Indian Railways is the biggest loser of Suresh Prabhu's Budget

There was a little bit of populism in the Railway Budget presented in Lok Sabha on February 25, some repackaging of ideas proposed in the past and a promise to restructure the Railways into a more nimble organisation capable of responding quickly to the demands of the market and changes in the economy.

The common man was not disappointed. And, neither were the businesses. Some politicians were not too happy, but then, political rivals are always difficult to please. On the whole, the Railway Budget could be described as a please-all announcement.

The only one to be hurt will be Indian Railways. Its finances will certainly deteriorate in the coming year. The transporter’s expenses are set to zoom in the coming year owing to the impending implementation of the Seventh Pay Commission recommendations. The impact of the Pay Commission would be quite severe for the Indian Railways as it employs some 1.4 million people.

It was widely expected that the Railway Budget would increase passenger fares to an extent. But that was not to be. Railway minister Suresh Prabhu preferred to maintain a status quo on passenger fares. He has also kept freight tariffs unchanged: he could not have increased tariffs when the benefit of the fall in fuel cost was not shared with the users.

The Railways is counting on growth in passenger and freight traffic to improve its earnings, and it hopes a pick up in the economy will aid earnings growth. However, it is not necessary that the projections for traffic growth and revenue growth will materialise.

Even after assuming revenue growth, the jump in expenditure will lead to a deterioration of the Indian Railways’ financial position. That will require the transporter to drastically cut the appropriation it makes to the capital fund and debt service fund. The Railways has already warned of deterioration of its financial position in the forthcoming fiscal year.

Except for this omission on fares, the Railway Budget presented by Prabhu was quite prudent. The railway minister refrained from announcing new lines to appease any constituency. He did, however, announce four new trains to cater to various classes of passengers, but not the routes these trains will run on.

Antyodaya Express will be an unreserved superfast service, Humsafar will be a third AC service with optional meals, Tejas will showcase future of train travel in India and it will offer various on-board services and Uday will be a double-decker overnight train to be run on very busy routes. He has also promised to improve the quality of services provided by the Railways, introduce many new services such as baby food for infants travelling on trains with their mothers.

The minister also highlighted a few priority projects such as the high speed corridor between Mumbai and Ahmedabad and dedicated freight corridors, all of which would be implemented by corporations or special purpose vehicles (SPVs) set up by the Railways and mostly funded by concessional loans from multilateral lending agencies. The Railways will not be investing in these projects beyond contributing equity to these corporations and SPVs and thus it cannot be accused of getting its priorities wrong on how it uses its resources.

The more significant part of the Railway Budget speech was the plan to restructure the Railways to rejuvenate it and make it more responsive to the challenges and needs of the economy. The chairman of the Railway Board is to be empowered to lead the organisation effectively, Prabhu said. But will the chairman be given a suitably long term, say five years to see through the changes? That is yet to be seen. Often, chairmen of the Railway Board hold office for very short terms, and there are only a few who have got a two-year term.

The plan to monetise all assets of the Railways, both tangible and tangible, is not entirely new. The Railways has been planning to do that for more than a decade. So far, it has met with limited success, whether it was about putting excess land to commercial use or station redevelopment or attracting advertisers in station premises and trains.

What can set apart this budget from those of Prabhu’s predecessors is the execution of the projects announced. The Railways has significantly improved its services over past year and that raises hope that Prabhu will be able to deliver some of the projects announced on February 25.