Railway Budget short on politics, long on economics

Freight rates to be linked to fuel price; funds to be raised from surplus land assets; tariff authority on cards

Railway minister P.K. Bansal says the proposal to set up an independent tariff regulatory authority will be taken up by an inter-ministerial panel. Photo: Ramesh Pathania/Mint

New Delhi: In his maiden budget, railway minister Pawan Kumar Bansal boldly undertook another round of fare revisions and also committed to the politically sensitive decision of monetizing Indian Railways’ surplus land assets by selling some to private developers and generating an estimated Rs.1,000 crore in revenue.

In the process, he chose pragmatism over political grandstanding, ignored populist claims from his own party and risked earning the wrath of his own constituency.

Bansal effected an across-the-board increase in freight rates, and also indexed future rates to the price of fuel. The minister chose not to increase passenger fares, which were raised last month, but did effect a 50% increase on an array of booking charges.

The minister also promised the setting up of a tariff regulatory authority; an inter-ministerial body is discussing the proposal and is expected to sign off on it shortly, Bansal disclosed in the post-budget press conference.

“We looked at the actual position prevailing on the ground and acted accordingly. I did not want to make high promises. It is a realistic budget,” Bansal said.

Last year, a similar effort to shore up the revenue of Indian Railways by Dinesh Trivedi, a minister belonging to the Trinamool Congress, was aborted after he was sacked unceremoniously by his party chief, Mamata Banerjee , for violating the party line that ruled out any fare hike.

Given Bansal’s approach, the capital investments he has laid out are modest. The downside of this, especially given the multiplier effect that spending by the railways generates in the economy and the rickety state of rail infrastructure, is that the 160-year-old institution will have to defer its modernization plans. Then, with markets looking for signs of fiscal prudence, some would say that this may well be the right decision for now.

Bansal’s moves have predictably stoked expectations that the Congress-led United Progressive Alliance is choosing economics over politics.

Interestingly, this is the first time in 17 years that the Congress, or for that matter any national party, has taken charge of the ministry; regional parties that have been part of the coalition have run the ministry and often invited the charge of preferring to play politics with the institution that is India’s biggest employer—it has 1.4 million employees.

Bansal’s budget proposal on pricing will mean that fuel-linked revisions in passenger and freight rates will happen once in six months.

Back of the envelope calculations show that this will translate into an increase of 4-8 paise per kg on freight rates across commodities including coal, cement and iron ore, according to Vijaya Kanth, financial commissioner, Indian Railways.

She added that the net inflationary impact of the fuel-freight linkage will be 0.35%.

“Against the backdrop of elections and slowing economic growth, the minister has not presented a very pessimistic scenario,” said Rajeev Jyoti, chief executive of Larsen and Toubro Ltd’s railway business. “The bottom line to me is that he has presented a budget which looks optimistic. Yet, he recognizes the challenges that the railways is facing at the moment.”

The minister is trying to target freight to generate funds and linking diesel prices to freight rates is an indication of that, Jyoti said. “He is unlikely to rationalize the passenger fares any further in near future. We do not expect that,” he added.

The tweaking of freight rates will also have an impact on the price of power.

“The tariff increase on coal transportation will have a minimal impact on power generation costs in the country. We expect the impact to be in the range of around 1% of the overall electricity tariff,” said Amol Kotwal, associate director (energy and power systems practice for South Asia) at consulting firm Frost and Sullivan.

The minister, however, exempted passengers from the fuel-linked price increase this time around and absorbed the Rs.850 crore impact on this account. “As regards passenger fares, since these were revised only in January this year, I do not intend to pass on the additional burden to them now and railways will absorb the impact,” Bansal said.

Still, he more than made up for this through an increase in booking charges for passenger tickets. Vinay Mittal, chairman of Railway Board, said the estimated additional revenue on account of these charges is pegged at Rs.881 crore. This move prompted protests from some members of the Lok Sabha. “If they (opposition) were to look at it (budget) dispassionately, there is no reason for them to get agitated over the budget, I admit that one can’t possibly meet all the expectations,” Bansal said.

Significantly, and perhaps for the first time in its history, Indian Railways will make an effort to monetize its land bank, which is controlled by the Rail Land Development Authority.

Mittal said that 30-35 blocks of land across India had been identified. “We are working to see how we can commercialize this land either for residential or commercial purposes. This, however, may not contribute much to the overall revenue stream steadily,” he said.

Indian Railways, Mittal added, could potentially generate about Rs.2,000 crore to begin with, clarifying that it would not sell any piece of land, but only lease it out after proper tendering.

The railways has managed to significantly improve its operating ratio to 88.8% in 2012-13 from 95% a year earlier. For the next fiscal, Bansal has targeted a further improvement to 87.5%. Officials said this year’s improvement was achieved by controlling spends across verticals. Kanth said that for the first time in 25 years, the railways had not sought any supplementary grants beyond the gross budgetary allocation from the finance ministry. However, she added that the actual planned expenditure had beenRs.8,000 crore less than budgeted for.

Although the railways will miss this year’s revenue targets both from the freight and passenger segments, Bansal said he has budgeted for Rs.93,400 crore by way of freight earnings and Rs.42,200 crore from passenger ticket sales. This year, the railways is expected to earn nearly Rs.86,000 crore from freight andRs.32,500 crore from the passenger segment.

It has accounted for Rs.6,000 crore to be investment from public-private partnerships.

The ministry has proposed to set up manufacturing and repair facilities at Rae Bareilly in Uttar Pradesh; Bhilwara, Bikaner and Pratapgarh in Rajasthan; Sonipat in Haryana; Kurnool in Andhra Pradesh; Mirsod in Madhya Pradesh; Kalahandi in Orissa; and in Chandigarh, Bansal’s constituency.

Utpal Bhaskar and Amrit Raj contributed to this story.

TOUHID HUSSAIN

PGDM 2nd SEM