revenue mix and key expenditure areas, information that will be made public every quarter.
“Prabhu’s assurance that railways will give out quarterly numbers will definitely boost investor confidence as it is the bare minimum for the sake of greater transparency,” said Alok Churiwala, spokesperson, BSE Brokers Forum.
Cash-strapped Indian Railways, the world’s largest passenger network and fourth-largest cargo carrier, is targeting $120 billion of investment in the next five years. Prabhu’s plans to tap low-cost pension and insurance funds would give it capital for 20-30 years.
“Giving out quarterly results was a good step for bringing transparency but a small part of the big picture,” said Ajay Shah, professor at the National Institute for Public Finance and Policy.
“We should judge Indian Railways based on the work that will be done on the recommendations of the Bibek Debroy committee report.”
The Debroy committee report had suggested a road map for restructuring Indian Railways.
Reforms alone can boost rail earnings
In a first, the Railways has decided to declare its quarterly financial numbers for three months till June, which shows that the national transporter’s capital expenditure soared a whopping 134 per cent to Rs 17,734 crore (Rs 177.34 billion) from the projected Rs 13,231 crore (Rs 132.31 billion).
Disclosure of quarterly earnings is a good idea. The Railways must also recast accounts in a commercial format to help investors figure out the risks and take investment decisions. Rail finances will improve only when the practice of freight and upper-class passenger fares subsidising lower-class fares ends. An independent regulator to fix access charges on the rail track brooks no delay. Implementing the Bibek Debroy panel’s recommendations to corporatise the railways and involving the private sector in a holistic way to augment capacity will boost earnings. Why dither?
Minister Suresh Prabhu shared the details with foreign and domestic investors and bankers over the weekend at a closed door meeting at the Bombay Stock Exchange.
“It’s for the first time any government-run organisation has declared its quarterly performance,” Prabhu told the investors in a presentation, a copy of which has been seen by PTI.
The total earnings in Q1 rose 14.54 per cent, while working expenses grew at a measly 4.22 per cent, lower than the targeted 7.68 per cent growth during the reporting period.
The 108-km new line from Agra to Etawah and a new line from TunaPort to Gandhidham in Gujarat were commissioned during the Q1, according to the presentation.
Similarly, a 23-km stretch on the Lalitpur-Singrauli line and 122-km long gauge conversion project from Lohanu to Sikar in Rajasthan were also commissioned in the reporting period.
Doubling works of 150 km to de-congest the network was also commissioned during the reporting period. Moreover, the Railways completed electrification of 151 km network during the period.
Prabhu while rolling out the red carpet to investors asked them to replicate their success in telecom, power and road sectors as well as the Railways.
He said that the national transporter needs a whopping Rs 1 trillion funds this year and Rs 8.5 trillion over the next five years.
“You have successfully invested in the telecom and power and roads sector, but never in the Railways. The government also didn’t invest during the past two decades. So we’ve chalked out a five-year plan under which we are looking at an investment of Rs 1 trillion this financial year and Rs 8.5 trillion over the next five years,” Prabhu told the gathering.
Those attended the closed-door meeting at the BSE Tower included multinational i-bankers, Foreign Institutional Investors (FIIs), domestic insurers like LIC and other financial institutions, sources said.
Most rail lines are running at 100 per cent of their capacity now leading to lots of congestion. Hence we need investments to ease the rail traffic, Prabhu said, adding it will cost Rs 10 crore (Rs 100 million) for laying 1-km rail link and another Rs 6 crore (Rs 60 million) for doubling/ tripling of an existing railhead.
Stating that most of the funds for railways come either from public institutions like LIC which has committed to subscribe Rs 1.5-trillion worth of RFC bonds, or through the budgetary support, Prabhu maintained that the Railways need large funds from the private sector, considering the state of public finances.
Explaining the need for capital investment, the minister, who was praised for his radical reforms in the power sector during his tenure in the previous NDA ministry, said, “For improving rail infrastructure, we need to invest 10 per cent of the total infrastructure GDP of $2 trillion over next five years.
“This means that we need to invest $200 billion annually in the Railways over the next five years, after which we need an annual investment of 1.5 times more of this ($350 billion) for the next five years,” Prabhu said.
Offering a break-up of rail finances, he said it has three main sources of revenue generation – passenger and freight fares and the budgetary support. However, Prabhu said as many as 65 per cent of the rolling stock are passenger trains but they generate only 30 per cent of revenue, leaving 70 per cent of revenue to be mobilsed by freight trains which constitute only 35 per cent of rolling stock.
On rail modernisation plans, he said the national transporter is on its way to construct 400 model railway stations this fiscal year. He also said as many as 79 announcements made in the rail budget for the year have already been implemented.
On involving the states in railway development, he said his ministry will sign MoUs with 17 states for investment.
“We have already signed MoUs with Maharashtra and Odhisa and on the way to do the same with a total of 17 states,” he said, adding Maharashtra has agreed to pump in Rs 10,000 crore (Rs 100 billion) over next 10 years.
“On the part of the Railways, we will be investing Rs 70,000-80,000 crore (Rs 700-800 billion) in Maharashtra over next five years,” he added.
On the dedicated freight corridors, he said out of Rs 82,000 crore (Rs 820 billion) approved by the Cabinet last month, the Railways has already floated tenders for Rs 19,000 crore (Rs 190 billion) so far.
About the proposed two locomotive units with FDI participation-one electric and the other diesel – he said tenders will be floated by the end of this month and a number of MNCs have evinced interest in the project.