Hobbled by legacy: Can Prabhu change course of Indian Railways?

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Sagging economy, slowing traffic, falling revenues and anticipated lower Budgetary support has certainly put Railway Minister Suresh Prabhu in a spot. While it is no mean feat to change the track of the legacy-bound 163-year-old Indian Railways, Prabhu had gladly accepted the challenge and forecast double digit growth in his first Budget as Railway Minister last year. Instead revenues have dropped to single digits.
He had expected passenger earnings to grow at 16.7 percent. Instead, it has halved from 15 percent a year ago to just 7 percent. As far as freight traffic goes, a Mint report says , so far this fiscal, the Railways have seen an incremental volume of just 8.5 million tonne, against an expected incremental traffic of 85 million tonne.

It may be worth mentioning that more than three-fifths of the Railways' revenue comes from freight traffic.

But praise-worthy is how well the Railways has managed working expenditure, which has risen just 1.5 percent till December, compared with a forecast of 9.6 percent rise for the full fiscal year, the report further states.

However, massive investments will be required to fulfil Prabhu's five-year target that he had announced in the previous Budget. money control

The railways will also be carrying an additional burden of Rs 32,000 crore towards implementing the Seventh Pay Commission recommendations. Additionally, the gross budgetary support for 2015-16 has also been slashed by Rs 8,000 crore by the finance ministry due to low spending by the Railways.

So where will the money come from?
It may not be prudent to raise freight tariffs given the weak demand scenario. Tariff grew just 0.3 percent in January. In fact, the Rail Development Authority of India has observed that the rise in freight rates has led to traffic moving to roads.

Now, as far as hiking passenger tariffs goes, needless to say such a move will be politically unpopular. However, the Railways is said to be mulling the possibility of effecting a 5-10 percent increase in passenger fares in the upcoming Budget .

But assuming tariffs are not increased, the other way of raising funds could be asset monetization, which has been discussed time and again without much headway.

Prabhu had previously said that around Rs 8.5 lakh crore is required for developing the railways and he hoped to get it from the World Bank and LIC. Railways has already signed an MoU with LIC for financial assistance of Rs 1.5 lakh crore over the next five years for construction of new lines and route electrification. It has already received Rs 2000 crore by way of financial assistance to decongest corridors.

To raise Rs 8.5 lakh crore, Prabhu may have to take a leaf out of the recommendations of the BK Committee report on Creative Financing to spruce up infrastructure enhancement. The committee has suggested a two-pronged approach: firstly, through public investment and market borrowings and, secondly, through private investment.

he Committee has estimated that Indian Railways can generate Rs 3,29,800 crore by way of creative financing in order to supplement its investment plans during the 12th Plan. "This would unlock and release committed resources of about Rs 1,36,500 crore for other railway projects which are not amenable to such means of financing," the report states.

The minister is also focusing on garnering substantial revenue through non-tariff sources such as advertising, export of railway equipment, using railway land for commercial gains, among others.

Steps to increase freight operations

Indian Railways is mulling various options including entering into untapped areas like auto and FMCG to increase freight revenue. Currently, railways mainly carries commodities such as coal, iron ore, steel, cement, minerals, fertilisers and food grains.

Source: moneycontrol

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